How do I manage market risk moving a large cash ISA into investments?

bigfreddiel

Ask ten advisors for ten different solutions. If you don't like number one, maybe number two, but, mayaybe number three will be better,........ Hohhot, it's too hard..... That is what advice may result in, or maybe not....

Or move all your funds, buy defensive stocks, eight to ten, sit back while you decide what to do next.

Or buy vanguard Lifestrategy 20, then wait to decide what to do.

Or do nothing, come back next year and repeat till resolved.

Good luck fj

ratechaser

Alright, I supposed I'd hoped this was a simpler question than perhaps it actually is. I take the point about this perhaps being a good point in the market to push a lump sum in, but then as someone that had rather a lot of Lehman stock, I'm also aware that when things are down, they can keep going that way. And I'm sure someone will be along to point out the difference between single stock versus whole market risk...

Anyway, plenty to think about...

bowlhead99

Basically, you are happy with the long term risk of being 100% in equities (or whatever investments you're thinking of)... but looking to avoid the short/mid term risk of being 100% in equities when you are coming from a place where that money is in 0% equities, which is a big switch from one end of the risk spectrum to the other. One way of dealing with it is just saying that the next x weeks or months or years is simply the first part of the "long term", and not look at it.

At the moment with your cash stash you are taking the risk of not being in the market. You want to deploy the cash into the market and instead take the risk of being in the market. Presumably you are happy with that market risk so to you the " market risk " you want to smooth is the risk of losing the lot tomorrow in a crash right after you invest. Still, it is a bit of a nonsense risk because while there's a very real possibility it could happen, it could equally happen in a year from now so if you drip feed, you have sacrificed returns for a year while taking the risk of half cash half equities over a twelve month drip feed and then can *still* lose a massive percentage (at least on paper) just as your drip feed program was compete.

But imagine you were sitting here with £110k of S&S ISA which had been invested for some years, maybe dropped and recovered etc. So sitting here with your £110k today, invested in a nice portfolio of funds... would you come onto a forum and say you have £110k of investment funds which might crash tomorrow so you are wondering whether to instead hold half cash half equity funds for the next year and gradually build back the equities to £110k over twelve months? Seems quite unusual and most people wouldn't do that.

So if you wouldn't either, then you'll realise that deciding to hold a pile of cash and drip feed slowly into equities is purely a psychological trick. If the reason for favouring cash for a while and only tentatively dripping into a proper investment portfolio is because the selected investment portfolio is high risk/high volatility, then maybe select an investment portfolio with lower risk or volatility, rather than drip feeding between zero risk and super high risk.

In other words you could of course just straight away buy a portfolio of bonds, real estate, commodities and equities that serves as a suitable mid point of where you want to be on average this year. instead of being 90:10 (cash: equity) this month and later 85:15, 80:20, 75:25 and so on to 5:95 on a rigid plan. There isn't a particular product to do that for you. You could manually do it within your S&S ISA though, just by buying riskier funds as time goes on.

gadgetmind

If you're really paying the top rate of tax (45% for income > £150k), and you really aren't sure about DIY, then I think you can afford a few bob to get an IFA to look things over.

ColdIron

I doubt this will help much but since I have come across it ...

HL will pay you 0.05%
http://www.hl.co.uk/charges-and-interest-rates

CSD will pay you 0.025%
https://www.charles-stanley-direct.co.uk/Our_Charges/

Vortigern

ratechaser wrote: »

Are there any hybrid ISAs out there that pay a half decent return on cash, and support drip feeding of that cash over a longer period?

I don't know of any hybrid ISA that pays a decent return on cash (or any cash ISA that gives a decent return) but perhaps you could achieve your objective thus:

• Keep or move to an instant access cash ISA that permits partial transfers out.
• Use a S&S ISA provider whose ISA transfer forms cater for part transfers in of specified amounts from previous year cash ISAs.
• Execute a partial transfer of your desired sum at your desired intervals.

