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

bowlhead99

Alan_Corner wrote: »

I am hoping that once funds are transfered to a SIP. I will take out my 25% tax free portion and have the remaining cash re-invested,and hopefully not draw down until required.i.e leave to grow for a good few years. .

One thing you could consider, if you feel the market has fallen down but will recover as things grow again over a good few years, is NOT take out all the 25% tax free portion just yet.

For example, lets say someone had £250k last year which is now only £200k because of a market slump (just to work in big round numbers, not because they're actually your numbers). So the 25% tax free would be now be £50k instead of £62.5k.

You're proposing to pull out the £50k while it is at a depressed value, and turning what is a current 'paper loss' into an actual loss on that part of the pension. The £50k you take out is too big to stick efficiently into a couple of year's worth of ISA allowances or the top savings accounts, so basically you're realising a loss, and then potentially not having much practical use for the released cash.

If you only need to spend rather less than £50k in the current year, then there is a sound argument to just take out whatever you need - say, £20k, of which £5k is tax free - and leave the remaining £180k invested, without 'crystallising' any of the tax free lump sum on that part of it. So by taking out £20k, you have 'realised' some of the loss, but not as much as if you took the whole £50k out. When markets recover to last year's level your £180k will be £225k and you haven't taken any of the tax free amount on that yet, which is £56k. And as the assets continue to grow over time, the tax free amount will grow over time.

Of course, as Masonic mentions perhaps markets will continue to go down for a while and not recover last year's level for a few years, and maybe you can't really afford to 'wait it out' in a risky set of assets, and it would do you good to convert a large lump of them into cash for peace of mind for a few years. And maybe your spending plans are such that you really do need all 25% of your current grand total value, right now, to pay off a mortgage or get a car or do that holiday you promised yourself when you gave up work. And maybe your numbers are smaller so 25% on the full amount could easily fit into investment ISAs and high interest current accounts and would not be 'wasted' sitting around doing not much for a few years.

So taking a smaller lump sum is only one potential plan among many - it might not be right for you. But if you are here to hear lots of options before you speak to an actual adviser, worth keeping an open mind.

BananaRepublic

masonic wrote: »

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.

As I indicated, your remark could simply scare someone away from stock market investing, whereas the truth is far more complex. One needs to account for the possibility that investments will fall in value, but you did not mention that the index shot up in value before the bust, in the case of the dot com boom, and then fell back, before recovering, albeit over a number of years. Either someone takes money out during a dip, and incurs losses, or they have a buffer - such as investments in a lower risk and lower return asset - to allow them to not take out money for a year or two. Or they invest wholly or partially in an annuity which has relatively poor returns, but it is guaranteed.

And then of course what does not seem to have been mentioned is that a lot of growth from stocks and shares comes from dividends, which are reinvested, and an income trust can provide some or all of the dividend as an income, so in many respects you are not crystallising your losses. Incidentally, reinvesting dividends means that when the market has crashed, dividends can buy more shares, with more potential for growth, another reason why a crash is not all negative.

From a structural point of view the 2008 bubble was far more severe than the dot com bubble, in that it nearly brought down the financial system, according to Alastair Darling. The heads of banks were by all accounts oblivious to the dangers, and more concerned with their bonuses. I have heard it said that the problems we see today are a consequence of the huge quantitative easing that followed the 2008 crash.

ChiefGrasscutter

You could look at the Japanese stock market
Peaked at 40000 in 1990
That's 26 years ago......
and has been on a long term down hill trend since then
It is now standing at 15000.

Edit
The 1973 UK crash of 74% included the secondary banking crisis - which did not affect retail depositors.

ruperts

Is anybody using any value averaging techniques in this downturn?


I've got a spreadsheet set up which tells me the expected/target value of my portfolio each month based on historical returns in one column and the actual value in the next, then a formula deducting the actual figure from the target. The result of this is how much additional cash I need to invest to get back on target.


For a few years the actual value has been above target, but now it's about 10% below, and my spreadsheet is imploring me to take advantage of the obvious value averaging opportunity. I've got cash waiting in my portfolio for precisely this event. Is it logical to go for it or is this merely another form of foolish market timing?

masonic

BananaRepublic wrote: »

As I indicated, your remark could simply scare someone away from stock market investing, whereas the truth is far more complex.

I agree that a single remark from my post, taken in isolation, without the context of the rest of the discussion within this thread, could scare someone away from investing. But I don't think it is reasonable to expect me to repeat a whole host of caveats and disclaimers that have already been discussed at length in this thread in each and every post that I make - lest I start churning out essays that make the likes of Bowlhead appear rather succinct.

One needs to account for the possibility that investments will fall in value, but you did not mention that the index shot up in value before the bust, in the case of the dot com boom, and then fell back, before recovering, albeit over a number of years.

I didn't mention that because I don't think the price movements in the dotcom boom are all that different to those seen in the bull market leading up to the current falls. To illustrate, here are two charts of the IA Global sector average, one in the lead up to the Dotcom crash and the other over the past 6 years (including dividends). I'm not sure I'd be willing to say with any confidence from these comparitive returns, "ah, it's clear from the increase in value that the crash is going to be more severe in one than the other"...


In one case, the bull market led to a 120% return and in the other it led to a 70% return, but I'm not aware of a particularly strong correlation between the depth or duration of a crash and the magnitude of returns over the preceding several years. If there was a correlation, we would be able to predict how far markets will fall this time around, but my position is that's not possible.

