Poll: Invest in equities now or wait

bigadaj

jamesd wrote: »

It certainly could be a long wait but I'm quite content to take 10% or so after some allowance for bad debt, or 12% before on secured P2P lending while I wait, in part because I know that this is above the long term UK or US stock market average return, let alone the negative or low positive returns PE10 is currently projecting.

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Interesting response, the only way many people would say you can be defensive in current economic conditions is to diversify as fully as possible, but you appear to be saying that p2p is the only asset class worth holding?

That's a hell of a conviction punt if I'm correct.

Taking this further would suggest you have several hundred thousand in p2p, and form previous discussion it appears that you are currently using maybe three or four platforms.

To me that's a lot of risk, given the limited number of platforms and probably more importantly the high value of individual loans given the lack of deal flow on many platforms, though buying in the secondary market would no doubt help.

My comments with reference to property where primarily looking at residential, commercial property is obviously a different kettle of fish.

Personally I'm just trying to diversify further, looking at more vct and investment trusts, and possibly more equity income funds.

One thing we can do is take advantage of the tax system, and I need to increase my unwrapped dividend income to do that, and reduce the savings interest, though the banks are currently doing their bit for the latter.

jamesd

adindas wrote: »

Would you please elaborate about this.
I have seen the property price has been falling consistently and It will keep falling down, so the next few years might be good to buy property ?

Yes, quite likely. Still more time to fall or grow though, volatility dominates over short periods, not the business cycle. Today still looks in the UK market to be bouncing around the current/recent top.

I haven't looked much at other countries in this area, though, there could well be opportunities elsewhere, just as today emerging market equities are tending to be at relatively low PE10 levels and were mentioned as an alternative to developed markets in this Saturday's Long View column in the FT.

jamesd

bigadaj wrote: »

Interesting response, the only way many people would say you can be defensive in current economic conditions is to diversify as fully as possible, but you appear to be saying that p2p is the only asset class worth holding? ... That's a hell of a conviction punt if I'm correct.

jamesd wrote: »

I'll happily and enthusiastically switch more money back into shares when the conditions are more favourable. Until then I've no shortage of other excellent options to use for my investing and I'm certainly not entirely abandoning equities, just paying attention to having a relatively lower exposure than usual.

You weren't quite correct. I still hold other things, just way lower weightings for standard equities at the moment than I 've previously used. It was previously typically over 90%.

I definitely don't think that P2P is the only asset class worth holding and it's definitely not the only asset class I'm holding or would want to be holding. But it is important to me because it offers what appears at present to be a good risk-return combination vs many other options.

A much bigger conviction punt for me was in April or May 2008 setting up pension salary sacrifice down to minimum wage remaining pay to buy equities, followed by more moving in 2009 and leveraging up then as well. That was a huge proportion of my investment assets as they stood at that time. The 2008 setup was after the original drops a bit before that and the preceding bond drops, knowing that I'd probably be buying during a low and that prices could fall further, increasing the benefit of the plan. Worked out very well for me.

I'm also conscious of one key fact: almost all of my growth in investments has been during a single unusually long bull market in many markets. From zero to able to retire if I wanted to in about one market cycle due to my low spending and very high savings rate. That's part of why I pay attention to sequence of returns risk, I know this market has been in a bull run for an unusually long time.

Nothing wrong with equities, just not the best time to be buying and I've opportunities to use instead while I wait with a lower equity allocation than I normally use.

bigadaj wrote: »

Taking this further would suggest you have several hundred thousand in p2p, and form previous discussion it appears that you are currently using maybe three or four platforms.

Somewhat frustratingly I have around 30% in cash blocked from getting into P2P at the moment but it is headed that way. Platform count is about right but that 30% is destined to change that. I'll live with it in cash - well, money market - for a while until that's sorted out, though not medium to long term.

bigadaj wrote: »

the high value of individual loans given the lack of deal flow on many platforms, though buying in the secondary market would no doubt help.

Secondary market transactions definitely help. A loan of 6.5% of my total amount invested in all places ended - the platform took it over to get the money instead - a few months back. It was paying 1.5% a month.

My current largest single loan is a bit under 5.5% paying 1% a month. Secured, of course. In this case to it's a trade (invoice) finance firm and secured by a range of undertakings including orders, goods, mandatory insurance for each deal and such. The finance firm is using the money to lend on its invoice financing deals to its end customers so they can fullfil the orders from their customers.

Next biggest is to a single borrower over many loans of two types, at about 4% of my investments. Again 1% a month. This time mainly for HP car backed lending with a range of security and security swap on ultimate customer default packages. Different platform as well as different borrower.

