Allocation re-balancing strategies?

rathernot

seacaitch wrote: »

You really need to think about this aspect because you will find out one day.

If you've an investment horizon of 20 years as suggested, then it's almost 100% certain you'll see some very significant declines in equities over that period, multiples of what you've experienced in the past couple of weeks; declines that last a year or so, with ever more pessimistic news reports and ever more grim forecasts for the future.

If you panic sell when it gets grim, you're f*.

That's one reason why people don't just include in their portfolios the things they hope will go up the most, but also other things that may dampen volatility by behaving differently when some markets are stressed, so they don't experience as much angst from watching (feeling) their portfolio decline quite so rapidly.

It's also why longer investment horizons are important.

When starting out investing, it's easy to say things like "I'm investing for the long term" or "I have high risk tolerance" but subsequent events (volatility) may reveal to you that those those things aren't actually true, or you've not really internalised or appreciated what they mean in practice.

Here's a quote I've mentioned before:

"Most investors underestimate the stress of a high-risk portfolio on the way down.


My suggestions:

- be honest with yourself about your investment time horizon; is this money really locked up for a decade or two, such that you can leave it alone, untouched, without you being shaken out of your positions if (when) it gets grim and your investments tank?

- think about whether you would prefer greater diversification (which may quite possibly lead to lesser theoretical long term returns, but may increase the probability of you actually achieving decent long term returns by reducing the likelihood of you panic selling during severe market declines)

- if you do desire greater diversification (across asset classes and investment styles), I don't see a huge problem with you having chosen to focus on buying the riskier assets first; this is because long duration assets like equities are better suited to long investment horizons. However, this is caveated by the two preceding points above, so you must be honest with yourself about your time horizon and be sure you can tolerate the portfolio's intervening volatility prior to it becoming more diversified.


It's good that you're beginning to think about this stuff. It's natural for volatility to feel unsettling. What's important is if or how you respond to it. Over time, and assuming an appropriate portfolio, it'll become easier as you get desensitised. The important thing, I think, is ensuring you remain involved for the long term so as to be able to enjoy the long term returns that risk assets can deliver, avoiding being unseated by normal periodic turbulence.

Investing successfully isn't that easy and perhaps doesn't come naturally. Unlike many other activities, the closer you get involved with it (the more hands-on you become) the trickier it can get due to emotions that may be brought into play. As a result, it can often be a benefit to keep things at an arm's length distance, recognising that we ourselves are often the weakest link in the chain. I personally think that sensibly constructed/managed multi-asset funds are a great way of achieving this.

Yes it's been a bit of a wake up call. I don't know anyone likes looking at a valuation and seeing it's gone down but I have been only putting in money that I know won't be needed for a minimum 10-12 years - it could be Armageddon tomorrow and I don't need that cash so I think it's more of a psychology thing and maybe the simple solution to that is just don't look at the valuation as often

I guess put bluntly it's whether I'm comfortable chasing higher returns v having a large chunk of it chasing lower returns but sleeping better.

A couple of options leap to mind, a good multi-asset like the ones discussed is one option.

I'm also wondering if maybe a simple MSCI world tracker combined with a chunk of something like Troy Trojan is an option, or rather a sensible option, going forward.

Audaxer

Alexland wrote: »

While HSBC provide the GS fund series for different risk appetites I haven't seen anything from HSBC to suggest that their subsequent Tactical Asset Allocation within each fund is particularly risk based.

I think I know what you mean. I've read on here that they are risk managed, but the equity allocations just seems to be based on geographical indexes, and don't change much. I originally thought that was quite a good thing as they had a much lower allocation in the UK than VLS, so may be good to sit alongside VLS, but now I'm not so sure.

Are you still happy to have a large holding in HSBC GS Balanced, despite it not being so much risk-based?

Alexland

Audaxer wrote: »

Are you still happy to have a large holding in HSBC GS Balanced, despite it not being so much risk-based?

You have a good memory. Since swapping VLS80 to HSBC GS Balanced in my SIPP in January (just before the first correction) it has made no material difference to where I now find myself. My normal allocation across all my accounts is 70% equities, 20% bonds and 10% cash. As a result of the latest correction the cash has gone into equities and, if it worsens, the bonds are next.

Alex