Current market carnage - anyone selling or buying?

tg99

grey_gym_sock wrote: »

so for a fractional gain in interest, you'll risk getting your position closed out in a price spike? that sounds like poor risk management.

To add to my earlier response, whilst it is clearly not worth it for a fractional gain in interest (for me personally that is not my driver and more just something to factor into the whole cost benefit calculation), the gain in interest can actually be quite material for someone who has not filled all the various 3/4/5% current accounts and 6% reg savers. For example, basic rate taxpayer instead of paying the cost of investing in US/UK index fund upfront, gains exposure via a futures contract through IG where implicit funding cost is say c0.5%, leaving them to invest the money into say a 3% current account. This would thus earn close to 2% pa net of tax and funding cost..... given this equates to roughly half the long term equity risk premium it's not to be sniffed at assuming of course such an investor fully understands how futures work and that they have suitable credit facilities / margin arrangements in place that mean they are not at risk of getting closed out on price spikes.

bowlhead99

gadgetmind wrote: »

Ahem "implies".

Ahem yes I meant we could infer from your reference to the assets moving to premia that they were becoming more expensive than they had been in prior years, just as the other assets with similar attributes were doing. You don't need to infer anything, you already know it.

Don't get an accountant to write in plain English. It's almost as bad as getting a technical person to do it.

Spurs_2015

Thanks for the response, with regards to having less bonds this is probably a very stupid question but would adding a VLS80 or 100 to have as well as VLS60 be a good idea? As I said could well be stupid but just a novice question really.

gadgetmind

Spurs_2015 wrote: »

would adding a VLS80 or 100 to have as well as VLS60 be a good idea? As I said could well be stupid but just a novice question really.

It's a bit like tipping your 6% alcohol beer into your 2% alcohol beer because one is too strong and one too weak.

However, saying that, ISTR that the various VLS funds aren't that simple, but just pick your equity bond split and commit. At age 28, if you're in for the long term, and won't lose it and sell at the first big drop, then 90%+ is easy to justify.

bowlhead99

If you have a VLS60 which is £60 equities to £40 bonds, and you add a VLS80 which is £80 equities and £20 bonds or a VLS100 which is £100 equities and £0 bonds...

With adding the 80 to the 60 you will end up with £60+£80 equities to £40+20 bonds which is a total of £140:£60 out of the £200 invested, or 70% equity and now only 30% bonds.

With adding the 100 to the 60 you will end up with £60+£100 equities to £40+0 bonds which is a total of £160:£40 out of the £200 invested, or 80% equity and now only 20% bonds.

You may notice that the practical effect of adding a VLS100 to a VLS60 is really just to create a VLS80 which you could have just bought off the shelf having sold the VLS60 altogether. There would be technical differences in exactly what is held when buying the two separate funds but your returns would be basically the same, give or take.

So, adding these higher-equity funds would certainly reduce your overall bond exposure percentage. But despite the comments above about bonds being perhaps a bit more likely to lose some money than they once were, a 100% equities fund can fall by 50% in a bad market crash while a 100% bond fund would not fall that far. So it depends what level of risk you would like.

But long story short if you want to reduce bond exposure and have a greater proportion of your investments in equities but perhaps have a greater proportion of your total savings and investments in cash savings instead of investments... then Yes: changing the VLS 60 for a home-made VLS70 or VLS80 or an off-the-shelf VLS80 is going to lower the level of bonds within your investment.

george4064

Here we go again, not a good session in the US yesterday...

N1AK

gadgetmind wrote: »

At age 28, if you're in for the long term, and won't lose it and sell at the first big drop, then 90%+ is easy to justify.

I'm 31 and aside from the minimum deposit to get a decent interest rate on our property and £40k cash everything is either tracker funds or p2p lending (mostly funds).

Obviously there are risks to this strategy, but at this age the risk is effectively having to work longer than expected to make up for the under-performance as long as you are confident you won't need a big proportion of the money any time soon.

I think the point about how comfortable you are with the value of your investment changing is important. I tend to be pretty dispassionate, but when I see the equivalent of a few months wages vanish in a couple of days it isn't nice.

grey_gym_sock

tg99 wrote: »

grey_gym_sock wrote: »

so for a fractional gain in interest, you'll risk getting your position closed out in a price spike? that sounds like poor risk management.

