Investing or waiting

Marine_life

ian-d wrote: »

But this is sort of my point, you've been invested for years, so benefit from the dividends etc over that time. If starting fresh now, I wonder if the mindset would be different?

It would not.

As said, I do have cash sitting on the sidelines which is for a) current expenses b) a buffer so I don't have to dip into investments c) some dry powder for good opportunities. Otherwise I am still drip feeding into the markets.

Some markets may look expensive but while we continue to experience low interest rates where else can you get a return?

MrLeek

ian-d wrote: »

But this is sort of my point, you've been invested for years, so benefit from the dividends etc over that time. If starting fresh now, I wonder if the mindset would be different?

I see it as what I can (and can't) control:

I can control the amount of money that I save, be it investments, savings or cash under the bed.
I can control (to a point) the level of risk I want to take - from bonds to equities through to some dodgy get-rich-quick scheme.

But I can't control what happens to the market. If my investment range is balanced (leaving me with systemic risk that being invested in equities will always bring) then I've done what I can to mitigate against that lack of control.

coyrls

ian-d wrote: »

But this is sort of my point, you've been invested for years, so benefit from the dividends etc over that time. If starting fresh now, I wonder if the mindset would be different?

I don't think this is relevant. If you were invested for years and you knew the market was going to drop, you would get into cash, using precisely the same logic as somebody delaying their first investment because they knew the market was going to drop. The point is that you can't know that the market is going to drop.

jamesd

AnotherJoe wrote: »

FWIW someone posted a picture the other day of relative length of US bull markets. It wasn't this one, but it was close. So, looking at this, what is history telling us ? Is it telling us that the growth could continue another 10 years? No idea.

The US bull market could continue for a long time, though at 97 months it's already the second longest since WW2 and longer than the 57 month average.

What history says is that future returns are inversely correlated with the cyclically adjusted price/earnings ratio and that this applies for all major world stock markets. So it's a relatively bad time to be investing in the US market because the current PE10 implies a low negative return for the next fifteen or so years.

But there are other equity markets and other things to invest in so it's not a case of not investing but adjusting where you invest.

One thing that tends to correlate with crashes is claims that "this time it's different", at the moment it's the claim that PE10 isn't reliable due to changes in accounting rules. True there have been changes, false that it makes any difference to the big picture. Of course the producer of this has reduced his own US equity weightings, moving to places with more attractive PE10s.

None of this tells us what the US market will do tomorrow, just that it's not the best of places to be looking at the moment and other places have a greater chance of producing higher returns. Since we aren't forced to buy things with lower expected returns we can react accordingly and shift some of our money to the better prospects.

Personally I've reduced my US weighting some time ago, have lots in Europe instead and have lots in P2P fixed interest. Still very heavily investing, just in places where the probabilities favour better results.

economic

jamesd wrote: »

The US bull market could continue for a long time, though at 97 months it's already the second longest since WW2 and longer than the 57 month average.

What history says is that future returns are inversely correlated with the cyclically adjusted price/earnings ratio and that this applies for all major world stock markets. So it's a relatively bad time to be investing in the US market because the current PE10 implies a low negative return for the next fifteen or so years.

But there are other equity markets and other things to invest in so it's not a case of not investing but adjusting where you invest.

One thing that tends to correlate with crashes is claims that "this time it's different", at the moment it's the claim that PE10 isn't reliable due to changes in accounting rules. True there have been changes, false that it makes any difference to the big picture. Of course the producer of this has reduced his own US equity weightings, moving to places with more attractive PE10s.

None of this tells us what the US market will do tomorrow, just that it's not the best of places to be looking at the moment and other places have a greater chance of producing higher returns. Since we aren't forced to buy things with lower expected returns we can react accordingly and shift some of our money to the better prospects.

Personally I've reduced my US weighting some time ago, have lots in Europe instead and have lots in P2P fixed interest. Still very heavily investing, just in places where the probabilities favour better results.

