Do you keep cash aside to invest after next crash?

Dird

dunstonh wrote: »

I had a potential client two weeks ago who wanted to take out a mortgage to invest the money on the stockmarket as their boss was doing that and was telling his workers to do the same. Starting to see a number of these alarm bells now. (btw, i said potential as I refused do it)

I was thinking of releasing £18k~ equity so I could max out the ISA this year & next and some outside ISA. Decided I cba with the hassle of new affordability checks though

Anthorn

jdw2000 wrote: »

A question I asked in a thread today, but wondered if many do this.

I imagine most investors keep the majority of their cash invested and would therefore be unable to invest much after a crash. Are there any keeping money aside for this purpose?

Depends on one's strategy: Mine is what I personally describe as "adventurous" and is approximately 20% cash in savings accounts, 60% global shares and 20% global property shares held in an ISA. So that 20% cash would be available in the event of a crash. But how much cash I have depends on how quickly I can sell the shares.

bowlhead99

Dird wrote: »

I was thinking of releasing £18k~ equity so I could max out the ISA this year & next and some outside ISA. Decided I cba with the hassle of new affordability checks though

With a half decent credit rating you can borrow £18k pretty cheaply unsecured without all the affordability checks on your whole mortgage. Obviously you should check for yourself if it would be affordable.

I mean, not 60% LTV mortgage cheap, but pretty cheap.

Tesco will do an £18k personal loan at 3.4%, Sainsbury at 3.0%, and then Nationwide will beat competitors' public offered rates by 0.5% as a perk if you are a "main current account" customer.

Tesco credit card lets you do a balance transfer with 0% interest for 24 months and £0 fee, or a balance transfer or cash transfer at 0% for 40 months with a one-off 2.69% fee or 3.85% fee depending on transfer type.

All of those rates are fixed and not variable if there is a big base rate shift (unlike a cheap mortgage borrowing which would be variable if a tracker)

So if you needed finance to use up some tax limits, there is plenty out there.

Of course, borrowing just to be able to afford to stuff your 2017/18 ISA at the beginning of the tax year instead of the end of a tax year may not be a particularly spectacular return for the costs or risks taken. If however you were borrowing to fund pension contributions saving 40% or 45% or 60% marginal rate income tax off this year's tax bill, or even VCT at 30% income tax relief, that's more understandable.

jdw2000

bowlhead99 wrote: »

People will still invest because using your capital for something (investing in ownership of profitable companies or providing loans to creditworthy companies and governments) generally produces better long term returns than NOT using your capital for anything, just keeping it in a bank deposit with 100% capital protection but no inflation protection.

So yes, things are more expensive than they could be. In 2009, 2010, 11, 12, 13, 14, 15, 16 and in both January and February this year, people said things were too expensive as equities and bonds had both been going up for a while and it wasn't sustainable. So, for seven years in a row some people have made the "wrong" call, believing there to be a cheaper entry point just around the corner, which didn't come. Now even if there was a 20% crash it would still have been better to be invested rather than not invested for most of the seven years, because having invested then, you could have easily afforded the crash.

At some point there will be a crash and an entry point cheaper than the all time high. We know that. We just don't know when.

Personally I am heeding the comments dunstonh made about a frothy market. When someone who knows nothing about investing wants to move from cash to leveraged equities because "everyone is telling him to, and the rates to renew his fixed cash ISA are a bit rubbish", it is obvious that money is flooding into the sector that won't be there long term.

And you see newbies on this forum all the time, "never invested before but cash rates are crappy, I heard 80% equities mostly overseas like in that VLS product would be a good start, how can I do this when I don't know what an equity is, go easy on me because I don't know what I am doing". That is an example of some of the quality of capital feeding the funds' self-fulfilling prophecy that everyone should just jump on board and it'll take you up to the stratosphere.

It is fine until the party is over and the smart money gradually jumps ship and the people who don't know what they are doing are left in on their own, start getting their fingers burnt and depart in their droves.

You can ride it for a bit, but it is certainly a sign to reduce to more cautious levels of exposure, IMHO.

That doesn't mean stop all your investing, just seek least worst options rather than the options that just spiked up in value the most on the three year chart.

I think the basic rule should be that no-one should invest money that they will need within 5 years.

That should give their investment plenty of time to go through a crash and recover.

bowlhead99

jdw2000 wrote: »

I think the basic rule should be that no-one should invest money that they will need within 5 years.

That should give their investment plenty of time to go through a crash and recover.

Historically not true. Maybe about right, ish, if you were talking only about the 2000-2003 drop or the 2007-2009 drop. But if you go back further, which you should if you're going to make up a reliable "basic rule" - you could easily have a drop then half a decade of nothing before the market thinks about starting a proper recovery.

No IFA would suggest a predominantly equity-based investment for only five years. It's not as long as an economic cycle. So you could get down years and nothing years and no real up years.

You and I are not IFAs though, so we can make outlandish ill-advised recommendations with no legal or moral obligations to compensate suckers who believe such "rules of thumb".

Dird

bowlhead99 wrote: »

With a half decent credit rating you can borrow £18k pretty cheaply unsecured without all the affordability checks on your whole mortgage. Obviously you should check for yourself if it would be affordable.
I mean, not 60% LTV mortgage cheap, but pretty cheap.

The remortgage would have taken me at/near the 75% LTV limit on something like 1.75% 2yr fixed. My scores (propaganda blah blah) have been pretty crap since opening all the extra bank accounts & will be even worse now TalkTalk have marked a £89 incorrect penalty charge (cancelled within 14 days) as my monthly contract amount. I'll have £15k coming out of reg savers this year so I could fill next year's OK without a remortgage, just about whether I want to give up the current cash flexibility

jdw2000

I've never tried to pay off my mortgage... And in years gone by I have added to it (by 50%) for various things. House price inflation though, has meant that my mortgage is now 40% LTV. A large chunk of that equity being a present from George Osbourne when he removed the £250K stamp duty threshold in December 2014. Within months my house was in the £300Ks, having been stuck at £250K for an age.


I would certainly not want to add to my mortgage ever again though. I only want to get rid of it now. Even if that means moving house and buying a house outright somewhere.