Decision: active v passive multi manager v nutmeg v DIY

Audaxer

Thanks for the very interesting responses, grey gym sock, bowlhead and bostonerimus.

I take from that it is perfectly okay to hold equity income funds throughout the economic cycle. I have initially started reinvesting my dividends and I agree that is a very good way to accumulate growth. I appreciate that maybe a wider range of funds including niche funds may give a greater total return, but knowing when to come in and out of niche funds and when to sell capital and take the returns is more difficult. Anyway if you do buy and sell funds depending on where we are in the cycle, is that not another form of trying to time the market?

dunstonh

I take from that it is perfectly okay to hold equity income funds throughout the economic cycle.

Yes it is. As long as you understand that for a period, it will likely underperform. Whilst it is a focused sector, it is not as focused as some areas.

Anyway if you do buy and sell funds depending on where we are in the cycle, is that not another form of trying to time the market?

No. That is making small tweaks to your strategy but it doesn't change the fact you are still in the market.

ValiantSon

Audaxer wrote: »

I agree generally you should avoid trying to time the market, but if someone delayed investing a lump sum at the end of last year as they thought the markets were high, and invested in mid-February once they had dropped 10%, they would have successfully timed the market, albeit that it would have been by luck rather than judgement, as the markets could have kept rising.

So trying to time the market is a flawed strategy.

They could just have easily seen values continue to rise, and therefore bought at a higher price than if they'd invested in January. Using hindsight is no way to formulate a view about timing markets. You cannot reliably time them, so don't try.

Audaxer

ValiantSon wrote: »

So trying to time the market is a flawed strategy.

They could just have easily seen values continue to rise, and therefore bought at a higher price than if they'd invested in January. Using hindsight is no way to formulate a view about timing markets. You cannot reliably time them, so don't try.

I agree. The previous post indicated it was impossible to time the market successfully, and I was just pointing out that it could be done successfully as a one-off but it would be done to luck rather than judgement.

MK62

It all depends exactly what "timing the market" means in any specific conversation - it's a bit of a broad brush.

Ray_Singh-Blue

Widely reported that in 2007 Warren Buffet made a $1000000 bet that an investment in a S&P tracker would outperform some hedge funds over the next 10 years. He didn't add any new money. He didn't try to time the 2008 crash. He just invested a lump sum in a plain, boring, low cost tracker and left it sitting there. In 2017 he won the bet.

Since accepting that I am unlikely to outperform the market, my costs are down to 0.25% and I hardly ever need to spend time thinking or worrying about investments.

Audaxer

Ray_Singh-Blue wrote: »

Widely reported that in 2007 Warren Buffet made a $1000000 bet that an investment in a S&P tracker would outperform some hedge funds over the next 10 years. He didn't add any new money. He didn't try to time the 2008 crash. He just invested a lump sum in a plain, boring, low cost tracker and left it sitting there. In 2017 he won the bet.

Since accepting that I am unlikely to outperform the market, my costs are down to 0.25% and I hardly ever need to spend time thinking or worrying about investments.

Just out of interest, are you retired and taking income from total return? I like trackers but maybe not as good for dividend income as active funds.

dunstonh

Widely reported that in 2007 Warren Buffet made a $1000000 bet that an investment in a S&P tracker would outperform some hedge funds over the next 10 years. He didn't add any new money. He didn't try to time the 2008 crash. He just invested a lump sum in a plain, boring, low cost tracker and left it sitting there. In 2017 he won the bet.

It is worth noting that the US had just come off nearly 8 years of underperforming global markets. Had he made the bet 10 years earlier, it may well have been a different outcome.

MK62

There is some concern now however that index tracker funds/ETFs could be driving valuations in the S&P500 (esp at the upper end) to unsustainable levels, not really supported by those business's fundamentals.....

The concern comes from the fact if billions of dollars are poured into S&P500 tracker funds, those funds are then in turn obliged to immediately purchase shares in the S&P500 by weighted amounts, at whatever the price is at the time, which in turn then drives the price of the underlying shares up......

It would seem that not everyone agrees with this theory though, so I suppose we will have to wait and see what actually happens when the next inevitable downturn arrives.......

grey_gym_sock

MK62 wrote: »

There is some concern now however that index tracker funds/ETFs could be driving valuations in the S&P500 (esp at the upper end) to unsustainable levels, not really supported by those business's fundamentals.....

The concern comes from the fact if billions of dollars are poured into S&P500 tracker funds, those funds are then in turn obliged to immediately purchase shares in the S&P500 by weighted amounts, at whatever the price is at the time, which in turn then drives the price of the underlying shares up......

It would seem that not everyone agrees with this theory though, so I suppose we will have to wait and see what actually happens when the next inevitable downturn arrives.......

indiscriminate buying can drive share prices up, beyond sensible levels.

that buying can be via individual shares, or via active funds, or via tracker funds.

people buying S&P 500 trackers are agnostic about which shares in the index are best, and they end up driving up the prices of all shares in the index a little. people who pile into (e.g.) FAANG stocks directly will drive up the prices of just those shares, but by a larger amount (for the same amount of cash deployed).

so IMHO, if you think (e.g.) the FAANGs are overvalued, then you should blame the active stock pickers (either direct investors or active fund managers); but if you think it's the whole market, you should blame the investors buying trackers.

in previous bubbles, the whole market may well have been overvalued, but the overvaluation has tended to be concentrated in specific kinds of stocks. i would be surprised if that's different next time.