Investment advice for person panicking about Brexit

dunstonh

All good stuff that helps me to learn - I am the first to admit I'm an investing duffer, but there does appear to be a bit of a double standard in some posts. How many times do people tell us investments need to be viewed as a long-term thing - 10 years being a typical example of what is suggested. Yet here we have a thread where some posts are being openly critical after only 4 years.

I am not sure I should quote your comment as you refer to yourself as a duffer and I may offend you by using your words.

Thankfully, you enjoy the discussion and take on bits and bobs from it and develop your understanding from there and that is how it should be. Some bits you may not agree with. Other bits you will. Sometimes minds will be changed. Sometimes not.

You are right, you should not use short term periods. However, that assumes that the portfolio is reasonable. The funds selected by the OP were never reasonable. If an adviser had recommended them like that, it would be a missale irrespective of performance. Suitability trumps blind luck. Suitability will always be right. Blind luck will not always be positive.

Consider also a portfolio showing 38% growth in 4 years has no points of reference other than start and finish.

We lack actual dates in the year but we know ballpark figures.

ooking at the two examples mentioned by @prism (Fidelity world - up 88% over 4 years and Lindsell Train GE - up by 140%). If they are regarded as beacons of good growth, should any of us be buying into them now or not?

If they are suitable for you then yes. Neither of those funds are extreme high risk niche areas prone to massive volatility. They are well diversified funds.

That 38% growth could be made up of 2 years of significant losses followed by 2 years of even more significant growth. What the next 6 years might bring is up for grabs but all we could really tell from that hypothetical example is that the entry timing was unfortunate. Yes, it might be reasonable to criticise entering a market after a long period of growth (as @dunstonh alluded in his most recent post) but then we get other posters quipping (in other threads) about 'time in the market vs timing the market'.

The main point I was looking at was that a new investor from 3-4 years ago would be looking at past performance charts of 5 years where the credit crunch would have dropped off. It would only be showing growth periods fuelled by stimulus. They would only be seeing big percentage gains on those charts. Not the big percentage losses. A fund that can rise 100% in a year can lose most of that in a year.

Back in the tail end of the dot.com period, the Daily Mail ran articles showing how pensioners should switch out of their dull and poor performing corporate bond funds into the exciting and high performing tech funds. That article ran not long before the 90% drop (and there was no mention of the massive risk difference in the article either).

Towards the end of any sustained growth period, you get people going in thinking its a no loss game . Its not about timing but awareness. An experienced investor will have an idea of the ballpark losses their investments are capable of. They know they are going to suffer that loss event at some point.

A new investor who doesn't understand the risks and is going in gung ho is the type that will likely cash in the investments after the loss and then spend the rest of their life saying they lost money on the stockmarket and will never do it again. Most of us know people like that. The only reason someone would have lost money on the stockmarket and is negative about investing is if they invested incorrectly in the first place.

aroominyork

dunstonh wrote: »

The main point I was looking at was that a new investor from 3-4 years ago would be looking at past performance charts of 5 years where the credit crunch would have dropped off.

Speaking as a relatively new investor I look at five year charts to gauge recent performance but also ten year charts to see how they performed in the 2008 crisis. The ten year charts will soon drop off the pages where they are most easily found, ie Trustnet and Morningstar. How will that affect people's decision-making? As an obvious example will less new retail money go into M&G Optimal Income?

Audaxer

aroominyork wrote: »

Speaking as a relatively new investor I look at five year charts to gauge recent performance but also ten year charts to see how they performed in the 2008 crisis. The ten year charts will soon drop off the pages where they are most easily found, ie Trustnet and Morningstar. How will that affect people's decision-making? As an obvious example will less new retail money go into M&G Optimal Income?

Sorry aroominyork, are you saying you think M&G Optimal Income is a good or bad performer? I have the fund in my portfolio - I chose it because in my opinion it had a good 10 year record for a fund of mostly bonds.

aroominyork

Audaxer wrote: »

Sorry aroominyork, are you saying you think M&G Optimal Income is a good or bad performer? I have the fund in my portfolio - I chose it because in my opinion it had a good 10 year record for a fund of mostly bonds.

I think that much of the reason the fund is so big - £20bn - is down to how well it held up in 2008. Investors have long memories but once 2008 drops off the chart will Richard Woolnough be seen as slightly less of a stellar performer?

bowlhead99

aroominyork wrote: »

Speaking as a relatively new investor I look at five year charts to gauge recent performance but also ten year charts to see how they performed in the 2008 crisis. The ten year charts will soon drop off the pages where they are most easily found, ie Trustnet and Morningstar. How will that affect people's decision-making?

In your case, you know to look for the ten year chart because you know there was a crash in 2007-9 (exact dates dependent on which particular market). But when you are at trustnet the chart is 5 years by default and the only way to get the longer one is by following through the links to the 'explore further with interactive charting' and then you can flip it to 10 years.

But on the exact same menu drop-down next to the the 10 years button there is the choice to set your own dates, so knowing there was a crash in 07-09 you could just set the chart to run from 1/1/2007. Or for the dotcom crisis, 9/11 and enron scandal etc you could go back to 1/1/2000, if the fund was running that long.

