Covid, Market Highs and Investment Strategies

michaels

Investing rule number 1: Don't try to time the market
Investing rules nos 2 -10: Re read rule 1

Currently due to covid a lot of people are unable to spend as much as they would like whilst the govt pumps money into the economy to make up for lost incomes which the denied spending would be going too.

So where is that denied spending money going?  Into assets of course - more people want to buy assets and less want to sell = prices increase until enough are put off buying for prices to gain a new equilibrium.

Nice ride on the way up.  Post covid though all that pent up demand will be realised, people will spend and govts will start to try to recoup all their spending.  Suddenly rather than trying to make net deposits into assets people will be trying to make net withdrawals - and prices will need to fall to the point where there are enough who think it is a good time to invest to balance out those who think it is a good time to sell.

This is not a stocks vs bonds or inflation and interest rates argument but a 'supply and demand for savings' model.  Of course no one knows when the market might turn but the received wisdom is that one should 'get out in time' rather than try to sell right at the top.

Is anyone basing their portfolios on the current macro situation?

[Deleted User]

Confused. Are you timing or not? 

Also, the unspent money isn’t necessarily going into assets. It could be going into deposits. And in fact it is. As such, some of it could actually be spent on buying stocks in the future.  

Sea_Shell

Personally, we've put our "unspent and spare" money into our S&S ISAs, and we're treating it as already "gone".

We won't be doing much "claw-back" spending once everything re-opens, just go back to trying to spend the money we had budgeted, going forwards.

Prism

I am putting absolutely zero thought into the 'macro' situation and contributing to my pension monthly just like normal. What happens next in the markets is mainly irrelevant to me - I am more concerned with things I can influence like my savings rate.

Sharktail

Well I’ve been thinking very hard about when the markets will turn and subsequently sold out entire holdings in the markets last week , plan to retire in 5 months so that will  have us 20 years spends in cash all in SIPPS need actually 8 years to carry us to DB & SP , so planning to sit on the sidelines and drip the remaining 12 years cash back in when/if markets give up some of their gains , never forgetting the old Warren Buffett adage.....be fearful when others are greedy, and greedy when others are fearful.” 

trevjl

 So where is that denied spending money going?  Into assets of course

Not sure about that. Maybe for people that read this forum and the like, but the general man in the street is either spending it on their houses etc or keeping it in their 0.05 % interest account waiting for the big holiday next year

Albermarle

trevjl said:

 So where is that denied spending money going?  Into assets of course

Not sure about that. Maybe for people that read this forum and the like, but the general man in the street is either spending it on their houses etc or keeping it in their 0.05 % interest account waiting for the big holiday next year

I was going to say exactly the same . I very much doubt the average person has been buying financial assets during lockdown .

michaels

Economic theory says anything not spent is saved and savings = investment. 

So that money on deposit at the bank, the bank acts as an intermediary and invests in in some form of assets - how else can they afford to pay the 0.05% interest otherwise.

The BoE governor is definitely expecting a bounce back in demand later this year that won't just come from people finally being able to spend their incomes but also from unspent money that many have been forced to put aside.

michaels

Borrowed from the unspent nuts thread:

Nebulous2 said:

I've used this period of reduced expenditure to clear the decks for retirement.

I couldn't make up my mind about when, the pandemic put the decision off, largely because I felt I was doing something of value, but I decided at Christmas it was time to go. I have two weeks left and I'm full of all the doubts about whether I have done the right thing. 

This is an interesting article.  £250 billion has gone into savings and estimates of how much will be spent or 'splurged'  range from 5 to 20%.

https://www.theguardian.com/business/2021/feb/13/talk-of-post-covid-spending-spree-shows-cut-off-bank-of-england

Nebulous2

Thank's for this - and for quoting me. I hope you don't mind me jumping in, but I'm in even more of a dilemma about what to do than most, as I am not invested at all. 

We will be going into the next financial year with somewhere around £23k in DB pension and a smidge short of £200k in cash. Me 59 oh 58 and both getting full SP. 

Drawdown required until SP will be less than £1k per month.

It certainly doesn't feel right to invest most of it at this point in the market.

 

cfw1994

Sharktail said:

Well I’ve been thinking very hard about when the markets will turn and subsequently sold out entire holdings in the markets last week , plan to retire in 5 months so that will  have us 20 years spends in cash all in SIPPS need actually 8 years to carry us to DB & SP , so planning to sit on the sidelines and drip the remaining 12 years cash back in when/if markets give up some of their gains , never forgetting the old Warren Buffett adage.....be fearful when others are greedy, and greedy when others are fearful.” 

You play an extreme game of timing the markets!
That said, you clearly have WAY more money than you need - perhaps you should have retired years ago?

Not sure I agree with your clear assertion that markets are about to crash.   
From this article: timing, eh:

We can see the vaccines starting to bring levels of normality (albeit I believe we will be living with Covid for a few years on a lower level); people will return to jobs, life, spending.....I feel that markets are, on balance, more likely than not to experience a mini-boom.  Not certainly, of course.....
Now 40 working days from my 'stepping away from the monthly wage', I must admit to wavering between wondering whether to *lower* risk in my main pot, or *raise* it.   Hence I've done neither yet     That said, the gilt fund in there has been underperforming for a short while....might put it all on red.  Or black 

Nebulous2 said:

Thank's for this - and for quoting me. I hope you don't mind me jumping in, but I'm in even more of a dilemma about what to do than most, as I am not invested at all. 

We will be going into the next financial year with somewhere around £23k in DB pension and a smidge short of £200k in cash. Me 59 oh 58 and both getting full SP. 

Drawdown required until SP will be less than £1k per month.
It certainly doesn't feel right to invest most of it at this point in the market.

With any lump sum, my personal preference is to drip-feed it in. 
That said, I know I will be wrong ⅔rds of the time - more often, the right decision is putting it all in one lump.   My approach makes me feel better though.   Who knows!