Squeaky bum time!

Thrugelmir

Deleted_User said:

 Institutional investors are being forced into selling to keep up with the trend and preserve their job.  

Sell to whom?  Only other institutional investors have the financial firepower to match the trade. When forced sellers do indeed appear in the market (ala Woodford). Then individual share prices could seriously dive. Falls so far suggest a drifting downwards. Rather than a sharp dramatic fall. Passive funds of course need take no action. Until their investors pull their money out. 

Notepad_Phil

Thrugelmir said:

Notepad_Phil said:

But then my retirement calculations were based on surviving a 50% drop in markets and yield with only inflationary increases from then on.

If share prices fall have you not factored in a potential decline in dividends as well. (Depending upon the investment portfolio you hold). 

All factored, as in "But then my retirement calculations were based on surviving a 50% drop in markets and yield with only inflationary increases from then on.".

Hopefully the income (after taking account of inflation) will never fall by more than 50% from where it is now, but the cash savings are there to cover for multiple years if necessary. We've also never been big spenders so can batten down the hatches if absolutely necessary.

Making sure we had a good chance of coping with a big downturn in the markets was an absolute priority for me as although I wanted early retirement, I also wanted to make it as secure as possible for my OH in her later life when it's likely I'll not be around.

Audaxer

Notepad_Phil said:

Thrugelmir said:

Notepad_Phil said:

But then my retirement calculations were based on surviving a 50% drop in markets and yield with only inflationary increases from then on.

If share prices fall have you not factored in a potential decline in dividends as well. (Depending upon the investment portfolio you hold). 

All factored, as in "But then my retirement calculations were based on surviving a 50% drop in markets and yield with only inflationary increases from then on.".

Hopefully the income (after taking account of inflation) will never fall by more than 50% from where it is now, but the cash savings are there to cover for multiple years if necessary. We've also never been big spenders so can batten down the hatches if absolutely necessary.

Making sure we had a good chance of coping with a big downturn in the markets was an absolute priority for me as although I wanted early retirement, I also wanted to make it as secure as possible for my OH in her later life when it's likely I'll not be around.

It's been frequently said that dividends are a lot less volatile than share prices, so I would certainly hope there wouldn't be anywhere nearly a 50% fall in dividend income, but good you are prepared for the worse happening.

[Deleted User]

Thrugelmir said:

Deleted_User said:

 Institutional investors are being forced into selling to keep up with the trend and preserve their job.  

Sell to whom?  Only other institutional investors have the financial firepower to match the trade. When forced sellers do indeed appear in the market (ala Woodford). Then individual share prices could seriously dive. Falls so far suggest a drifting downwards. Rather than a sharp dramatic fall. Passive funds of course need take no action. Until their investors pull their money out. 

This is the fastest S&P500 correction on record. It is dropping so fast exactly because professionals are selling and are only prepared to buy at much lower levels. 

Information on professionals doing all the selling is coming from WSJ https://www.wsj.com/articles/the-pros-have-to-sell-stocks-now-you-dont-11582722004. 

MarkCarnage

My strategic retirement plan has always been to get income from sources other than direct market investments. So I can be sanguine about the ups and downs and just sit tight.

Well over half mine is, if I include cash buffer to see me towards SP age, it's probably over 70%. Once SP comes, it will be 75% or so. The rest is funded by less than natural yield from IT portfolio in SIPP, and when appropriate, some use of ISA capital, but only at the margin. 

MarkCarnage

CETVs will go higher. 

Possibly but not definitely. There are lots of factors, including the scheme's funding position, and its asset allocation which are taken into account too. 

Another, often overlooked, factor may be the rather arcane, but pretty important technical issues going on in relation to RPI and CPI at present, and crucially, how some schemes have hedged their liabilities here. There are some potentially perverse outcomes for funding from this. 

ffacoffipawb

Just checked this weeks losses. I wish I hadnt. Well into 6 figures over a SIPP, ISA and GIA. Market value less than book value now (only by 3% though). Most of 2019's gains lost, and that was my best year ever.

MarkCarnage

I would take issue with the statement that 'institutional investors' will be driving the selling. 
Managers of retail funds - which are essentially institutional - will be to the extent that the retail investors are pulling money out. 
Momentum hedgies will be, but I don't class them as institutional money. Quants similar. Good for them. I don't touch these strategies. 
Pension funds won't be, unless they've seriously screwed their investment strategy/strategic asset allocation. Same for SWFs or Family Offices. 
Closed end funds won't be, and might be doing the opposite.
Insurance companies shouldn't be either as their capital adequacy stress tests will be designed to withstand a lot more than this. 
I didn't read the WSJ article as it's behind a paywall, but it's 1) American 2) a bit of a rag these days. 
I haven't checked, but it would be interesting to see the market volumes, as there will be market maker protection going on. 

[Deleted User]

I take issue with calling WSJ “a rag”, but in any case we are talking specifically about one piece of data based analysis by highly reputable author and universities he is referencing. 

Without infringing on WSJ copyright, here is a small extract

“Jason Zweig wrote:When markets crumple, the culprits usually aren’t the smallest investors, but the biggest.
So far, most individual investors have remained steadfast as stocks have been pummeled by fears that the coronavirus could turn into a pandemic. If they continue to keep their cool, small investors might even get to buy bargains as the big money bails out.
Professional investors tend to move the fastest when a market suddenly turns. That’s largely out of self-preservation, because the biggest risk they face is being so out-of-step with the market that their clients fire them. That can lead the pros to chase the market trend too far and too long.
“Institutions sell more than individuals when there is a large stock-market drop,” finance professors Patrick Dennis and Deon Strickland found in a 2002 study. They also showed that the more widely a stock is held by big investors, the greater its trading volume during sharp market drops.”

The main question mark in my mind is the date of the research behind the claim. Things may have changed. As for UK being special... Well, it’s a small fraction of the market and there is nothing really special about UK institutions. 

bostonerimus

MarkCarnage said:

My strategic retirement plan has always been to get income from sources other than direct market investments. So I can be sanguine about the ups and downs and just sit tight.

Well over half mine is, if I include cash buffer to see me towards SP age, it's probably over 70%. Once SP comes, it will be 75% or so. The rest is funded by less than natural yield from IT portfolio in SIPP, and when appropriate, some use of ISA capital, but only at the margin. 

Having income directly impacted by market fluctuations was the fear of many with the introduction of pension reforms and both DB pensions and annuities becoming endangered species. If people with DC type plans can keep their cool they should be ok, but this is where you need a good plan to follow that stops you doing silly things.