Have we got more "new" stockmarket investors?

masonic

ClarkeKent wrote: »

This is my concern, and this is what partly caused the Chinese stock bubble in 2015 and ruined many lives, now 40% lower than its peak (the stock market was the only decent return etc and everyone piled in) along with generous trading accounts etc. Not saying we have that here, but this classic bear trap situation could happen here.

A bear trap is when an investment starts to fall and traders believe it is the start of a more significant decline, but in fact the investment recovers. It is mostly a problem for those who hold a negative view (bears) and sell up or short-sell an investment. What you are referring to is a bubble, as you mentioned initially. I don't think inflows from private investors here in the UK would be sufficient to drive up prices significantly. Currency devaluation is doing most of that work

Not advising against it but just issuing some caution, as someone else mentioned capital preservation is key. But inflation is low too so not all bad for savers.

Inflation has been picking up sharply. The 12 month figure may show RPI as only 1.9%, breaking that down to two 6 month periods, we have a 0.5% change for the first 6 months, followed by a 1.4% change over the next 6 months. That latter change corresponds to almost 3% in 6 months time if inflation carries on at this rate; more if it accelerates, so savers should be a little concerned.

We live in crazy times economically and this interest rate madness that has gone on for almost 10 years will bite us in the !!!! at some point. All a matter of when.

So just a reminder to myself really and perhaps others, if the market was to lose 20/30%+, could you/your finances handle it?

Losses of 20-30% should be expected from time to time even under normal circumstances. It's difficult to predict whether recent economic policies could lead to more severe losses, or if inflation is going to bite and simply lead to greater inflation adjusted losses. There is risk in all asset classes, including cash.

AnotherJoe

ClarkeKent wrote: »

This is my concern, and this is what partly caused the Chinese stock bubble in 2015 and ruined many lives, now 40% lower than its peak (the stock market was the only decent return etc and everyone piled in) along with generous trading accounts etc. Not saying we have that here, but this classic bear trap situation could happen here.

Not advising against it but just issuing some caution, as someone else mentioned capital preservation is key. But inflation is low too so not all bad for savers.

We live in crazy times economically and this interest rate madness that has gone on for almost 10 years will bite us in the !!!! at some point. All a matter of when. It's always been "crazy times economically ". Dot com boom and crash? 2007 ? This spring.

So just a reminder to myself really and perhaps others, if the market was to lose 20/30%+, could you/your finances handle it?

Yes. Have been there / done that 3 or 4 times. If you can't tolerate that kind of hit, best to put your money in Ns&i. Once you've endured it the first and second time, it's less worrying the third and fourth

jimjames

ClarkeKent wrote: »

This is my concern, and this is what partly caused the Chinese stock bubble in 2015 and ruined many lives, now 40% lower than its peak (the stock market was the only decent return etc and everyone piled in) along with generous trading accounts etc. Not saying we have that here, but this classic bear trap situation could happen here.

The difference in China was ordinary investors borrowing massively to invest thinking it was a one way street. The stock market had jumped so massively over that time, almost tripling in value between 2014 and 2015. Even 40% drop means it's at the early 2015 level and 50% above mid 2014.

http://www.bloomberg.com/quote/SHCOMP:IND

The UK and other markets have not done anything like that so it's not really comparable.

pavane

bigadaj wrote: »

It's not the first rule with the amount of negative interest rates, quantitative easing and genera, devaluation occurring, this is a worldwide phenomenon bit is as acute in the uk as anywhere.

Keep your money in cash and watch devaluations and inflation erode it away, there's unfortunately little option for most people than to ove up the risk curve.

"Rule No.1 is never lose money. Rule No.2 is never forget rule number one." Warren Buffett

There are variations of this if you read any reputable books on investing.

Saving and investing are not the same thing, negative rates do not change this.

jimjames

bigadaj wrote: »

Keep your money in cash and watch devaluations and inflation erode it away, there's unfortunately little option for most people than to ove up the risk curve.

If they'd actually looked at other options much earlier then they'd be in a much stronger position. If you'd invested when rates were cut to 0.5% in 2009 you'd be sitting on some very tidy profits now and even a 40% drop from current values would have little or no impact on your initial capital.

One of my UK funds has grown as below over the last 5 years

16%
34%
11%
7%
23%

Total 127%. It certainly gives a very big cushion for any falls from here and is still paying 2.2% dividends. Probably works out over 5% on the original capital.

bigadaj

jimjames wrote: »

If they'd actually looked at other options much earlier then they'd be in a much stronger position. If you'd invested when rates were cut to 0.5% in 2009 you'd be sitting on some very tidy profits now and even a 40% drop from current values would have little or no impact on your initial capital.

One of my UK funds has grown as below over the last 5 years

16%
34%
11%
7%
23%

Total 127%. It certainly gives a very big cushion for any falls from here and is still paying 2.2% dividends. Probably works out over 5% on the original capital.

Well that is hindsight to an extent.

Many us funds would also have performed far better, diversification is key as we always say.

Thrugelmir

jimjames wrote: »

The difference in China was ordinary investors borrowing massively to invest thinking it was a one way street.

The UK comes well up the pecking order of consumer debt and therefore leveraging. How many investors are speculating that stock market returns will outperform the interest they pay on their mortgage(s) or credit card debt. A whole generation have never experienced a sustained bear market. Easy to say buy when prices are cheap. Cheap does not always equate to providing value.

jimjames

bigadaj wrote: »

Well that is hindsight to an extent.

Many us funds would also have performed far better, diversification is key as we always say.

Absolutely, it was just an example. Pretty much all markets have done well since rates were lowered to 0.5%. My point was about investing when rates dropped not which specific market as a balanced portfolio would cover them all.