Vanguard lifestrategy 80 for newbies

[Deleted User]

I'm new to the world of stocks and shares and bonds and all this investing milarki.

I'm not new to statistics.

Everyone keeps saying that investing has to be for 5 years or more. Most people seem to be saying that's to ride out any bumps along the way. I can understand that.

But every chart I've looked at suggests that the trend is always on the up. And while there was a most horrendous fall coinciding with covid, its all heading upwards again. In fact every chart I've looked at shows nothing scary lasting for more than a few months, or a year max.

I must be missing something. I'm not so arrogant as to think I know better than literally everyone else, so there's got to be something I'm missing, but from the data, it all looks fairly safe to me, even on fairly short timescales.

Opinions welcome. 

waveydavey48

Have a look at Japan over the last few decades.

eskbanker

Beardybaldy said:

But every chart I've looked at suggests that the trend is always on the up. And while there was a most horrendous fall coinciding with covid, its all heading upwards again. In fact every chart I've looked at shows nothing scary lasting for more than a few months, or a year max.

The long term trend is generally up but dips along the way should be expected, and there's no reason to believe that the last few years are typical.  The Covid dip was far from 'most horrendous', being (a) fairly modest in the general scheme of things and (b) swiftly recovered from - if you look further back to historical crashes such as 2000 or 2008 you'll see more significant damage to trends, so don't be unduly swayed by generally benign market conditions in recent years.

DrSyn

These charts tell a different story
https://www.getrichslowly.org/bull-bear-markets/

dunstonh

But every chart I've looked at suggests that the trend is always on the up. And while there was a most horrendous fall coinciding with covid, its all heading upwards again. In fact every chart I've looked at shows nothing scary lasting for more than a few months, or a year max.

You need to improve where you are getting data from.   Dot.com period fell three years in a row and took five years to recover (some never did as they didnt wait long enough).  Credit crunch was multiple negatives with multiple years recovery.  Japan had a dreadful period (and Japan is often viewed as going into events that others will follow in time due to their aging population.

[Deleted User]

DrSyn said:

These charts tell a different story
https://www.getrichslowly.org/bull-bear-markets/

I still don't get it. The chart shows years of high positive returns, punctuated with periods of small loss lasting months, with the longest negative run lasting less than 3 years, and running at less than 1% loss. It looks scary because the scale is logarithmic rather than linear, so the negatives look as big as the positives, when in fact the losses are less than a tenth, and sometimes less than a hundredth of the positives. I'm clearly still missing something.

I get that there was a drop of 43% in one example. That's nasty. For a 10k investment at the preceding peak that would be a 4.3k loss, which would be sad to see. But it was back within months.

The general consensus seems to be that investing should be a strategy for 10 years or more. But if you invest now, then there's a crash in 10 years, you've still lost a chunk of money. So let's make the period longer, to 15 years, but same deal. If the crash comes in 15 years you've lost a chunk.

It seems to me, that unless we have a crystal ball, we can't really know what's going to happen when. Nobody predicted in summer of 2019 that by the end of the year we'd be seeing mass deaths, panic, and economic shutdowns. Someone acting on advice to invest for 10 years or more back in 2009 would have seen their investment crash.

So I think either, I'm still missing something, or the consensus is based on fear of fairly small losses and/or losses over a short time window. The latter then proving a disaster if you need the cash back at a specific time, but less so if you can say '!!!!!!, the markets have crashed right when I wanted to cash in, I guess I'll have to wait a bit longer'. 

[Deleted User]

Beardybaldy, the danger arises if the fund etc HAS to be sold after a short period and the timing happens during a drip/drop . Then there is no opportunity to recover loss and make future gains. Regards

[Deleted User]

Beardybaldy said:

DrSyn said:

These charts tell a different story
https://www.getrichslowly.org/bull-bear-markets/

I still don't get it. The chart shows years of high positive returns, punctuated with periods of small loss lasting months, with the longest negative run lasting less than 3 years, and running at less than 1% loss. It looks scary because the scale is logarithmic rather than linear, so the negatives look as big as the positives, when in fact the losses are less than a tenth, and sometimes less than a hundredth of the positives. I'm clearly still missing something.

I get that there was a drop of 43% in one example. That's nasty. For a 10k investment at the preceding peak that would be a 4.3k loss, which would be sad to see. But it was back within months.

The general consensus seems to be that investing should be a strategy for 10 years or more. But if you invest now, then there's a crash in 10 years, you've still lost a chunk of money. So let's make the period longer, to 15 years, but same deal. If the crash comes in 15 years you've lost a chunk.

It seems to me, that unless we have a crystal ball, we can't really know what's going to happen when. Nobody predicted in summer of 2019 that by the end of the year we'd be seeing mass deaths, panic, and economic shutdowns. Someone acting on advice to invest for 10 years or more back in 2009 would have seen their investment crash.

So I think either, I'm still missing something, or the consensus is based on fear of fairly small losses and/or losses over a short time window. The latter then proving a disaster if you need the cash back at a specific time, but less so if you can say '!!!!!!, the markets have crashed right when I wanted to cash in, I guess I'll have to wait a bit longer'. 

The MSE forum does not represent the consensus.. 

 Generalising, the MSE forum represents a cohort who know everything about about free-offers and tax-enhancements but little to nothing about how to grow their protected investments. 

You are right, the historical trend will continue up. But there will always be the "reversion to the mean" followers shaking their heads and waiting to buy a Van Gogh for a bottle of absinthe

[Deleted User]

thetimewill said:

Beardybaldy, the danger arises if the fund etc HAS to be sold after a short period and the timing happens during a dip/drop . Then there is no opportunity to recover loss and make future gains. Regards

This makes a lot of sense to me.

In my specific circumstances, I have the advised prerequisite 3 months plus of emergency buffer funds stashed safely in a boring savings account. As it stands right now, I'm financially comfortable with spare cash each month, and there is no deadline on my savings plan.

I figured I'd save in my stocks and shares ISA just because I can. I have 10 years left on my mortgage but the interest rate is tiny, at 1.74%, and I can easily afford the repayments. Anticipating higher returns on average than 1.74% I figured in about 5 years, I'll see if I can pay off my mortgage. If when that day comes, the markets crash, I'll leave my ISA alone and wait to ride it out. I'll keep paying my mortgage as normal. If on the other hand things are looking rosey, I'll sell my funds, and settle my mortgage.

Does this sound like a good idea?

It's probably pretty obvious I'm new to all this. 

kuratowski

Beardybaldy said:

The general consensus seems to be that investing should be a strategy for 10 years or more. But if you invest now, then there's a crash in 10 years, you've still lost a chunk of money.

I think the 10 years is quoted particularly because the probability is very low that you would actually lose money over such a timescale.  I.e. even if the market crashes in 10 years' time, it's still higher than it was when you started.  Whereas over (say) a 1 year time period the probability of not getting back part of your initial investment is unacceptably high.

Linton

The advice to avoid risky investments if your timeframe is less 5 years if not 10 is not based on statistics about the likelihood of a large crash.  Rather it is based on the effects should a large crash happen.

If you invest with the need to access the money in 5 years and a crash does happen at some point there is a pretty high likelihood that you will end up with less money than your started with.  Also the gains over 5 years if a crash doesnt happen could well be less than the losses if one does.  It just is not worth taking the risk.

If on the other hand you are investing for 20 years there will almost certainly be sufficient non-crash years for you to make a net gain overall even if a crash happens in the 20th year.   Though of course after 15 years you are then in a 5 year time frame.