I look at the blend of security and returns and particularly like the security involved in those cases. Those are OK for my personal risk tolerance. Wouldn't be OK for quite a lot of people, but I'm investing for me so that's OK.

bigadaj wrote: »

My comments with reference to property where primarily looking at residential, commercial property is obviously a different kettle of fish.

Residential tends not to be as volatile. Instead what tends to happen there is that people just stop selling and inflation produces the drop in real value.

One loan I chose not to make to a business was to a removals company. I expected and expect a decrease in transactions and corresponding decrease in moves and hence their revenue.

bigadaj wrote: »

Personally I'm just trying to diversify further, looking at more vct and investment trusts, and possibly more equity income funds.

Diversification is good, though it's also good to watch out for and vary weightings at times, in the sort of way I've cut equities for P2P and will reverse that when equities look to be really good buys again.

bigadaj wrote: »

One thing we can do is take advantage of the tax system, and I need to increase my unwrapped dividend income to do that, and reduce the savings interest, though the banks are currently doing their bit for the latter.

Yes. One of my regrets was not getting into VCTs a bit sooner, once my accumulated assets made it viable for me to defer some of my income for five years. Only a year or two later than I think would have been optimal for me, though, so I'll live. And of course I'm doing a lot with pensions as well, likely at both the maximum level normally permitted by my employer and above the 40k MPAA this year.

chucknorris

I used to tie myself up in knots going around in circles on this particular subject, the problems as I seem them are:

You have to store your wealth somewhere
Both property and shares cyclically correct
Savings interest is pathetic
Bonds will be hit when savings interest improves
What will happen to P2P in a significant correction (looks very risky)

I decided to stick with property and shares for their income, fair enough they will fall, but they will also recover too, and I can work out what the income is, but only guess what will happen to capital values. That said though, I have held property for over 25 years, and my long term plan was to get out in my 60's, and I will probably stick with that plan, so it is likely to be mainly equities where I store my wealth in the near future. For diversity I will also retain some property and also invest in corporate bonds (single bonds not in funds, and hold them to maturity).

economic

chucknorris wrote: »

I used to tie myself up in knots going around in circles on this particular subject, the problems as I seem them are:

You have to store your wealth somewhere
Both property and shares cyclically correct
Savings interest is pathetic
Bonds will be hit when savings interest improves
What will happen to P2P in a significant correction (looks very risky)

I decided to stick with property and shares for their income, fair enough they will fall, but they will also recover too, and I can work out what the income is, but only guess what will happen to capital values. That said though, I have held property for over 25 years, and my long term plan was to get out in my 60's, and I will probably stick with that plan, so it is likely to be mainly equities where I store my wealth in the near future. For diversity I will also retain some property and also invest in corporate bonds (single bonds not in funds, and hold them to maturity).

Good plan Chuck

jamesd

chucknorris wrote: »

What will happen to P2P in a significant correction (looks very risky)

Roughly nil as the prospect of the sort of routine 40% drop in capital value that is seen in the bigger UK and other stock market drops. Nor much of the more common 20% drop variety. Here's what happened to the then consumer only Zopa bad debt levels overall, as of the end of 2015 so there are still more defaults to come for years 2011 onwards:

arrears over	Expected	Actual
	 over 45 days	defaults	defaults
2015		0.01		3.38	0.04
2014		0.03		2.30	0.61
2013		0.02		1.41	0.55
2012		0.08		1.50	0.78
2011		0.31		2.01	0.96
2010		0.47		2.59	2.18
2009		no data		2.66	2.04
2008		no data		3.68	5.54
2007		no data		2.68	0.52
2006		no data		1.77	0.18
2005		no data		1.61	0.15

Some risk bands experienced a doubling or more of bad debt rates in the 2008 lending tranche. RateSetter and Zopa's unsecured consumer loan books will probably perform similarly. No way to know yet for their business loan books and both now spread loans between consumer and business lending.

For other places doing business lending what will happen will depend on the particular nature of the borrowing done and the security taken at loan inception. If it's say money to help a pawn business grow, as it is for some loans, I expect they will be fine. Commercial property development would depend on that market and might be slower to sell. Similar for residential, also depending on where and the type of residential. A range of other things, all with varying initial and potential debt collection aspects.

Meanwhile Zop posted a 45% higher loss on doubled revenue for the 2015 year. It's one of the three UK platforms that have now originated more than a billion Pounds of loans each: Zopa, Funding Circle and RateSetter.