How do you know which funds to invest in?

Audaxer

Prism wrote: »

I am sure you are right but considering that funds like VLS hold a good mix of strategic and corporate bonds in addition to gilts, i think that those funds will fall almost as badly as pure equity.

That would mean the VLS20 would fall by almost as big a percentage as the VLS100 in an equity crash, but I can't see that happening.

Audaxer

BananaRepublic wrote: »

I choose the markets and sectors I wish to invest in, then examine historical returns over ten years to find funds with consistent and good performance. I am 54 and 100% in equities. Even when the GFC occurred equities recovered in a couple of years. I do have a fairly large cash pile too (5% of my equities in value) which is my emergency fund.

I am of the view that 100% equities is best as long as you can stay invested during a crash.

That being the case, would it not be worthwhile holding a slightly bigger cash fund so that you can take advantage of an equity crash by investing some of that cash when equity prices have fallen to low levels? I know you can't time when it will hit the bottom of the market, but if your equity funds get to a say a 30% loss in value, would it not be advantageous ploughing more cash in at that time?

Prism

Audaxer wrote: »

That would mean the VLS20 would fall by almost as big a percentage as the VLS100 in an equity crash, but I can't see that happening.

Ok maybe VLS20 is an exception. It wouldn't fall as far but likely wouldn't recover very well either.

Besides, not many people would hold VLS20 for 15 years and expect much return on it. If you are investing for 3-5 years I guess that might work but I still might go cash for that short period

Audaxer

Prism wrote: »

Besides, not many people would hold VLS20 for 15 years and expect much return on it. If you are investing for 3-5 years I guess that might work but I still might go cash for that short period

There are a lot of cautious investors who may like it long term as it's annualised returns over the last 5 years is 5.37%, which is not too bad for a low equity allocation.

Alexland

Audaxer wrote: »

That being the case, would it not be worthwhile holding a slightly bigger cash fund so that you can take advantage of an equity crash by investing some of that cash when equity prices have fallen to low levels? I know you can't time when it will hit the bottom of the market, but if your equity funds get to a say a 30% loss in value, would it not be advantageous ploughing more cash in at that time?

The book answer is that it would be wrong to time the market however I threw additional money in when markets were unbelievably good value in 2008 and it was a great decision. My only regret was not having access to more money to invest. It was so obvious that markets were suffering an emotional response. I hold 10% cash and would do it again if I thought either equities or bonds were offering outstanding value.

When assessing the markets I often think what would Mr Spock from Star Trek do?

Alex

bostonerimus

Alexland wrote: »

The book answer is that it would be wrong to time the market however I threw additional money in when markets were unbelievably good value in 2008 and it was a great decision. My only regret was not having access to more money to invest. It was so obvious that markets were suffering an emotional response. I hold 10% cash and would do it again if I thought either equities or bonds were offering outstanding value.

When assessing the markets I often think what would Mr Spock from Star Trek do?

Alex

You could always borrow money to invest..........just joking, that's for fools and ITs

bostonerimus

Audaxer wrote: »

That being the case, would it not be worthwhile holding a slightly bigger cash fund so that you can take advantage of an equity crash by investing some of that cash when equity prices have fallen to low levels? I know you can't time when it will hit the bottom of the market, but if your equity funds get to a say a 30% loss in value, would it not be advantageous ploughing more cash in at that time?

No, that extra cash would have been out of the market and not working. It is pointless to look at the ups and downs of the market and see where you could have made money and avoided losses and then think that you can do that with a totally unknown future market. Keep an emergency fund in cash.....it's there to pay the mortgage when you lose your job, not pile into equities in a crash. Set your asset allocation and rebalance when things go up or down. Keep it simple and stay the course, that will average things out and probably see you ok in the end. If you had a 60/40 allocation over the last 5 years you would have sold a lot of equities and bought fixed income already thus "banking" some of your gains. When the crash comes you'll use your fixed income to buy equities on the way down.

Eco_Miser

movilogo wrote: »

Easy steps are:

1. Select a platform (like Tesco, Lidl etc.) first e.g. Hargreaves Lansdown, Charles Stanley Direct, Interactive Investor etc. etc.

2. Select some tracker funds (also known as index funds) e.g. FTSE 100 tracker, FTSE 250 tracker, Emerging Market tracker etc.

3. Within those trackers decide whom you want to buy from (like Hovis, Kingsmeal, supermarket's own label etc.) e.g. Blackrock, Vanguard, Fidelity, JP Morgan etc.

4. Buy those selected funds.

5. Wait few years.

6. Become rich

Reverse steps 1 & 3.
Choose what you want to buy, then buy it at the place offering it cheapest.

Also, wrap your purchase in an ISA to keep it fresh and free from tax.

At step 2, avoid FTSE100 tracker unless you are assembling a collection of regional trackers, it's a poor index to follow.

BananaRepublic

Audaxer wrote: »

That being the case, would it not be worthwhile holding a slightly bigger cash fund so that you can take advantage of an equity crash by investing some of that cash when equity prices have fallen to low levels? I know you can't time when it will hit the bottom of the market, but if your equity funds get to a say a 30% loss in value, would it not be advantageous ploughing more cash in at that time?

No. Studies prove that what counts is time in the market. Otherwise why not keep all of your money as cash ready to invest? I recall that for many years prior to the GFC I was expecting the markets to tank, but they didn't, and huge gains were made.

BananaRepublic

Alexland wrote: »

The book answer is that it would be wrong to time the market however I threw additional money in when markets were unbelievably good value in 2008 and it was a great decision. My only regret was not having access to more money to invest. It was so obvious that markets were suffering an emotional response.

You could not be more wrong. According to numerous sources in various governments, the Western banking system was on the verge of collapse, something that the greedy and ignorant bosses of these banks failed to appreciate until it was almost too late. It would have led to an inability to pay wages, the shutdown of bank teller machines etc. Some bankers with smallholdings were buying livestock so that they would have something to eat.

Alexland wrote: »

I hold 10% cash and would do it again if I thought either equities or bonds were offering outstanding value.

When assessing the markets I often think what would Mr Spock from Star Trek do?

Alex

Time in the market beats timing the markets unless you are very lucky.