Has the market peaked?

Thrugelmir

ilovehouses wrote: »

The book is called Investing Demystified by Lars Kroijer (there's a second edition just out). He's also got a few really interesting videos on his site (if you like that sort of thing).

Looks like an interesting book. Something to add to my holiday reading list.

chucknorris

ilovehouses wrote: »

I'm heading down the VWRL route too and mitigating the risk with VGOV. I'm finding it quite difficult to derisk when simultaneously I need to take risk to achieve financial targets.

I know I'm plugging a book (I'm not getting a commission) but it made me think about diversification and correlation. When things go tits up it tends to be across the board - your BTL's fall in value, rents fall, the economy is in a state, your job's dicey, less people can afford to go to shopping as a hobby, British Land falls in value etc.

We are all probably over invested in our local economy for no other reason than that's where our post code happens to be.

I've always understood the need for diversification, but back in the early 90's it was free money to invest in property, In 1990 I came all the way down from Newcastle mainly because London property was so cheap, but with good rental income. I didn't start diversifying until about 2001 when the free money was starting to look like drying up. In fact, the only reason that I am going to keep some property in the longer term, is for diversity.

economic

this is why i have been buying global trackers and US stocks/trackers. i am overweight us stocks but i can see the region outperforming. never have everything in the uk - very dangerous.

economic

ilovehouses wrote: »

The argument that Lars Kroijer makes is that if you're overweight something then you're declaring you have an edge (you think the US is going to outperform). You might have an edge but most people don't so, for them, it's better to assume the market is efficient and buy world trackers.

Also he reckons an investment portfolio 100% in equities is quite risky even when diversified in world trackers because the world is so correlated these days i.e. when bad things happen they don't happen in isolation. His idea is that this risk is mitigated by buying government bonds in your home currency (if you live somewhere where they're highly rated). The example being if you need a heart operation in two months or you want to absolutely guarantee you leave £x to your favourite charity then that should be in 'risk free' assets and the price for certainty and lack of volatility is a very low yield.

I'm not so interested in gilts because I can overpay a mortgage where I make a much better return and still de-risk my life. However there is no free lunch - to overpay the mortgage I have to use post tax income whereas sending the money to a sipp delivers higher rate tax relief.

agree on these points. yes its not a good idea being 100% in equities even if you are young. i would say rather then bonds, i prefer cash (again it my "edge" deciding this#). if i include my home i am:

property equity: 42%
stocks (incl pension): 32%
p2p: 1%
gold: 1%
cash: 24%

i am 34 years old.

economic

ilovehouses wrote: »

Agree on cash. Gilts are fine if you've got a shed load of money to secure but for most people cash is near risk free under the deposit scheme and a better return too.

agree. out of my cash half (100k) is earning 1% or less. rest is earning a decent return close to inflation.

i will be looking to invest the 100k but waiting for opportunities. im already long a lot of key sectors and am pretty well globally diversified. i might add a bit more to p2p. but i find it difficult to find assets worth buying now.

Thrugelmir

ilovehouses wrote: »

I know I'm plugging a book (I'm not getting a commission) but it made me think about diversification and correlation. When things go tits up it tends to be across the board - your BTL's fall in value, rents fall, the economy is in a state, your job's dicey, less people can afford to go to shopping as a hobby, British Land falls in value etc.

With investors acting like a herd of buffalo. When a lion roars. There's a stampede for the exits without a seconds thought. Then there's an opportunity to go scavenging. Over reaction. Market volatility is nothing new. In recent years market intervention has brought a degree of complacency. Will be another recession/down turn just a question of when. Not all investments are equally impacted though.

economic

ilovehouses wrote: »

There's something quite liberating about accepting you don't have an investment edge. The current price is always correct (cleverer and better resourced people than me have set it); if the price falls there's no point selling unless I need the money because its still correct. Fees are only 0.2% too.

Either way I've had a good run and its time to derisk anyway.

Of course if anyone has an edge they should go make money.

would you have said that at the peak of the tech bubble?

chucknorris

economic wrote: »

agree on these points. yes its not a good idea being 100% in equities even if you are young. i would say rather then bonds, i prefer cash (again it my "edge" deciding this#). if i include my home i am:

property equity: 42%
stocks (incl pension): 32%
p2p: 1%
gold: 1%
cash: 24%

i am 34 years old.

My wealth is currently stored as:

30% BTL equity
29% Shares (incl SIPP/ISA)
20% Home equity
11% Savings accounts (unusually high due to waiting to upsize home)
10% DB pension

It should change to something like this in about a year, after we have bought our next home, sold our current home and I've sold another investment property:

38% Shares (incl SIPP/ISA)
22% BTL equity
20% Home equity
10% DB pension
6% Bonds
2% Savings accounts
2% P2P

chucknorris

ilovehouses wrote: »

I'm heading down the VWRL route too and mitigating the risk with VGOV. I'm finding it quite difficult to derisk when simultaneously I need to take risk to achieve financial targets.

What is your age? I am happy enough to stay in mainly equities until I get into my 70's (and some property before then), then I will probably start to move much more into bonds. I can't see the time when I will move into gilts, but you never know.

Recently a holiday let has come back onto my radar, but it is the managing from a distance and the input required which I need to overcome. What has caused me to become interested again (despite the extra 3% stamp duty, which isn't that much over time) is the ability to invest the profit in pensions, as they are classed as 'relevant earnings'.

chucknorris

ilovehouses wrote: »

50. I've had a great run during the GFC. I've gone from being resigned to retiring at state pension age to 55 now being a realistic possibility.

That's been done with hard savings, 100% equities and, as much as I'd like to think otherwise, some dumb luck too.

A year of -25% returns followed by other of -20% and that early retirement comes off the table. My current thinking is that really don't wish to overly risk what I've already got so, over a couple of years to keep costs down, I'm going to move out of single company shares and move into world trackers. I also want to derisk further by looking at increasing my holding of low risk assets (cash/ gilts) and possibly overpaying the mortgage.

I give up some higher rate tax relief by paying off the mortgage and average portfolio yield will, of course, fall. What I get in return is a smoother glide into retirement with much less volatility. If needs be I'd rather work until 57 than risk working to 62 because my age 55 retirement plan didn't work.

Today I'm 50% shares/ 40% property equity / 10% cash/ gilts. Ignoring the equity I'm probably heading towards 70% world tracker/ 30% cash gilts in 3 years.

It's a work in progress and dealing with a nice problem to have but I'm struggling to find that balance between risk and safety.

I don't mind being in equities as long as my horizon is still about 15 years away, hence the probability of moving into bonds when I reach my 70's. I'll have a re-think when I get to 65 though, I may start that process earlier.