PE ratios dont tell you all the story about returns though, so what you say is completely irrelevant about expected returns.

if you have gorwing stocks PE becomes less relevant as earnings growth is fast and stock can have a lot more upside in it. the PE ratio can change not only through price but also through earnings - its simple maths.

my view is US economy should outperform and have a lot more high growth companies (think tech, biotech, healthcare, infrstaurcture etc) in it to take advantage and this can and will make all the difference.

Reaper

ian-d wrote: »

If you had a large sum to invest right now, would you throw it all in safe in the knowledge it should be worth more in 20 years; throw in a little bit now and ride the average, or wait.

Perhaps to the surprise of people here I would actually wait a bit. There is an old saying "Sell in May and go away, don’t come back till St Leger’s Day" which has some truth to it. For reasons nobody can quite explain (but probably due to over optimism in Spring) growth over the summer tends to be poor.

According to the Stock Market Almanac, since 1986, the UK stock market has delivered an average return of 8.58 per cent a year during the winter months, but only 0.35 per cent over the summer. In fact, the record shows investors have actually lost money during the summer months in 15 out of 29 years.

Source

At the moment I don't feel particularly bullish and there are a few risks around (Brexit, Trump etc) so since you mention investing a large lump sum I would actually hold off for a few months. It's a controversial statement though and I don't expect people to agree with me!

But note I would give a different answer to somebody drip feeding money in or somebody thinking of selling.

Thrugelmir

ian-d wrote: »

but history would tell us that the markets are currently very high and due a substantial dip.

Why? If you were to take the London indexes for example they are now constituted of a different basket of shares. High is a relative term. High needs to be measured against profitability, cash generation, dividend cover etc etc.

Nor does a dip make shares a bad investment. If the fundamentals are sound then the price will recover. Buying with a 10 year view. Allows plenty of opportunity to cash in when one wants to. Rather than being a forced seller.

Ultimately markets are driven by basic supply and demand. Your own actions may even influence a particular share price on any given day. If the share is thinly traded with little liquidity.

Audaxer

Marine_life wrote: »

I have an investment portfolio that currently throws off around 3.5% in dividends / interest (so excluding any capital gains) or in absolutes about 50k per year. I have no need to touch that money. If the market suddenly dips, all that happens is my average interest rate goes up temporarily. If there were a major recession then my interest rate may go down but I will have had the benefit of all those years high interest accumulating in my pot. At 1% (i.e. what I can earn in a bank) my investments would generate less than 15k per year so effectively I can afford to "lose" 35k per year.

The key is to not have money invested that you need in a short time frame because you will never sleep!

Gosh, must be nice to have £50k in interests and dividends per year that you don't need to touch.

A 3.5% annual return in interest and dividends seems a pretty good return not including capital gains. Just wondering, is that after deduction of IFA management fees, or is it a DIY portfolio?

Thrugelmir

jamesd wrote: »

The US bull market could continue for a long time, though at 97 months it's already the second longest since WW2 and longer than the 57 month average.

Dig deeper and the actual performance of individual shares is quite startling. Not as exciting as it may seem.

coastline

economic wrote: »

PE ratios dont tell you all the story about returns though, so what you say is completely irrelevant about expected returns.

if you have gorwing stocks PE becomes less relevant as earnings growth is fast and stock can have a lot more upside in it. the PE ratio can change not only through price but also through earnings - its simple maths.

my view is US economy should outperform and have a lot more high growth companies (think tech, biotech, healthcare, infrstaurcture etc) in it to take advantage and this can and will make all the difference.

A decent link about P/E's and not a bad video in full..

https://www.youtube.com/watch?v=896xQ5qvBlc&feature=youtu.be&t=19m13s

Earnings are forecast to rise after a flat period in 2014-16.
Maybe that's why the US markets have moved onto all time highs and not about Trump.?

https://www.yardeni.com/Pub/peacockfeval.pdf

https://ycharts.com/indicators/sandp_500_earnings_per_share_forward_estimate