cautious would-be investor 14 January 2020 at 11:42AM edited 30 November -1 at 12:00AM in Savings & Investments 22 replies 1.3K views

aroominyork

You need to take some time to educate yourself about risk and return. Here's one thing to read about - the efficient frontier.

seacaitch

blokedownpub wrote: »

A question from a cautious would-be investor -

I have a reasonable lump of cash to invest (around 200k) and have had it sitting in an NS&I account for a good bit over a year awaiting the big correction, which stubbornly seems to not be happening

That correction already happened, within your stated timeframe, and you missed it, eg. between 3rd Oct-2018 and 26th Dec-2018, US markets fell by 20%, which as per usual generated much fearfulness and forecasts for much larger falls to come as people extrapolated the near term past into the immediate future...

As a cautious would-be-investor presumably without much/any prior investing experience, and acting solo, you'd have found it psychologically difficult to make your first investment of a large sum of "safe" cash into such a market environment, so it's not a huge surprise that you didn't.

Your mistake here has been to look for some "optimal" or at least much better moment at which to make your investment:
(i) it's impossible to know without hindsight when that optimal or much better moment is; and
(ii) as alluded to above, for a novice investor without much/any prior experience, it's likely that the better the moment becomes (eg. the lower that markets get priced) the harder you'll find it to invest a one-off large sum of cash: you'll become fearful (or expectant) of even lower prices to come, due to the pessimistic news "narrative" that develops to explain the market falls that have already occurred, making it ever harder for onlookers such as yourself to leave the "safety" of cash and expose yourself to what appears to be growing market risk and volatility.


The easiest way for novices to become accustomed to market volatility, how it makes them feel and how to deal with it, is to be feeding money in regularly, eg. monthly, over many years, slowly growing their portfolio from having zero initial exposure, to low exposure, then modest exposure, and eventually to significant exposure. This slow, steady process give people time to adjust to the idea that their investments can swing around in value by large amounts without them worrying it about too greatly, and without generating emotions in them sufficiently strong to cause them to make poor decisions ("sell low") that will negatively impact their long term returns.

This path isn't quite open to you, as you have a one-off large sum to invest, but it suggests a possible option for you of feeding your money into the market over a set period of time (perhaps six month, a year, you decide) to a predetermined schedule that you follow unflinchingly.

The goal of this wouldn't be to get you invested in a manner that gave you the statistical best shot at the highest return (all-in at once does that), but instead to get you invested in a way that is psychologically the easiest for you to follow and has the highest likelihood of you being able to stay the course without being unseated from your investment during the more vulnerable early phase where your volatility tolerance will be at its lowest.

AlanP_2

blokedownpub wrote: »

One thing I didn't mention is that I'm not earning at the moment. Am I right in thinking that the pension is only of benefit if using it to offset income tax?

I've used my pension so far for tax efficiency and getting the free portion from my previous employers.

Is your spouse earning as you could contribute to a pension in their name?

Do you intend to return to work as you could go ISA now and then move it across in to a pension then?

As a non-earner you can contribute £2880 nett to a pension which HMRC will gross up by £720 for you making that £3600 a year overall.

Ceme3000

Powysshrew wrote: »

I'm in a similar position, where having recently moved to a SIPP, I have almost all my money in cash.

I am ready to invest but am concerned if the market is due an adjustment downwards however I am not keen on leaving as cash!

People were posting the same concerns about imminent market crashes 12 months ago, but sitting in cash would have lost them a really good year of growth. Time in the market not timing the market and all that.

If you are really nervous, why not drip feed into equities?

xylophone

I'm not earning at the moment.

Do you have any "relevant earnings" in excess of £3600 gross in this tax year?

If not, then you can still contribute the limited amount as in post above.

If neither you nor your spouse have used your ISA allowances for this year, then you might consider opening S&S ISAs - if you are interested in Vanguard funds then see

https://www.vanguardinvestor.co.uk/investing-explained/what-are-lifestrategy-funds?cmpgn=PS0319UKPASRI0001&gclid=EAIaIQobChMI1NGVvsOD5wIVxbTtCh0e-gMJEAAYASABEgKpgvD_BwE&gclsrc=aw.ds

https://monevator.com/using-vanguard-lifestrategy-funds-life/

Index investing is discussed here

https://monevator.com/index-investing-guide/

https://monevator.com/low-cost-index-trackers/

Platform comparison here

https://monevator.com/compare-uk-cheapest-online-brokers/

blokedownpub

Thanks all.

seacaitch, really interesting about the psychological nature of all of this. Exactly how I'm feeling. I might go hybrid and invest an initial chunk then drip feed from there. At least feel like I'm making inroads. I'm hoping I won't be trigger happy to remove on a downturn.

AlanP, I'll have to look into the pension thing. Neither myself nor my wife are earning at the moment. I will be returning to work and at that point I'll take advantage the tax efficiencies.

xylophone, Thanks too for the links. Useful bedtime reading. We've still to use our ISA allowances. Shall certainly get onto that.

Certainly feeling better armed.

C_Mababejive

Well it’s a scary business and I’m scared too but doing nothing is not an option . Cash in the bank or a car&put savings account is no good . I’m invested in low cost trackers typically very diverse , global etc . The way I look at it , every single person in every e of those companies have lifestyles and families to support . Better still , they are all working for me . They all want to do well and the companies they work for want to do well . With all that goodwill and hard work going on, what could go wrong ? Sure we have the odd correction but the system gets over it and marches on and those people are all still working for me .


You may feel safe holding your £20 notes but they are intrinsically worthless .They are just pictures of the Queen.

What is worth more ? A picture of the Queen with the number 20 printed on the corner or a share in 3000 global companies all working for you and paying you money as a thank you for lending them your picture of HM Queen ?

Audaxer

blokedownpub wrote: »

seacaitch, really interesting about the psychological nature of all of this. Exactly how I'm feeling. I might go hybrid and invest an initial chunk then drip feed from there. At least feel like I'm making inroads. I'm hoping I won't be trigger happy to remove on a downturn.

That sound like a good plan. If you invest a decent chunk of your savings initially and the value falls soon after, don't feel too disappointed as that will be a good time to invest some further funds.

benbay001

blokedownpub wrote: »

I've recently read "Investing Demystified" by Lars Kroijer and his whole shtick (which could be written on a beer-mat) is to realise that being able to outsmart the market is pretty much luck.

Thats widely believed, yes.

blokedownpub wrote: »

I'm still worried that the world is going to go to hell in a handcart in the near future, so I'm thinking Vanguard LifeStrategy 20%.

Oh.
Well that was a quick change of course.

blokedownpub

C_Mababejive wrote: »

The way I look at it , every single person in every e of those companies have lifestyles and families to support . Better still , they are all working for me . They all want to do well and the companies they work for want to do well . With all that goodwill and hard work going on, what could go wrong ?

I do like the sentiment. :-)