Portfolio planning and allocation 5-10 years

Thrugelmir

Prism wrote: »

My portfolio has made over 30% in the last 18 months.

Worth understanding why. As most lightly out of luck than any element of investment skill. For the same reason your portfolio could equally fall as rapidly.

bostonerimus

Thrugelmir wrote: »

Worth understanding why. As most lightly out of luck than any element of investment skill. For the same reason your portfolio could equally fall as rapidly.

I think that's a little harsh. The markets have certainly been on a bit of an unnatural tear over the last 18 months and anyone with a reasonable equity allocation will have done very well. So Prism has probably thought a bit about their allocation and done well. They are beating my 70/30 portfolio by 3%. I will agree that luck plays a massive part in the excess or lagging returns of funds such as Fundsmith or those managed by Woodford, but as Prism's returns are right around what you'd expect from a few index funds maybe luck has little to do with it....they are just average.

bostonerimus

Audaxer wrote: »

I agree with you on the whole, but as I read that there is quite a high probability of at least a 30% correction within the next few years, is it not worth holding some cash back from lump sum investing at present, so as to benefit from lower prices when the correction comes?

No! I already have my cash emergency fund and I wanted to get the tax benefit of maxing out my tax deferred allowance. Those tax benefits and the fact that the money will be in the funds for at least a decade make the contribution a no brainer.......even at a historical market high.

bostonerimus

economic wrote: »

When it comes? You mean IF it comes.

I find posts like this hilarious as it assumes with 100% certainty that something will happen to the market. The market does not work like that im afraid.

Whilst you may then think that a large correction is likely, there are many who think the opposite. Only time will tell who is right.

That 30% fall will come, but who know's when? so there's more to be lost by staying out of the markets waiting for the crash than being in the market and riding the crash out. The only people that really need to worry are those that are doing drawdown. If there's a big crash just as they are starting to take income and they don't have enough cash and short term bonds to ride it out the loss will ripple right through their retirement and without making contributions there's not much chance to recover.

Prism

Thrugelmir wrote: »

Worth understanding why. As most lightly out of luck than any element of investment skill. For the same reason your portfolio could equally fall as rapidly.

No real skill on my part, although I do put a fair amount of effort into researching an active fund and its manager before buying it. From those conclusions, to use bostonerimus's example, I chose Fundsmith over Woodford as my main fund. My second best performing fund is an index fund. The last 3 years or so has been really good with lots of mainstream funds averaging over 20% per year.

Its also worth pointing out that I have no bonds so yes I would be fairly badly hit if we had a crash. If I was to make a rough guess, a 50% crash would temporarily wipe out my last 3-4 years worth of gains but surely its worth being invested than waiting for this event. When I get close to retirement I will likely be far more cautious, hold more cash and short bonds and possibly take advantage of crashes with equity purchases. Until that point - 100% invested and ride it out.

economic

bostonerimus wrote: »

That 30% fall will come, but who know's when? so there's more to be lost by staying out of the markets waiting for the crash than being in the market and riding the crash out. The only people that really need to worry are those that are doing drawdown. If there's a big crash just as they are starting to take income and they don't have enough cash and short term bonds to ride it out the loss will ripple right through their retirement and without making contributions there's not much chance to recover.

It was said by who I was replying to that a 30% crash would occur within a few years with 100% certainty. I don’t think there is a 100% certainty in that but there is if instead of few years you extend that to within infinite years.

Audaxer

economic wrote: »

When it comes? You mean IF it comes.

I find posts like this hilarious as it assumes with 100% certainty that something will happen to the market. The market does not work like that im afraid.

Whilst you may then think that a large correction is likely, there are many who think the opposite. Only time will tell who is right.

I said "there is quite a high probability of at least a 30% correction within the next few years" not 100% certainty that it will happen in the next few years. It may take 5 of 6 years, but I would be surprised if the bull market carries on that long without a bigger correction. If you already have a lot invested, I was just questioning whether it was best to invest a further large lump sum now or wait for the next correction.

economic

Audaxer wrote: »

I said "there is quite a high probability of at least a 30% correction within the next few years" not 100% certainty that it will happen in the next few years. It may take 5 of 6 years, but I would be surprised if the bull market carries on that long without a bigger correction. If you already have a lot invested, I was just questioning whether it was best to invest a further large lump sum now or wait for the next correction.

My mistake. However few years can be interpreted to be 2-4 years and high probabaility as greater then 50%. Again that’s still taking a view in the market which is fine but you could equally argue with someone that the probability is low instead of high that that will happen.

buyhighselllow

bostonerimus wrote: »

Investing is a long term activity and time out of the market is usually to be avoided. If you are worried about the direction of the market then you are not ready to invest. Personally I put a lump sum in the market just before it fell 10%. I couldn't care much less as that money will stay invested for a long time generating dividends as well as capital gains. It will certainly be invested for long enough to make back any short term losses if historical data is any guide. Your comments lead me to believe that you need to do some reading and get comfortable with a little volatility before you invest.

I started investing back in around 1995, when I first had some spare cash. I have done so ever since in the stock market and ridden out a lot of volatility.
I'm uncertain the type of funds I chose previously are suitable for the next phase of my investing journey, which is where I need to research / seek idea's. I'm also unsure that that the approach I had previously, ie "ride it out whatever " is how I want to go forward, having elected to withdraw largely from the market and reassess.
A stock market fall in the next few years is highly likely in my opinion based on what I've concluded from various financial media I follow. I'm also not awash with resources, and have to be comfortable that the choices I make do not scupper my plans.

Most people I know who have retired have barely ever invested a penny anywhere in the stock market, and have lived very well throughout their retirement largely on cash.Its really quite common . Whilst my current allocations may be rather unbalanced, they have reached ( and grown to ) this point from 20 odd years of self directed investing. What I need to do is make the next 20 odd years work as well as the last. I will be looking to put together something suitable over the coming weeks. :beer:

aroominyork

bostonerimus wrote: »

You need to do some reading and understand how to build a sensible portfolio to provide some growth and some income for retirement.

Can you direct me to some good reading on this? Investing during accumulation phases seems relatively straightforward compared to de-risking as retirement looms on the horizon and then structuring a portfolio during retirement.