Worst case investment scenario - what to do?

FinancialIdiot

This might or might not be a plausible scenario and it's not one I'm expecting, but as a novice I'm still interested in advice even if just for my own learning/understanding process.

Suppose I've opened an S&S ISA on the Vanguard or iWeb platforms with a view to putting £30k into (say) the VLS60 fund for 10-15 years. I've initiated the process to transfer the money from an existing cash ISA to the S&S ISA and in the 2 or 3 weeks it takes for the money to come across an inoculation against Covid 19 is developed and proved to be effective. On the inoculation news emerging, stock markets everywhere leap ahead, reach new all-time highs and look likely to stay there for at least a year and probably longer. However, the medium-term outlook is for (global?) recession due to problems existing now (eg. widespread economy shut-downs, emerging trade wars, Brexit effects, etc).

With the money now in a cash account on the investment platform, what's the sensible thing to do? Go ahead and put the whole lot into the VLS60 fund in one go regardless? Drip-feed it in over 12 months? Put it into a different fund instead? Put it back into a savings account temporarily in the hope that a market 'correction' is not too far away so you can invest below the top of the market?

I know you're not supposed to try to time the market but even in a more extreme scenario like this does it still make sense to carry through your original plans regardless?

El_Torro

There's always something going on. By that I mean the world's always in trouble and if you look hard enough you can find a dozen reasons not to invest your money. This was true before Coronavirus and will still be true if a vaccine is ever developed.

Chances are shares will continue to be volatile, but over a long enough time frame (generally considered to be 10 years or more) will still be profitable. Especially when invested in a tax free wrapper like an ISA.

For best returns invest all your money now and ride out the volatility. If you want to be more cautious and drip feed the money in over a 12 month period then you can certainly do that, just know that by doing this you're probably reducing your long term returns. 

respectmymonah

This is not an extreme scenario. The early 1970s was an extreme scenario, Spanish Flu was an extreme scenario that halved the average dividend paid by UK companies, the Great Depression and world wars were extreme scenarios, being victim of fraud is an extreme scenario.
If you're going to worry about the news, and let that affect your investment decisions, use a savings account. You're not paying Vanguard's platform fee of 0.15% for them to hold onto cash for you.

Also IMHO VLS 60 is conservative for a 10-15 year timeframe. 

blue_max_3

Would anyone have expected the stock market to rise during a pandemic? It just goes to show how hard it is to predict the markets. You are free to try and time the markets, but getting it wrong is going to hit you in the pocket. So, do you feel lucky?

kinger101

I've previously put a lump sum of about twice that in at what turned out to be a bad time (end of summary 2018).  Would I do it again?  Yes.  Although drip feeding over 12 months would have been better on that occasion, historically the lump sum approach has usually been best..  

Bravepants

If you are investing for the long term it is best not to overthink things. Just do it!

Grenage

I was listening to a podcast the other day that examined performance over a long period of time.  They compared fantasy portfolios that invested at the worst time against those at the best.

Over that long period of time there was only a couple of percent difference.  10-15 years is substantially shorter a window than the study, but as it's impossible to time the market you might as well just throw it in there.

keyboardworrier

This article is interesting, "What if you only invested at market peaks?" https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

FinancialIdiot

Thanks for all replies. Can anybody help with the following question: in previous global stock market falls (where the fall was significant), what is the longest it's taken for markets to return to the previous high point? Has it ever been 10 years or more?

bowlhead99

FinancialIdiot said:

Thanks for all replies. Can anybody help with the following question: in previous global stock market falls (where the fall was significant), what is the longest it's taken for markets to return to the previous high point? Has it ever been 10 years or more?

It depends which particular index you use; you would go over a decade (adjusted for dividends and inflation) with the S&P in early 70s (double digit inflation in the 70s and early 80s); Japan way longer than that from the end of the 80s. With a truly global index some of the country specifics would average out, though the US index is more than 50% of the global index, and the global index is 95% non-sterling meaning that a big currency effect could add to your woes.

Generally most crashes recover in quite a lot less than a decade, but each time is different and some sort of sea-change in the economy could produce a 'new normal' level where things drop and stay low for a long time rather than bouncing up perkily in a nice V or quick U shape.

I have seen some blogs tell you that it took 25-30 years for the S&P to 'recover' from the 1929 crash (25 nominal and 29+ inflation adjusted), but those are the sort of sites that are promoting gold and silver which don't produce an income- so as their scare-story comparison they only use the capital value of the S&P that's reported daily on TV, which implicitly presumes that every time you get a dividend you throw it in the bin rather than reinvest it. 

Thrugelmir

Grenage said:

Over that long period of time there was only a couple of percent difference.  

A couple of % compounded over many years could be a sizable amount of money. Who won the race. The hare or the tortoise?