To add to my earlier response, whilst it is clearly not worth it for a fractional gain in interest (for me personally that is not my driver and more just something to factor into the whole cost benefit calculation), the gain in interest can actually be quite material for someone who has not filled all the various 3/4/5% current accounts and 6% reg savers. For example, basic rate taxpayer instead of paying the cost of investing in US/UK index fund upfront, gains exposure via a futures contract through IG where implicit funding cost is say c0.5%, leaving them to invest the money into say a 3% current account. This would thus earn close to 2% pa net of tax and funding cost..... given this equates to roughly half the long term equity risk premium it's not to be sniffed at assuming of course such an investor fully understands how futures work and that they have suitable credit facilities / margin arrangements in place that mean they are not at risk of getting closed out on price spikes.

if you have 100% of the cash that could possibly be required for margin calls in a bank / building society account (unrelated to your spread betting platform), then does avoiding getting closed out work by moving cash to the spread betting platform when you are asked for further margin? if so, how much time do they give you to add cash, and are they obliged to give you any time at all in extreme market conditions?

or does it work by having other assets already held on the spread betting platform? in which case, what if the value of those assets also spikes to an absurdly low value? (extreme events do tend to cluster.)

or does it work in some other way - e.g. credit facilities?

what i'm driving at is: is it absolutely impossible for the position to get closed out in a spike (assuming the spread betting platform does what your contract with them says they will do), or merely very very unlikely?

grey_gym_sock

racing_blue wrote: »

On 31st December 2015 I totted up. My asset allocation had become cash heavy because during the last 6 months everything else had gone a little way down the swanee. It was 30%, 28%, 25%, 17% (VWRL, other equities, cash, commodities).

To bring "other equities" back up to 30% I just bought VUKE, Vanguards FTSE 100 tracker. Reason? It is cheaper than last year & I feel good about the portofolio tilting a little towards UK, where I live and spend.

To bring "commodities" back up to 20% I just bought Blackrock World Mining Trust, of this parish. Reason? perhaps I like a little more risk than the average cat.

Asset allocation now back to 30%, 30%, 20%, 20% & that's me done until Easter at the earliest.

your commodities allocation still scares me, but top marks for sticking to your plan.

tg99

grey_gym_sock wrote: »

if you have 100% of the cash that could possibly be required for margin calls in a bank / building society account (unrelated to your spread betting platform), then does avoiding getting closed out work by moving cash to the spread betting platform when you are asked for further margin? if so, how much time do they give you to add cash, and are they obliged to give you any time at all in extreme market conditions?

or does it work by having other assets already held on the spread betting platform? in which case, what if the value of those assets also spikes to an absurdly low value? (extreme events do tend to cluster.)

or does it work in some other way - e.g. credit facilities?

what i'm driving at is: is it absolutely impossible for the position to get closed out in a spike (assuming the spread betting platform does what your contract with them says they will do), or merely very very unlikely?

Yep understand where you are coming from as these are exactly the risks I had to make sure I was covering before using spread betting for certain long-term positions. For me, I have the facilities to enable me to remove the close out risk as depending on which of my accounts I use I have variety of measures / facilties in place:

- Deposit waiver, which in combination with 95% collateral value applied to some physical shares I hold on IG stockbroking service (US ones given only 0.3% fx transaction fee vs 1-1.5% for typical broker), means I never have to put down an initial deposit for any of my positions as the waiver amount is pretty large especially since initial deposit requirements tend to be quite small for liquid instruments like US futures etc. However, the waiver and collateral value only cover initial deposit requirements and NOT any losses resulting from the position.

- Credit limit: this covers losses on open positions up to a certain level, only if they exceed this level would they contact you to ask you to post margin. So say you had a credit limit of £20k and had no other positions on then instead of say investing £15k in a US index tracker fund you could take the same exposure via a spread bet and are thus not at risk of being closed out as even if S&P fell to zero you would only be down £15k.

- Next day margin: a next day margin facility so have to 3pm the following day to post margin if exceed credit limit on the previous day. So say only had £5k credit limit and the S&P fell 50% in a single day then you would then be down £7.5k so would be requested to pay margin of £2.5k by 3pm the following day. Therefore would need to make sure have the funds backing the position in a bank account (so can use debit card to make instant payment or at anytime pre-3pm following day) or a savings account offered by a bank with faster payments where you also have a current account (i.e. so say had Tesco internet saver then could transfer the money straight into Tesco current account and then make card payment). (With most other savings accounts you don't typically receive any process withdrawal requests until a day or two later.)

The caveat to this next day margin facility is they can close out your position before 3pm next day if your losses continue to accumulate and go below your liquidation level which is typically substantially below your credit limit (e.g. with credit limit of £20k your liquidation level might be £100k).