Are the Markets Too High to Invest?

Ray_Singh-Blue

I imagine someone forecasting base rates of 0.5% back in 2007 would have been laughed out of the room.

Is it wrong to say that rates *could* possibly rise quickly, just as they fell quickly?

EdGasket

No not wrong, just unlikely. Why? Because the government needs to inflate their debt away.

username12345678

I had this discussion a month or so ago with the manager who is investing my pension.

I had wanted to drip in over 6 to 12 months as the markets were/are imo toppy and we have had a bull run now since 2009 - the historical average run is around 9 years.

https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=4ecfa978-d0bb-4924-92c8-628ff9bfe12d

As markets go up for around 2/3rds of the time then common sense would dictate that being fully invested is the theoretical correct decision and the manager did argue that you could have made a case for staying out of the market all of last year which would have been a mistake.

My position was that I was ok going against the 'optimal' approach as the psychological crutch of not throwing all my money at the market in a oner was more important than giving up a couple of percent of potential gains.

He won out in the end in essence saying that he was the expert and I was paying him to use his judgement.

Hasn't stopped me dissecting his fund choices and tutting.

jimjames

Ray_Singh-Blue wrote: »

I imagine someone forecasting base rates of 0.5% back in 2007 would have been laughed out of the room.

Is it wrong to say that rates *could* possibly rise quickly, just as they fell quickly?

Equally back in 2010 rates were expected to rise during 2011. I think anyone saying that rates would be below 0.5% by 2017 and possibly by the end of the decade would have also not been believed. It's easy to forget how long rises have been expected.

This was from Feb 2011:

The Bank of England Governor, Mervyn King, has signalled that interest rates may rise three times before the year is out, hitting 1.25pc by December.

http://www.telegraph.co.uk/finance/personalfinance/interest-rates/8326716/UK-interest-rates-will-rise-three-times-in-2011-hints-Mervyn-King-in-inflation-letter.html

pafpcg

Ray_Singh-Blue wrote: »

"Yes, No, Maybe.
Originally posted by Credit-Crunched"

She asked two questions and you gave her three answers

You've spotted that Credit-Crunched is an economist!

TCA

Ray_Singh-Blue wrote: »

I think an interest rate rise will clearly, mathematically, be bad for the value of existing bonds though.

What do you make of these below?

https://www.invesco.com/pdf/HYBRR-FLY-1.pdf

https://blog.abglobal.com/post/en/2016/11/why-rising-rates-are-good-for-high-yield-credit

The view that high-yield junk bonds might not be affected as much as investment grade bonds when interest rates rise and might in fact provide an opportunity:

http://www.investopedia.com/articles/investing/020416/effects-rising-interest-rates-junk-bonds.asp

StellaN

username12345678 wrote: »

I had this discussion a month or so ago with the manager who is investing my pension.

I had wanted to drip in over 6 to 12 months as the markets were/are imo toppy and we have had a bull run now since 2009 - the historical average run is around 9 years.

https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=4ecfa978-d0bb-4924-92c8-628ff9bfe12d

As markets go up for around 2/3rds of the time then common sense would dictate that being fully invested is the theoretical correct decision and the manager did argue that you could have made a case for staying out of the market all of last year which would have been a mistake.

My position was that I was ok going against the 'optimal' approach as the psychological crutch of not throwing all my money at the market in a oner was more important than giving up a couple of percent of potential gains.

He won out in the end in essence saying that he was the expert and I was paying him to use his judgement.

Hasn't stopped me dissecting his fund choices and tutting.

As I mentioned in thread 58, I think the OP should have invested the full amount now, however she decided to take the advice of the IFA and 'wait and see' for a couple of months!

It seems your adviser has given you the opposite advice so that confirms we all have different views but nobody knows what will happen in the markets!

bigadaj

EdGasket wrote: »

No not wrong, just unlikely. Why? Because the government needs to inflate their debt away.

It's been a very odd period.

The classic economic response was to try and inflate the debts away, but inflation has remained stubbornly low.

It has worked in part because rather than classic inflation we've experienced a period where quantitative easing has just degraded the value of money, as evidenced by inflation in set prices.

The main reason for refusing to raise interest rates in all major economies was that there was huge competition in reducing the value of their currency, Brexit seemed to have solved that but the response was a further cut in rates.

JohnRo

StellaN wrote: »

we all have different views but nobody knows what will happen in the markets!

I think we do know what, valuations will rise and fall, sometimes a little, sometimes a lot.

It's the when part of that equation that's the unknown.

Thrugelmir

EdGasket wrote: »

No not wrong, just unlikely. Why? Because the government needs to inflate their debt away.

Wrong. Why? Because in May 1997 responsibility for setting rates was passed to the BOE. Politicians could no longer meddle......