Next recession, trade wars, up to 50% portfolio losses

OldMusicGuy

Thrugelmir wrote: »

Sentiment drives markets.

Not sure if that is directed at me but my sentiment is not contributing to any of this. Yes, I hold a lot of cash but I have far more invested in markets for the long run. I have actually reduced my cash balance and invested more in the markets than I had at the beginning of this year. And that was unfortunate for me, because I moved £100K from cash into trackers 2 days before the market correction in February (and that's still down 3.16% as of yesterday). But it's invested for 10 to 15 years so I know I will be ok over that timeframe.

That's also why I won't be moving anything out of cash in the short term, because I have just retired and do not want to suffer more pound cost ravaging. Instead, I will take advantage of rising interest rates to set up a bond ladder with a lot of the cash. But I will not be selling any of the significant amount I have in the markets for the long term.

IMO that is a sensible, risk averse strategy for someone that has just entered the decumulation phase. I think anyone can see we are entering more volatile times than we have experienced since 2008. Whether there will be a big crash or not, who knows. But I have set a strategy to protect myself from pound cost ravaging for the next 5 to 10 years, which is the crucial phase of retirement for me.

slapmatt

Would anybody consider investing in an ETF which shorts the market?

https://www.investopedia.com/articles/etfs-mutual-funds/072816/top-3-etfs-short-ftse-100-xuks-suk2.asp

bowlhead99

slapmatt wrote: »

Would anybody consider investing in an ETF which shorts the market?

https://www.investopedia.com/articles/etfs-mutual-funds/072816/top-3-etfs-short-ftse-100-xuks-suk2.asp

Yes, my pension has some of Boost's 3x daily ftse100 short etp, and some db-xtrackers s&p500 2x inverse daily swap, which I use from time to time as a general hedge without selling off individual equity/ fund positions. I have only a few £k in each at the moment.

If you're thinking of using such a product it is worth checking the maths on how a (geared) daily inverse track will work and maybe plotting some charts of few random daily paths that the FTSE 100 could take, and what the daily inverse would look like. If the main market is choppy (a bit up, a bit down but no massive overall change) it can be quite possible to have a large (un)/favourable movement on the geared short ETP. They are not really suitable for holding over the long long term as something in your standard rebalanced portfolio- but more for capturing short term sentiment.

If it was outside a tax wrapper I would just use spreadbets / CFDs or options on the index where your value is driven by what the index looks like on the particular day the bet/ contract is due to expire (or the overall movement since you started it) - and not the particular path it happened to take to get there. More straightforward with such products to create a broad general hedge for your long holdings, for a decent period of time (with gearing to avoid needing a massive amount of initial front money), and know what your result on the short will be for a given ending value of underlying FTSE / S&P etc.

Malthusian

slapmatt wrote: »

Would anybody consider investing in an ETF which shorts the market?

I wouldn't, because:
1) developed stockmarkets go up more often than they go down - making a short ETF a near-guaranteed loser in the long term
2) Market timing, i.e. betting that the market will fall in the short term, doesn't work - making a short ETF an expected loser in the short-term
3) For hedging purposes, going short is a very expensive way of doing nothing, the investment equivalent of mindfulness. Retail investors can reduce their exposure to the market by holding cash in loss-leader savings accounts. Loss-leader savings accounts aren't available to institutions or traders, which makes short ETFs potentially attractive as a way to hedge. But nobody taking part in this discussion is a trader (not an on-duty one at any rate).

bowlhead99

Malthusian wrote: »

I wouldn't, because:.

Yes, I agree with most of that. I don't recommend people start building heir own short etf portfolio as it is far from straightforward to review the products and as mentioned the mechanics of a short etf do not make it a simple tool to work with as a long term product, only a short term one really. I am more of a "do as I say, rather than do as I do" sort of person.

As an observation, people do have money locked away in "institutional" account types that can't access loss leader savings though - when they use pension or large values of ISAs for example. Meaning that although they're a tool for traders and institutions, in some scenarios you might consider yourself to be an institution in terms of product choice. Still doesn't excuse people believing they know better than the market though. But derivatives are just one of the many asset types that exist, with different properties to traditional investment that aren't derivatives.

Thrugelmir

OldMusicGuy wrote: »

Not sure if that is directed at me but my sentiment is not contributing to any of this.

Not at all. My comments are of a generic nature. Without differing views there'd be no markets worth investing in.

Type_45

Good afternoon all.


I have sold the VLS60 in my ISA for the time being.


There are a few reasons for this:


1) I recently read an article by Vanguard in which they are saying we should only expect gains on 3-5% going forward. The good times are over for the time being. Is a 3-5% upside really worth a 30% loss risk should a crash happen? Surely it's better to have 1% upside from a savings account with 0% loss risk.


2) I read on Twitter a bloke saying that major investers (in the hundreds of millions of £s) are moving away from equities. This is surely a sign of what is to come.


3) We live in unstable times. Trump/China/tariffs/long time since the last recession... it could all go t*ts up at any time.






So, I am moving to cash for the time being. Utilising my 3% Tesco accounts, and possibly an NS&I saver account for the rest.

dunstonh

1) I recently read an article by Vanguard in which they are saying we should only expect gains on 3-5% going forward. The good times are over for the time being. Is a 3-5% upside really worth a 30% loss risk should a crash happen? Surely it's better to have 1% upside from a savings account with 0% loss risk.

Which VLS fund were they referring to?
VLS60 losing 30% would be a generational size loss of a level greater than both the credit crunch and dot.com period losses.

2) I read on Twitter a bloke saying that major investers (in the hundreds of millions of £s) are moving away from equities. This is surely a sign of what is to come.

Twitter. oh boy

3) We live in unstable times. Trump/China/tariffs/long time since the last recession... it could all go t*ts up at any time.

That sounds like the mindset of a millennial who thinks that only negative things happen since they were born. Goodness knows how people invested during the 20th century when things were more unstable.

Type_45

dunstonh wrote: »

Which VLS fund were they referring to?
VLS60 losing 30% would be a generational size loss of a level greater than both the credit crunch and dot.com period losses.



Twitter. oh boy



That sounds like the mindset of a millennial who thinks that only negative things happen since they were born. Goodness knows how people invested during the 20th century when things were more unstable.

They weren't referring to VLS funds per se. They were referring to equities generally.


A 30% loss would be "generational"? The Dot.com happened around 2000. The Credit Crunch happened in 2008. We are due another right about now. These aren't generational, unless by that you mean every 10 years.

System

A bloke said on Twitter that England were going to win the World Cup! Maybe the same bloke?