At what point does sticking it all under the mattress seem viable?

ratechaser

I appreciate from some of the more experienced regulars on here that 'steady as she goes' is generally a good watchword when it comes to long term investments. Buy, hold, take the downs with the ups, and overall you can get a good return over 10+ years.

That said, I am seeing an increasing amount of 'expert' commentary suggesting a fairly significant market correction is coming/overdue, along with (IMO) a higher than normal chance that there could be a geopolitical trigger event (e.g. increasing protectionism/isolationism, Trump, NK, Iran, EU instability - of which brexit is just one facet, but also migrations, far right resurgence, Catalonia etc...).

So, is there a rational argument that the short/mid term downside risk to global equity funds is now significantly higher than the upside potential? And if so, would it also be reasonable to think about putting at least a proportion of my pension assets into cash (or something else much less market sensitive) to preserve their value?

Feel free to pick this apart. I'm generally a fairly risk tolerant investor (I have commodity derivs and emerging markets funds for example), but with about 13 years to go until I can access my pretty big pension pots, I'd really like to be a bit more balanced and lock in some value here.

thanks
RC

ermine

At any point in history there have been multiple macro hazards. If you're running on general commentary you don't have a good way of picking out which ones. Nearly 7% of all market trading days have seen new all-time highs since 1950.

There is always is a rational argument of a short/mid term downside risk to global equity funds. It's finding the signal in the noise that's the problem. There's no success to be had in calling 10 of the last 3 stock market crashes.

Rebalancing to a target asset allocation is one way of automatically getting you out of frothy valuations, but doing on a gut feel leads to churn IMO. 13 years is a long way to stay in cash

For sure as you get within five years of retirement lifestyle your risk out of equities if you will be buying an annuity, whatever the markets are doing.

ratechaser

ermine wrote: »

At any point in history there have been multiple macro hazards. If you're running on general commentary you don't have a good way of picking out which ones. Nearly 7% of all market trading days have seen new all-time highs since 1950.

There is always is a rational argument of a short/mid term downside risk to global equity funds. It's finding the signal in the noise that's the problem. There's no success to be had in calling 10 of the last 3 stock market crashes.

Rebalancing to a target asset allocation is one way of automatically getting you out of frothy valuations, but doing on a gut feel leads to churn IMO. 13 years is a long way to stay in cash

For sure as you get within five years of retirement lifestyle your risk out of equities if you will be buying an annuity, whatever the markets are doing.

Actually that point is key, as I'm not at all keen on the annuity option, and therefore I'm unlikely to want to fully crystallise my pot at retirement date. That said, there is still a psychological aspect of thinking at age 57 'is my pot big enough for drawdown to work'. On current value today, I'm already just about thinking 'yes'. Maybe that's where my current caution is coming from - feeling like if I move to something lower risk that at least keeps pace with inflation (ok, all cash might be a bit extreme!), then I know I'll be ok. And if there is a market correction in the meantime, I should hopefully be mostly shielded, and can buy back in later.

Maybe this thought process is somewhat based on past experience. I don't ever again want to feel like I did on September 15th 2008 when I didn't know if I had a job and had just lost an eye watering amount on my employee share scheme (you can probably guess where I was working!). I'm now at a point where I can see financial security for the rest of my life and I don't want Trump et al screwing it up for me like Fuld nearly did last time...

Malthusian

That said, I am seeing an increasing amount of 'expert' commentary suggesting a fairly significant market correction is coming/overdue

They were saying the same in 2003. They were saying the same in 2012. They will keep saying the same things and eventually they will be right.

"A fairly significant market correction is coming" is a truism.

The problem is that nobody knows when it's coming until it's already happened, and stuffing everything under the mattress and waiting for it to come is a good way to lose money.

If you manage to cash in just before the crash and then reinvest when the market is somewhere around the bottom, you may do better than if you'd stayed in the market and ridden it downwards. The only problem is that people who say they're going to take their money out of the mattress and reinvest when prices are more "rational" never actually do. "The market is at its peak." "I told you a crash was coming." "Don't catch a falling knife." "A dead cat always bounces once." "The recovery is built on sand." "The market is at its peak." Repeat.

If you stay in the market throughout good times and bad then you will do better then those who keep their money under the mattress.

IanSt

Malthusian wrote: »

If you stay in the market throughout good times and bad then you will do better then those who keep their money under the mattress.

I definitely agree on this. I'm keeping my retirement funds fully invested in a well diversified set of UK and global funds even though I know there will be some hefty hits from time to time.

enthusiasticsaver

I don't think it is ever viable to stick it under the mattress.

We keep a proportion in the market, a proportion in less volatile stocks like gilts, bonds or fixed term investments and some in cash. The poor interest rates on cash will hopefully be compensated by the better returns in equities. Maybe when and if equities crash (we invest globally so hopefully not everywhere) bonds and cash will look more attractive.

OldMusicGuy

I have 30% of my pretty large DC portfolio in cash and another 100K of savings in ISAs/high interest accounts averaging just over 2%. But I am retiring next year aged 60 and am highly risk averse. I do not want to be hit by a 2008-like impact on the bulk of my investements because I need secure funds for the next 6 years before SP.

Even as the most nervous-nellie risk averse investor there is, I still have a lot of money invested in a combination of tracker funds (one heavily weighted towards equities) and a managed income fund. My plan is to leave that invested for at least 10 years so it should be able to ride out any disruption. I would never have everything as cash, because as everyone else says, you cannot time the market.

You need to think about what your investment goals are. If you need growth in your portfolio, be a bit more aggressive than you feel comfortable (I was too conservative in my approach in my 50s). But if you have reached your DC target and don't need significant growth, you could go more defensive in your strategy. But with 13 years to go, holding lots of cash doesn't make a lot of sense even to me.

BLB53

Yes, markets have had a good run over recent years and I have been reducing my equity exposure gradually and moving down a step with my Vanguard Lifestrategy from 60 to 40.

You do not say what allocation you have in equities but I think it makes sense to reduce it to a level at which you feel comfortable. Nobody will be ringing a bell 2 weeks before the downturn and when the correction comes its usually too late to do anything.

Linton

You need to have some of your wealth in equities, some in other investments, some in banked cash, and perhaps some under the mattress, as appropriate for your objectives. And yes you do need the proportions to be set such that you are not continually stressed. You may need to vary the proportions over time but only because your objectives have changed. It is a mistake I believe to vary the proportions on your views on world events. The consequence of doing this is liable to be buy equities high when you are euphoric and sell low when the world depresses you. Better to decide your allocations in advance and then rebalance to keep the proportions constant. This automatically leads to buying when prices are low and selling when high.

AndyAdams

I currently hold around 25% of my portfolio in cash. I am 52 years old and planning to retire soon (e.g. within 2 or 3 years, maybe earlier) . I too think I have a big enough pot (at current asset values). Personally I think assets prices are high and therefore I am not prepared to invest any new money into equities. Any new pension contrbutions are being held in cash.

I know others will think this is ridiculous and nobody can second guess the market but it is a personal choice.

Triumph13

AndyAdams wrote: »

Personally I think assets prices are high and therefore I am not prepared to invest any new money into equities.

Personally I'd be more worried about bond prices than equities - same big risk of falls and much less chance of recovery afterwards.
Is it wicked of me to secretly hope this thread will degenerate into a Gold vs Bitcoin slanging match?