If you disagree with my view, I invite you to argue your case.

Either someone takes money out during a dip, and incurs losses, or they have a buffer - such as investments in a lower risk and lower return asset - to allow them to not take out money for a year or two. Or they invest wholly or partially in an annuity which has relatively poor returns, but it is guaranteed.

This was exactly what I was trying to establish through questioning - it certainly appeared that it was not the case until it was clarified. Someone who does not have enough of a cash buffer to ride out stockmarket turbulence is in need of a reality check. The first option is the one that I would advocate for someone currently invested beyond their risk tolerance, who has been frightened by the volatility they have seen so far. But it may involve selling up some of their risky assets in order to create this buffer.

And then of course what does not seem to have been mentioned is that a lot of growth from stocks and shares comes from dividends, which are reinvested, and an income trust can provide some or all of the dividend as an income, so in many respects you are not crystallising your losses. Incidentally, reinvesting dividends means that when the market has crashed, dividends can buy more shares, with more potential for growth, another reason why a crash is not all negative.

I didn't mention it because it was discussed at length earlier in the thread when Bowlhead had to labour the point to Procrastinator. Since the conversation above was in relation to a personal pension and (correct me if I'm wrong) most pension funds do not have income units, it wasn't really relevant. Even if it were, if somebody is losing sleep at night because they are seeing their capital eroded more quickly than they can tolerate, it may not be enough to stop them doing something drastic - persuading them to "hang in there" in that situation can be detrimental if it simply causes them to delay taking action until things are even worse. It's therefore important for investors to understand what is possible and ensure they are comfortable that their own investment strategy meets their needs and tolerance for risk. They may well technically be able to ride out market swings, they also need to be able to do so psychologically.

From a structural point of view the 2008 bubble was far more severe than the dot com bubble, in that it nearly brought down the financial system, according to Alastair Darling. The heads of banks were by all accounts oblivious to the dangers, and more concerned with their bonuses. I have heard it said that the problems we see today are a consequence of the huge quantitative easing that followed the 2008 crash.

That I would agree with wholeheartedly. The extent to which we simply kicked the can down the road using QE remains to be seen. Perhaps we have done enough in the intervening period to prevent the situation worsening again; perhaps we have not. Nobody can know what the future holds.

masonic

ruperts wrote: »

For a few years the actual value has been above target, but now it's about 10% below, and my spreadsheet is imploring me to take advantage of the obvious value averaging opportunity. I've got cash waiting in my portfolio for precisely this event. Is it logical to go for it or is this merely another form of foolish market timing?

This is money that you are going to invest sooner or later anyway, isn't it? And you will remain invested over the long term? So, you are statistically more likely to get a better outcome if you invest sooner rather than later and you are statistically more likely to get a better outcome if you invest during a market downturn.

BananaRepublic

Glen_Clark wrote: »

That was a party political broadcast on behalf of the Conservative Party

And that was a childish remark by a troll.

BananaRepublic

masonic wrote: »

I agree that a single remark from my post, taken in isolation, without the context of the rest of the discussion within this thread, could scare someone away from investing. But I don't think it is reasonable to expect me to repeat a whole host of caveats and disclaimers that have already been discussed at length in this thread in each and every post that I make - lest I start churning out essays that make the likes of Bowlhead appear rather succinct.

God forbid you make Bowlhead appear succinct, bless him/her, but you are rather exaggerating, just a little more text, and a little less terseness would not have gone amiss, in my view. But this 'discussion' has I think gone on for long enough, and doubtless cured countless cases of chronic insomnia,.

masonic wrote: »

I didn't mention it because it was discussed at length earlier in the thread when Bowlhead had to labour the point to Procrastinator.

I'm not sure it is reasonable to expect someone to read all posts in this thread. I certainly haven't. Much of it seems to be an internet squabble, with point scoring, and dare I say willy waving, which I would rather avoid. Life is too short to read internet arguments. (Feel free to post a long well argued, intricate but dull response, explaining to me why the posts do not constitute a squabble, and that there is no point scoring or willy waving, and that I am completely mistaken i.e. wrong ... :rotfl:)

My view as ever is that although a forum such as this can answer some questions, someone in Alan's position would be well advised to read proper books and articles relevent to him, and perhaps get advice from a pension advisor. That said there has been some good advice here IMO.

Glen_Clark

BananaRepublic wrote: »

And that was a childish remark by a troll.

I stopped taking the Government's employment statistics seriously over 30 years ago. when Thatcher was laying waste to British Industry, yet her unemployment count was coming down.
I see so many discrepancies now I wouldn't know where to start, but perphaps most recently where we see properly paid real jobs in the steel industry being lost, and 'replaced' by zero hours part time contracts and the pay made up with housing benefit. But at least the rising house prices are adding to GDP to create your 'recovery'

PS: Oh and we are not a Banana Republic, we are a Banana Monarchy.

BananaRepublic

Glen_Clark wrote: »

I stopped taking the Government's employment statistics seriously over 30 years ago. when Thatcher was laying waste to British Industry, yet her unemployment count was coming down.
I see so many discrepancies now I wouldn't know where to start, but perphaps most recently where we see properly paid real jobs in the steel industry being lost, and 'replaced' by zero hours part time contracts and the pay made up with housing benefit. But at least the rising house prices are adding to GDP to create your 'recovery'

Evidently you are on the extreme Left. I can't say I care for extremists, be they on the right or the left.