Experiencing my first mini dip as a new(ish) investor

dunstonh

Certainly the past month has tested my risk tolerance levels.

Nothing has happened in the last month that has come close to testing risk tolerance levels unless you are very defensive natured investor. I still fear that you are investing above your risk profile.

especially as one of my funds dropped 6 or 7% in a couple of weeks

What are you going to do and how are you going to feel when it drops 25-40%? (or more)

lluzers

Jeems wrote: »

The numbers are very red and lots of minus signs but I dont feel concerned. I'm still up this year (just about).

But wow, does the strengthening of the £ and the potential interest rate rise really affect share prices that much? Will things settle down? When the £ was strong and interests rates at 5%+, I imagine share prices didnt tumble daily. How did the market react then?

What can I expect in the near future with continued £/interest rate rises?

Study Warren Buffet , invest in value for long term , ignore short term discomfort of reds/minuses.Buy quality investments and forget .

The western economies can not raise interest rates by more than 0.5 % , so pound can not rise by more than 5 % more theoretically.

Long term you are ok , because cash depreciates and real assets do well.

Alexland

I agree with dunstonh the single digit movements in the past weeks are nothing compared to the double digit moves and long periods of recovery that can occur when a real crash happens. But still seeing some red is good practice, a good chance to make lump sum payments of any spare money lying around and helps broad multi asset funds work their rebalancing magic.

Jeems

dunstonh wrote: »

Nothing has happened in the last month that has come close to testing risk tolerance levels unless you are very defensive natured investor. I still fear that you are investing above your risk profile.

What are you going to do and how are you going to feel when it drops 25-40%? (or more)

The most I'd experienced this year were 1% swings, so this was a step up for me.

I can't answer that until I experience a 40% drop. If I do experience one and come out the other side ok, will you be asking "well how will you feel if you experience a 50% drop?" It's all relative based on experience.

Small steps and all that. I didnt mean for my post to make it sound like I am now 100% knowledgeable. It's an on going learning process and I just want to share my appreciation to the MSEer's who've given advice over the past year. Cheers!

A_T

Long term investors psychologically condition themselves by expecting a GFC-type crash imminently. That way anything better than that is a bonus.

Alexland

When the dot com and credit crunch crashes happened my main frustration was not having enough spare cash to chuck into the markets to bring down my average unit cost and maximise the recovery returns! I got some in but it's never enough.

Still if you have cash on hand for too long then the inflation loss is more than the upside of chucking it in during a crash so you can't win.

Maybe next time there a crash my family could try eating 100% Tesco Value food for a few months.

bowlhead99

Alexland wrote: »

Maybe next time there a crash my family could try eating 100% Tesco Value food for a few months.

They could try that now, and then you will have more money on hand to invest during the crash and no need to negatively impact your lifestyle at that point.

You could even upgrade your lifestyle during the crash because the non-value food ranges will be on sale at Tesco, M&S and Waitrose as the public generally tighten their belts.

capital0ne

Jeems wrote: »

What were the markets like before during periods of strong £/interest rates? Is this sudden mini drop just a reaction?

Just look a a chart of the FTSE100 going back 20 or so years

capital0ne

Alexland wrote: »

Just take the market dips as a chance to buy more stock fund units if possible to reduce your average cost per unit. That doesn't really apply to bonds which might suffer permanent capital loss.

The problem with only buying in the crashes is that it is hard to mobilise in the moment judging the market top and bottom and you miss loads of growth in the meantime.

Timing the market is waste of time time in the market is what matters

aroominyork

A bit of a tangent but rather than starting a new thread: sometime during the last few months I was making some changes to my portfolio and had a large amount of cash out of the market for a day. It was a day when the markets fell only to recover the next day so I unintentionally sold low bought high and it cost me about 0.5% of the funds' value. I found a way around this (at least it works on HL, though I'll soon be leaving them) which is that if you switch a cash amount rather than selling the full holding it buys your new fund the same day - no being out of the market. You can sell up to 90% of a fund's value so you just have the remaining 10% to sell the following day, which you can either do as another 90% of the remaining 10% in cash (and so on ad infinitum), or just sell the remaining holding and have a smaller amount out of the market for a day.