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

Type_45

ValiantSon wrote: »

Um, you do know that bonds and equities markets are separate, don't you? You do also know that the forces that move those separate markets mean that bonds don't necessarily follow equities? And you do know that you were originally talking about equities?

Oh, and one more, are you really trying to educate an experienced IFA on bond and equities markets? Hubris, thy name is....

In theory, bonds and equities are counter balances. But in reality they have been going up and down at the same time in the recent bear market (GFC) and the bull market which has followed.


WHEN the next crash happens, I expect bonds will go down with equities. Not necessarily in perfect unison, but travel in the same direction.

dunstonh

If not, and you can't see the incompatibility of your two posts, then I'd advise you to seek some professional independent financial advice.

Oh come on. Its Friday afternoon. Please do not inflict that pain on some poor IFA.

When a crash happens, it affects bonds too. General misery pervades. And we live in an age where many people are moving away from bonds anyway in favour of cash.

Bonds and equities are not normally correlated. Most stockmarket crashes do not see bonds fall as well. it can happen but it depends on the cause of the crash. More often than not, if equities crash, bonds rise.

In theory, bonds and equities are counter balances. But in reality they have been going up and down at the same time in the recent bear market (GFC) and the bull market which has followed.

Have you taken movements in Sterling into account when comparing differences as well as the individual market events on each asset class?
I suspect not.

WHEN the next crash happens, I expect bonds will go down with equities. Not necessarily in perfect unison, but travel in the same direction.

They may do. However, statistically, they probably wont. Nobody will know until it happens.

ValiantSon

Type_45 wrote: »

In theory, bonds and equities are counter balances. But in reality they have been going up and down at the same time in the recent bear market (GFC) and the bull market which has followed.

Kind of. However, what you are overlooking is that this is a specific feature of a very recent phase in the market. You shouldn't expect it to always be like that.

Type_45 wrote: »

WHEN the next crash happens, I expect bonds will go down with equities. Not necessarily in perfect unison, but travel in the same direction.

Nobody has suggested that there won't be another crash. Indeed, most of the regulars on here make the consistent point that there will be another crash.

You may be right about how the bond markets will behave, or you may be wrong. Either way, it doesn't change the fact that you are conflating a speculative 30% fall in global equities values with the same fall in bond values (and which kinds of bonds are you talking about, anyway?).

As I've said, feel free to do what you want, but your action is based on nothing more than a speculative hunch. It also completely ignores what happens when markets recover, and the erosion in the value of your money due to inflation in the intervening period. If my investments lose 30% in the next 12 months, I will make a big purchase of more fund units, then watch my original holdings recover over the coming years, and my cheap purchases make even more money for me.

Thrugelmir

Type_45 wrote: »

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.

Times are always unstable. That's why timing the market, if one is a long term investor, is pointless. Instead better to spend ones times rationalising why to buy or hold something in particular. The world never stops.

Prism

Type_45 wrote: »

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.

We can all have different opinions of what the future brings. Myself - i expect a 20% gain (again) over the next year. I could be wrong of course.

bowlhead99

Prism wrote: »

We can all have different opinions of what the future brings. Myself - i expect a 20% gain (again) over the next year. I could be wrong of course.

Plan for the worst, hope for the best.

Well, OK, don't plan for the very worst as (a) it's depressing and (b) you will have to work unnecessarily hard if you never take any investment risk over your lifetime. So plan for something better than the worst, but have an awareness of what the worst might be so you aren't surprised or scared by it.

Prism

bowlhead99 wrote: »

Plan for the worst, hope for the best.

Well, OK, don't plan for the very worst as (a) it's depressing and (b) you will have to work unnecessarily hard if you never take any investment risk over your lifetime. So plan for something better than the worst, but have an awareness of what the worst might be so you aren't surprised or scared by it.

Absolutely. All my investments are for my retirement. Worse case I retire in 20 years (my plan) and best case in 10 (a lucky alternative). Thats the only plan I really need at the moment. The flexibility of not having a fixed date at the moment does a lot to reduce worries of a crash. I have been through 2000 and 2008 without budging (though admittedly things are much more transparent these days) so I reckon I can withstand another.

OldMusicGuy

Type_45 wrote: »

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.

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.

3 to 5% is better than inflation. If/when there is a 30% crash, the markets will recover (like they always do), just make sure you don't sell when things go down.

You need to think about your long term objectives. It's a poor choice not to be invested in the markets for the long term if you want serious growth. I know from my own experience. And I too, like you, switched into all cash at times and missed out on growth.

Why not have a mix of cash and equity/bond investments? That's what I do. Set the mix so that it balances your risk and you know you can hold investments through any short term volatility while you have cash as a backup. Going all in then all out is a poor investment strategy.

Why not consider lower risk VLS funds to limit your downside?

Type_45

Point remains though:

Invested: 3% upside, 30% risk.

Banked: 1% upside, 0% risked


Do the math.

Prism

Type_45 wrote: »

Point remains though:

Invested: 3% upside, 30% risk.

The point is that Vanguard or nobody else have a clue what the upside is % growth is. Or chance of a crash. Or drop in a crash.

You can't do the maths when you don't know the numbers to plug in