stockmarkets -are we nearing the bottom or is there further to go ??

masonic

BananaRepublic wrote: »

So I think you are dare I say guilty of scaremongering.

Perhaps you don't understand what "playing devil's advocate" means? I am not saying I think that a drop of 40% is likely (although we are almost halfway there by some measures). I'm certainly not suggesting I think there is anything but an outside chance of falls approaching 70% like those seen in 1973-74.

However, if it would cause Alan to face severe financial hardship or run out of money in the short term should those unlikely scenarios play out, then those scenarios need to be considered. Just because someone has historically invested above their risk tolerance is not a reason for them to continue to do so when they realise this fact. Even if it means crystallising a loss in order to do so.

As you say, "UK banks are far more stable than they were. Europe is mostly sound, far more so than 8 years ago. There are genuine worries over the oil price, and Chinese debt". I would largely agree with you, but that's the situation now. Who knows what will happen in the coming months. It is best to understand what the worst case scenario could be, and that you could survive it, rather than lying awake at night hoping this is the bottom.

BananaRepublic

masonic wrote: »

Perhaps you don't understand what "playing devil's advocate" means?

Perhaps you don't understand what scaremongering means?

masonic wrote: »

I am not saying I think that a drop of 40% is likely (although we are almost halfway there by some measures). I'm certainly not suggesting I think there is anything but an outside chance of falls approaching 70% like those seen in 1973-74.

However, if it would cause Alan to face severe financial hardship or run out of money in the short term should those unlikely scenarios play out, then those scenarios need to be considered. Just because someone has historically invested above their risk tolerance is not a reason for them to continue to do so when they realise this fact. Even if it means crystallising a loss in order to do so.

As you say, "UK banks are far more stable than they were. Europe is mostly sound, far more so than 8 years ago. There are genuine worries over the oil price, and Chinese debt". I would largely agree with you, but that's the situation now. Who knows what will happen in the coming months. It is best to understand what the worst case scenario could be, and that you could survive it, rather than lying awake at night hoping this is the bottom.

It is also best to take a realistic view, rather than talk in academic terms and potentially worry someone unduly. You made no mention of how likely the scenarios were. After all, we could have a pandemic that kills half the UK population. Or a terrorist attack that explodes a nuclear bomb in central London, or even worse, in East Hampshire. I guess we should recommend that Alan digs a nuclear shelter, stock piles provisions, avoids tap water, and wears gloves and a face mask when out and about. And since the BoE will collapse, he should exchange his assets including cash for items that will hold their value come the apocalypse. I'm not kidding, if you plan for a massive market wipe out, then you should plan for the full Monty. And you obviously know that 'advanced' societies such as ours are very fragile, and are not resilient, as we are not food secure, we import most of our food, we import most of our energy, our water requires energy to purify it and transport it and so on.

masonic

BananaRepublic wrote: »

Perhaps you don't understand what scaremongering means?

Maybe I don't, so, taking the first link I found on Google... "Scaremonger: a person who delights in spreading rumours of disaster" link. That's really not what I'm doing.

It is also best to take a realistic view, rather than talk in academic terms and potentially worry someone unduly. You made no mention of how likely the scenarios were.

The term "devil's advocate" would imply that the situation I described is not what one would normally expect. I also mentioned "worst case" in relation to the second scenario, so I do think you are being a little unfair. It should have been clear from the question at the end that I was trying to ascertain whether Alan has the capacity (financially and/or intestinally) to ride out such a scenario. If the answer to that is "no", then clearly that represents a problem. If the answer is "yes", and he has the intestinal fortitude to ride it out, then by all means he should stick to his current level of risk.

After all, we could have a pandemic that kills half the UK population. Or a terrorist attack that explodes a nuclear bomb in central London, or even worse, in East Hampshire. I guess we should recommend that Alan digs a nuclear shelter, stock piles provisions, avoids tap water, and wears gloves and a face mask when out and about. And since the BoE will collapse, he should exchange his assets including cash for items that will hold their value come the apocalypse. I'm not kidding, if you plan for a massive market wipe out, then you should plan for the full Monty. And you obviously know that 'advanced' societies such as ours are very fragile, and are not resilient, as we are not food secure, we import most of our food, we import most of our energy, our water requires energy to purify it and transport it and so on.

Now that's just being silly. 40% falls have occurred twice in the past couple of decades. Larger falls are rarer, but do happen from time to time. Nobody knows when they will happen next, but we can be fairly sure they will happen.

As an aside, it appears, since Alan is in the process of transferring into a SIPP, that investments have already been sold. The only rational thing for him to do upon arrival of the funds in his SIPP is to invest in a portfolio that is suitable for him now and not be concerned if his portfolio was previously at a higher level of risk - he will no doubt have done well over the past 7 years, even if he saw the last couple of years of gains wiped out by recent falls.

