How to Diversify in current climate

Thrugelmir

Linton wrote: »

There is a whole world out there.

For retail investors it's a diminishing world of choice in almost every sector.

DairyQueen

Thrugelmir wrote: »

For retail investors it's a diminishing world of choice in almost every sector.

From a (paywall) article on The Telegraph website regarding the impact of QE by the ECB. The quote is from a BAML analyst:
'"... What seems a given is that credit markets will experience another bout of rapid expansion, coaxed on by the proliferation of negative yields."

Its warning comes amid rising concerns about the decline of public market on both sides of the Atlantic. Stock markets in Europe are already shrinking at a faster pace than elsewhere, with London lagging rivals for flotations and suffering a 3pc drop in net equity supply since the start of 2018.

The number of listed companies in the EU has tumbled by a quarter to around 8,000 in just a decade. US markets have seen a 5pc drop in that time, also suffering a 38pc plunge in listed companies in the previous 10 years.

Ordinary investors could miss out on benefiting from the economy’s growth as more firms are held privately.

Fewer listed companies releasing results would also mean investors get “a less reliable pulse on the economy”, said the analysts.

...

Extraordinary policy at the ECB has already pushed the amount of negatively-yielding corporate debt up to €1 trillion (£861.7bn).'

Investment-worthy companies don't need to list or issue bonds in order to raise capital from us. Banks don't need to borrow from us in order to lend. Institutional investors are accepting negative returns on government debt. The consequence (as you say) is a restricted market for retail investors.

We are forced into riskier and riskier investments just to try and match inflation.

In the world of QE the cost of promoting spending via cheap debt is borne directly by retail investors and savers, and indirectly by those who are encouraged into excessive borrowing. Consumer spending must be maintained at any cost. The consequences for individuals are now feeding through. In January, The Guardian reported that UK personal insolvencies hit a 7-year high, and those who wish to invest at low-medium risk, are seeking income, and/or wish to save when inflation outpaces returns on cash, need to be very financially savvy to stand a chance of meeting their financial objectives.

chucknorris

I've started selling my investment property, I already have plenty in equities, so I have to decide where to invest the equity. I did intend to invest in individual corporate bonds, but it is difficult to find many that beat inflation and tax to just tread water. So I have finally resorted to looking at bond funds, it isn't what I wanted to do, but I don't see any viable alternatives.

itwasntme001

chucknorris wrote: »

I've started selling my investment property, I already have plenty in equities, so I have to decide where to invest the equity. I did intend to invest in individual corporate bonds, but it is difficult to find many that beat inflation and tax to just tread water. So I have finally resorted to looking at bond funds, it isn't what I wanted to do, but I don't see any viable alternatives.

Which bond funds are beating inflation?

I have sold some equities recently as i was heavily invested. Parked this cash into savings account paying 1.2% interest. Suddenly that looks more attractive then all other alternatives.

seacaitch

itwasntme001 wrote: »

It is a very tough one. Probably now is the toughest ever time to be an investor.

We all have opinions, and mine is that over the past century there were plenty of less appealing looking periods in which to be investing.

While acknowledging the issues posed by lowest-interest-rates-in-history and "full" (but rational) equity valuations, I draw plenty of optimism from my view that we (US markets) are ~6 years into a secular bull market* and which I suspect could run for a further 12-15 years.

I don't assume this will happen, but I find myself "open to" somewhat/markedly more optimistic outcomes than I generally see written about by others either on this forum or by people elsewhere commencing on investment markets. Which as a lifetime contrarian, is a good thing and gives me pause for thought...

It seems to me that at almost no time since the March 2009 lows has there ever been much enthusiasm for this market - it's certainly the most hated bull market I've ever observed.

I remain hopeful that, given a fair wind, this current secular bull market eventually ends similarly to the last one: enjoying widespread mass speculative participation, ideally with a narrative backstory that leads to a full-on mania. It would suit me personally, timing-wise, to be selling ludicrously overvalued equities hand-over-fist into such a market, just as ~20 years ago I sold hand-over-first into the dotcom mania.


* https://i.pinimg.com/originals/31/79/24/317924a1a770f9478426b98e7f029fb2.png

https://forums.moneysavingexpert.com/discussion/comment/76095667#Comment_76095667

itwasntme001

seacaitch wrote: »

We all have opinions, and mine is that over the past century there were plenty of less appealing looking periods in which to be investing.