Probably more trouble than it's worth.

ratechaser wrote: »

In terms of the investments themselves, I'm looking at a fairly vanilla approach, index trackers and govts as a starting point, so no need for anything particularly exotic on that side... In fact to be clear we are both in financial services so self-select investments are a bit of a no-no for compliance reasons...

If you need to distance yourselves from stock selection you might need a discretionary fund manager?

bowlhead99

Vortigern wrote: »

If you need to distance yourselves from stock selection you might need a discretionary fund manager?

It will vary from employer to employer but generally authorised unit trusts/ OEICs, regulated collective investment schemes and open ended funds, or investment trusts are fair game for those in the investment sector, as it's difficult to deal in them with an accusation of insider knowledge (unless you are literally the accountant or manager for the trust) or to deal contrary to a client's interest and move the market.

So while picking individual stocks might be out, or subject to some approvals or signoffs ahead of every prospective trade, you rarely need to go so far as full discretionary management with no communication between you and the manager before he executes investment decisions. Discretionary investment management is pretty pricey for a £100k portfolio so most employers wouldn't make that the only way their staff can build up their investments.

BananaRepublic

If you are both in financial services, you must surely have some ideas of the markets, and how they do over time.

If you are looking to invest for 10+ years, then you are arguably best to get into the market fairly soon. There was some discussion about drip feeding over a year to allow for short term volatility. But in general it is hard to second guess the market. The UK market is down quite a bit from its peak, so yes it might fall further, but in the long term it is surely not a bad time to invest. The US market seems a bit more exuberant. I guess a Brexit would have an impact, perhaps over a few years.

The benefits of trackers are not quite so apparent in the UK market, but a very good bet for US markets.

I presume you know about the benefits of diversification, to reduce risk by buying into many markets, and many funds in a given market. Some trackers includes some diversification e.g. Vanguard which are much promoted here.

There are many brokers such as Hargreaves Lansdowne and A J Bell provide services to create and manage a portfolio, including buying and selling funds with low charges. They seem much better than traditional providers. I sold ~£20,000 of investments with L&G, and it takes about 3 working days to transfer the money to my account, no doubt so they can earn interest. I find Fidelity and A J Bell to be much more efficient.

ratechaser

Ok, looks like I have reignited this one. As I'm mobile right now, just a few thought while I digest this more fully (which will probably be while drinking rum and sitting on a beach over the next week!):

1) yes clearly I can afford an IFA, but my last foray there was a bit of a disaster - with a sub of SJP no less. Basically Mrs RC and I are totally joined at the hip, finance-wise, and he was having a hard time explaining how he could represent both of us jointly. Basically, Mrs RC said not on your nelly, and that was that. While I know SJP tends to get slated on costs, I did at least think the service level was meant to be pretty good

2) funny how you can spend your life working for big FS organisations but still have very little specific product expertise. Yes, I have a pretty good grasp of the general principles, but I've never been close to 'front office' and my equity holdings (pension aside) have been minimal. Except for Lehman, worse luck.

3) Bowlhead as usual is bang on in terms of summarising the typical restrictions that we face (although I'm between jobs at the moment). I could of course bundle our more liquid assets together and for that, discretionary management might be worth it, but not for this 110k in isolation.

4) I will pass on the HL cash rate, although appreciate the answer as it actually goes some way to answering the core question of my post. Now if there was something similar offering 1% on cash pending a drip feed, that could be worth a closer look.

Thanks all
RC

gadgetmind

ratechaser wrote: »

1) yes clearly I can afford an IFA, but my last foray there was a bit of a disaster - with a sub of SJP no less.

Well, they are just slick salesmen and nothing like a proper IFA.

Basically Mrs RC and I are totally joined at the hip, finance-wise, and he was having a hard time explaining how he could represent both of us jointly.

An SJP salesman would be representing no-one other than himself!

discretionary management might be worth it, but not for this 110k in isolation.

You shouldn't ever really look at any pot in isolation and instead need to consider the big picture.