This assumes you know there were crashes in 2000-03 and 2007-09 that you are keen to review. People who want meaningful data over a longer term time period, like you, will look it up, as long as the data remains free to get. Whereas people who don't know they should look at more than 1, 3, 5 years will just look at those 1, 3, 5 year charts they get by default, and probably will not even find the 10-yr ones like you do. So something dropping off the 10-yr chart may not really matter much.

You are right though,old events falling off charts is a problem for newbies. For example, if I pull up FTSE's latest factsheet for the All-World index (http://www.ftse.com/Analytics/FactSheets/Home/DownloadSingleIssue/GAE?issueName=AWORLDS) it gives some performance stats for the last 3, 5, 10 years. Notably you can see in the Drawdown - Total Return table that the largest peak to trough drop on a total return basis in US dollars over the last decade was 49.1% for FTSE All-World (bit lower for Developed, higher for Emerging).

OK you think, if I invest in a global equity index I could see a global equities downturn costing me almost half my money. That was in dollars when dollars were appreciating against other world currencies and so actually in sterling it was less, but next time it might be sterling appreciating and foreign assets getting cheaper so I could be hit with the full force of that 49% loss. That's the sort of loss we can get from a global index.

But the issue is, that factsheet is getting updated every month and so the 10 year data currently only goes back to 1 August 2018 now. So already, people can't seet the full story at a glance using 10 year data. If you pull the archived factsheets from the end of Q3 2017 (https://www.ftse.com/Analytics/FactSheets/Home/DownloadSingleIssueByDate?IssueName=AWORLDS%20&IssueDate=20170929&IsManual=%20False) your ten year period will go back further, and then you're told that the largest peak-to-trough drawdown in dollars for the FTSE All-World was 57.9%, with FTSE Emergiing being more like 65%.

So the story isn't that a global equity tracker can lose almost 50% over a year or two, and has done so in the last ten years - it's that a global equity tracker can lose almost 60% over a year or two, and has done so in the last eleven years. A new investor may not go looking for this data; and all he sees when reading articles is perhaps that a world tracker from a sterling perspective lost 40% or so, which he reckons he is OK with.

Because he may not appreciate that if currency markets move against you instead of in your favour, and your investments are 94% outside the UK (which is the case with a global cap-weighted tracker), it's not implausible to get closer to the 60% loss which the Americans experienced last time out, than a 40% loss which the Brits experienced last time out, when holding the exact same bag of international assets as each other.

So as a new investor there is a lot to appreciate which is why some get the impression that experienced financial advisors are overcautious when dealing with new investors. In seven months time the start point of the 10 year history will be end of March 2009 when the markets had bottomed out, and nobody will be talking about 60% losses because the factsheet may say peak to trough drawdown of 19% in the last decade. That's assuming there isn't a bigger loss by then

Brasso's post above mentions that he knows he is not going to lose literally 70% overnight, and it is true that the 57.9% drawdown on the archived factsheet link did not happen in just one night, or just one trading day. The "just one day" in the middle when the US House declined to bail out Lehmans only saw S&P500 lose about 9% (first time the US market lost a trillion dollars in a day).

But any smart investor knows not to give up holding investments just because the market has had more down days than up days over a year, right? Some might think they would have the presence of mind to bail out when it started to go down, and not feel all that drop, but would they really? "Lehmans has just gone under, ouch, but at least all the bad news is priced in now. I'll ride it out". So, an investor dutifully following the advice to stay invested from the start to the end and ride it out, found themselves down 58% from the last peak that they'd been enjoying (even after counting the dividends they'd been receiving from this index of globally diversified companies).

And that is the point when the newbie invsestor has really had enough. Dammit I knew that 38% gain over four years was too good to be true. Now I've lost over half my money. This game is not for me. I'm out.

And by getting out, they really have lost half their money, and not just on paper.

So, some caution from Dunstonh and the like is a public service, and a useful public service message that is brusque is still a useful message. If you were in the WW2 trenches and your boss said "get your head down and put your helmet back on you cretin", feel free to complain to Human Resources later about the people-skills of your line manager; but be grateful that you're able to make the complaint face to face.

Thrugelmir

aroominyork wrote: »

I think that much of the reason the fund is so big - £20bn - is down to how well it held up in 2008.

More likely down to the underlying stocks held. If you recall the crisis was predominanly finance related.

aroominyork

Thrugelmir wrote: »

More likely down to the underlying stocks held. If you recall the crisis was predominanly finance related.

What I mean (albeit without knowing the amount the fund held in 2008) is that in support of RW’s reputation as a cautious and canny investor, people often point to how well his fund held up in 2008. When the data demonstrating that is slightly harder to find - not appearing on 1, 3, 5, 10 years charts - investors, especially retail ones, might see him as a little less stellar.

bowlhead99

divyanshisharma wrote: »

It was already known about the Brexit effect on market and yeah market has recovered from the impact soon.

I call spam

bowlhead99

Roman_Hantsyan wrote: »

The best advise it to diversify assets and put soe liquidity out of UK

And again...

Heedtheadvice

Could well be spam, B, (press the button?) but maybe not a bad general idea though lacking a lot of detail!!

I guess most of us missed the brexit concerns and the comment about Ireland in early posts. Perhaps the OP has concerns about her future life outside of the UK if she is perhaps not able to stay here post brexit, rather than concerns about financial impacts on uk investments?