While acknowledging the issues posed by lowest-interest-rates-in-history and "full" (but rational) equity valuations, I draw plenty of optimism from my view that we (US markets) are ~6 years into a secular bull market* and which I suspect could run for a further 12-15 years.

I don't assume this will happen, but I find myself "open to" somewhat/markedly more optimistic outcomes than I generally see written about by others either on this forum or by people elsewhere commencing on investment markets. Which as a lifetime contrarian, is a good thing and gives me pause for thought...

It seems to me that at almost no time since the March 2009 lows has there ever been much enthusiasm for this market - it's certainly the most hated bull market I've ever observed.

I remain hopeful that, given a fair wind, this current secular bull market eventually ends similarly to the last one: enjoying widespread mass speculative participation, ideally with a narrative backstory that leads to a full-on mania. It would suit me personally, timing-wise, to be selling ludicrously overvalued equities hand-over-fist into such a market, just as ~20 years ago I sold hand-over-first into the dotcom mania.


* https://i.pinimg.com/originals/31/79/24/317924a1a770f9478426b98e7f029fb2.png

https://forums.moneysavingexpert.com/discussion/comment/76095667#Comment_76095667

My statement did not just look at equity markets in isolation. I was considering bonds, savings rates, corporate bonds, property and was also considering what people close to or at retirement stage would do. There is little choice given we have been in a negative real interest rate economy for a long time which means you are guaranteed to lose money in bonds and savings at this stage. This leaves equity and property which people are and have been forced to buy into to try to hopefully guarantee a positive real return. But for retirees this is perhaps too much risk to bear for obvious reasons.

This is why it is a tough time and probably the toughest time we have ever been in.

There does not need to be so much enthusiasm in the stock market for the market to be followed by a crash or bear market (e.g. 2007 top). The current bull market may very well end with enthusiasm but then it does not necessarily have to for there to be a very low return or even negative return over the next 10 or 20 years.

bostonerimus

Bonds have done pretty well over the last year; Vanguard Global Bond Index is up 9%, of course it lost money the last 2 years. It's the volatility that is really worrying as bonds were always supposed to be sure and steady.

There's a lot of turmoil out there so the key is to secure yourself a base income and careful BTL has always been a good way to do that and some people might consider part time work in retirement. Maybe the savings ladder is a viable option for some frugal and conservative folks and if you are still working you should spend less and build up a good cash buffer. Other than that you will just have to deal with the volatility of stocks and bonds. If you are frugal you might be able to live off the natural yield, but most people will have to take a total return approach and use all the usual buffering and withdrawal control schemes to survive bad markets.

Linton

itwasntme001 wrote: »

Which bond funds are beating inflation?

I have sold some equities recently as i was heavily invested. Parked this cash into savings account paying 1.2% interest. Suddenly that looks more attractive then all other alternatives.

Lots of corporate bond funds are beating inflation:


Liontrust Monthly Bond for example is top of the Trustnet list for % yield in the Sterling Corporate Bond fund sector with a yield of 5% and a gross annual return rather higher than that. The top half of all the funds in the sector have a yield of 2.5% or more. Though you do have to check that the capital values arent suffering.


Another option I like is infrastructure funds that invest across the world. These are mainly equity but highly defensive equity.

itwasntme001

Linton wrote: »

Lots of corporate bond funds are beating inflation:


Liontrust Monthly Bond for example is top of the Trustnet list for % yield in the Sterling Corporate Bond fund sector with a yield of 5% and a gross annual return rather higher than that. The top half of all the funds in the sector have a yield of 2.5% or more. Though you do have to check that the capital values arent suffering.


Another option I like is infrastructure funds that invest across the world. These are mainly equity but highly defensive equity.

I am staying away from OEIC bond funds as i think they will have serious liquidity issues in the next downturn. Plus yields do not look appealing given risks e.g. junk bonds.


Do you have suggestions for infrastructure funds to invest a large sum into?

bostonerimus

This discussion is like so many others when it comes to investing; people want a magic bullet, some way to beat the average and the odds. Well that's not going to happen for most people and you are likely to be one of those "most people". All the old rules apply and those have worked through numerous market cycles. So keep your nose clean and just be sensible when you spend and invest.