Premium Bonds - Stock market crash

AnotherJoe

JimmyTheWig wrote: »

.

It's like chopping and changing motorway lanes in heavy traffic. You know that your lane will slow down at some point but you don't know when. So you don't know when is best to change lanes. And so the best thing to do, generally, is pick a lane and stay in it.

Not so, queuing and probability theory clearly shows the best thing to do is pick any lane other than the one I am in.

bostonerimus

Malthusian wrote: »

And in exactly the same way, nobody expects bull markets either.

....or the Spanish Inquisition........

tomo92

Thanks all for the informative replies!

Thrugelmir

Prism wrote: »

I know thats good general advice but when you really don't need the money for at least 10 years or so (such as a pension) you can choose to be less diverse and ride out any short term crashes.

Endowment mortgages were sold on the same thinking....... Ultimately the expected growth failed to materialise. Hang around long enough and you'll experience the full range of emotions from being an investor.

nrsql

Malthusian wrote: »

It's called timing the market and is old as the stockmarket itself. Sorry to disappoint.

If you do this you will most probably never buy back into the market and will lose a large amount of money through missing out on reinvested dividends and timing your re-entry badly.

"The market is at its peak, I'll sell all my equities"
-> "I may have lost out on some gains but the market is still going to crash at any moment so I haven't actually lost anything"
-> "The market is crashing! I was right!"
-> "Still further to fall, I won't buy yet."
-> "This is a dead cat bounce."
-> "Equities are overbought and structural weaknesses remain."
-> "The market is at it's peak, I'll wait for a crash."

After all that you'll have been sitting in cash for 10+ years and made yourself potentially 33% poorer through loss of reinvested dividends alone.

More like

The market is at its peak, I'll sell all my equities
-> The market is rising rapidly, I'll buy back in so I don't miss out on more gains.
-> Dang the markets crashed. I'll have to sell so I don't lose more.
-> It's paused but I'll wait longer to catch the bottom.
-> Oh, it's going up again. This is a mugs game, I'll put everything in a deposit account.
-> Gold?

atush

tomo92 wrote: »

Hi everyone,

What do people think of this idea I have just thought up... I'm not sure if it is a new idea however I have never heard of it before.

While waiting for the inevitable stock market to crash, rather than keep investing my money into S&S as I currently am.... I increase my monthly purchasing of premium bonds. When the stock market "crashes", sell up my premium bonds and invest the money into S&S.

This has the benefit of potential earnings from premium bonds while waiting for the crash and at the same time my money will not decrease as it would if it was invested in S&S. It keeps my money liquid and ready to take advantage of the crash.

I am in no way suggesting when the next stock market crash will be, but in principle do you think this plan would work?

T

You might reduce losses if a crash is immediate- but if it is not you will lose out nt he dividends (whcih will be higher than the average prizes gained) and lose out on any growth in the funds/shaares.