Thrugelmir

BananaRepublic wrote: »

But now there is no need to taken an annuity, so it may make sense to leave some or most assets in volatile funds to get long term growth. (Just my personal views, I'm not a pension advisor. )

The current market is a timely reminder why fixed income in the form of an annuity should be considered as part of retirement plans. Having all of ones capital exposed to the whims of the "market" isn't such a good idea.

Snakey

masonic wrote: »

You might find it helpful to examine your own risk profile. There are tools like this one (free) and this one (paid), which could be quite insightful for you.

I tried the free one and it basically said (in 12 questions) "what would you say your risk profile is, then?" and then quoted it back to me.

I've got a chunk of Cash ISA (left over from buying property in 2014) that needs to work harder for me. I've been lucky as there have been about three occasions where I've thought "right, I must get this done!" but ended up being too lazy to do the research/fill in the forms, and two of those occasions were April 2015 and December 2015. So even if it tanks some more as soon as I put my money in, I'll still have lost less than I would have lost if I wasn't so bone idle.

I would have said I was quite cautious, but my pension fund has felt like it's been in free-fall for the last eight months or so and it hasn't really bothered me. I'm at least twelve years off retirement, so right now it's just a number. If anything, it's made me want to put more in - not as a market-calling strategy, but just a psychological gut reaction to the number going down. Which is as close to an insight as I think I'm likely to get. So perhaps I should JFDI.

BananaRepublic

Thrugelmir wrote: »

The current market is a timely reminder why fixed income in the form of an annuity should be considered as part of retirement plans. Having all of ones capital exposed to the whims of the "market" isn't such a good idea.

An annuity is indeed a sensible suggestion. As you indicate, having an annuity as part of a retirement plan, is one way to insure oneself against reasonable worst case scenarios. It foregoes possible higher gains for the security of a guaranteed income. I probably will only have a small annuity if any, but others may with good reason prefer the annuity path.

masonic

Snakey wrote: »

I tried the free one and it basically said (in 12 questions) "what would you say your risk profile is, then?" and then quoted it back to me.

The Finametrica one is better. It used to be free. Asking you to rate your own risk tolerance is part of the assessment (although I didn't think the Royal London one did that) and it is useful to see if your own opinion is realistic based on your responses.

I would have said I was quite cautious, but my pension fund has felt like it's been in free-fall for the last eight months or so and it hasn't really bothered me. I'm at least twelve years off retirement, so right now it's just a number. If anything, it's made me want to put more in - not as a market-calling strategy, but just a psychological gut reaction to the number going down. Which is as close to an insight as I think I'm likely to get. So perhaps I should JFDI.

Buying after falls of this magnitude rarely proves regrettable over the long term - even if there is further to fall.

BananaRepublic

masonic wrote: »

Maybe I don't, so, taking the first link I found on Google... "Scaremonger: a person who delights in spreading rumours of disaster" link. That's really not what I'm doing.


The term "devil's advocate" would imply that the situation I described is not what one would normally expect. I also mentioned "worst case" in relation to the second scenario, so I do think you are being a little unfair. It should have been clear from the question at the end that I was trying to ascertain whether Alan has the capacity (financially and/or intestinally) to ride out such a scenario. If the answer to that is "no", then clearly that represents a problem. If the answer is "yes", and he has the intestinal fortitude to ride it out, then by all means he should stick to his current level of risk.


Now that's just being silly. 40% falls have occurred twice in the past couple of decades. Larger falls are rarer, but do happen from time to time. Nobody knows when they will happen next, but we can be fairly sure they will happen.

As an aside, it appears, since Alan is in the process of transferring into a SIPP, that investments have already been sold. The only rational thing for him to do upon arrival of the funds in his SIPP is to invest in a portfolio that is suitable for him now and not be concerned if his portfolio was previously at a higher level of risk - he will no doubt have done well over the past 7 years, even if he saw the last couple of years of gains wiped out by recent falls.

I don't think I was being silly. My quibble with your post was the lack of context and nuance, hence it came across as scaremongering. The recent big crash was the largest crash since the last one almost 100 years ago. And according to various sources in the government of the time, it almost brought down the banking system, and could have caused a Great Depression Part Deux.

BananaRepublic

masonic wrote: »

Buying after falls of this magnitude rarely proves regrettable over the long term - even if there is further to fall.

Yes. I doubt anyone can predict the bottom, sinply because market sentiment is so fickle, and complex.

masonic

BananaRepublic wrote: »

I don't think I was being silly. My quibble with your post was the lack of context and nuance, hence it came across as scaremongering. The recent big crash was the largest crash since the last one almost 100 years ago. And according to various sources in the government of the time, it almost brought down the banking system, and could have caused a Great Depression Part Deux.

I'm not wanting to scaremonger, but the recent big crash (I assume you mean 2008) was the largest one since the Dotcom crash in 2000 (which was arguably more severe owing to the long recovery time), which in turn was the largest one since 1973, which I mentioned above. Crashes of that magnitude are rare, but it would be wrong to imply one needs to go back almost a hundred years to find other examples.