S&S LISA could be used within 5 years

Malthusian

Thrugelmir said:

As saving rates have fallen. The interest in investing has grown.  Not least that over recent years markets seem an easy place to make money.  Last years brief correction being dismissed as a mere blip. Nevertheless a warning sign as to how rapidly markets can turn.  The last thing that she'd want is a 20% correction just when the funds are needed. 

A 20% correction in five years' time could still leave her in a significantly better position than if she'd dumped the money in cash for 5 years, if growth was decent up until then. (It is of course perfectly possible that we have a lost half-decade.)

pip895 said:

My thoughts are that she should move gradually over to a very defensive position perhaps split the monies between PNL, CGT and cash in the LISA and transfer the majority of the ISA gradually into the LISA and PBonds.  I would hope this approach would at least keep up with inflation..  Are Money Market funds helpful? I have always assumed that the gains would be largely offset by the platform charge (she pays 0.25% btw).  

Money market funds are pointless in her situation as she would get a better return on best-buy cash accounts (including cash LISAs). The return on a money market fund would be negative after costs are taken into account.

The investment trusts you mention already hold a chunk of their assets in cash. What is the objective for the cash you intend to hold on top of that?

If she manages to keep up with inflation (not guaranteed) then she will be running to stand still as she will be significantly lagging house price inflation.

It isn't entirely clear what the reason for using a "very defensive" position is. In a proper crash (2000, 2008, 2020) all assets correlate downwards. If the next crash coincides with her wanting to buy a house then she will have to choose between swallowing the loss or not buying the house for a few years regardless of what she is investing in. A very defensive investment will make the loss smaller but it will also make growth smaller, so she will be "losing" less of a fund that is smaller in the first place.

Doesn't mean that having a low-volatility portfolio is a bad idea (she is after all an inexperienced investor) but there needs to be a better reason than "the investment term might be only 5 years".

steampowered

eskbanker said:

Every time you repost that Nutmeg chart you make sweeping statements like this, but they're not supported by the facts!

There is a huge difference between "12% of 5-year periods entailed value loss when retrospectively reviewing selected historical data" and your unqualified assertion about future performance of unspecified equity portfolios....

The data I am posting is simply based on the performance of the stock market over the past 50 years. It's hardly "selected" data.

If you have a better data point for assessing the risk of investing, I would love to see it.

Using basic data to help people understand the level risk they would be taking is much better than scare mongering based on nothing whatsoever.

aroominyork

A couple of years ago I faced the same situation with my son who might buy a property in a few years but might not for much longer. Explaining that assets only appreciate if you take risk, I asked him to decide how much he would be prepared to lose. He said maximum 15%. I said assume that if you sell in a slump equities might be down 40%, bonds (investment grade) down 10% and cash would lose no value (ignore inflation). You can then run a spreadsheet to do the maths and invest, for example, 27% in equities, 40.5% in bonds, 32.5% in cash. Using Vanguard LifeStrategy you could invest 67.5% of the funds in VLS40 and keep the rest in cash/PBs.

I looked at various ways of approaching this and think this one – based on him deciding how much risk to take – is the best.

eskbanker

steampowered said:

eskbanker said:

Every time you repost that Nutmeg chart you make sweeping statements like this, but they're not supported by the facts!

There is a huge difference between "12% of 5-year periods entailed value loss when retrospectively reviewing selected historical data" and your unqualified assertion about future performance of unspecified equity portfolios....

The data I am posting is simply based on the performance of the stock market over the past 50 years. It's hardly "selected" data.

If you have a better data point for assessing the risk of investing, I would love to see it.

Using basic data to help people understand the level risk they would be taking is much better than scare mongering based on nothing whatsoever.

There's no such thing as "the stock market" for a start - there are numerous markets around the world. There are a wide range of indices and associated trackers that can be used to represent various subsets of these in differing proportions, but none can genuinely be said to illustrate the 'right' answer as such, so choosing certain indices over a nominated time period is pretty much the dictionary definition of 'selected'!

I'm not saying that there are better historical analyses though, but just observing the unarguable truth that past performance can't be relied on as a definitive indicator of the future, so by all means cite that study (as I do too sometimes), but with the relevant caveats attached, rather than representing it as a factual statement of future performance, even if investors happened to pick the same specific indices used in that analysis.

steampowered

eskbanker said:

There's no such thing as "the stock market" for a start - there are numerous markets around the world. There are a wide range of indices and associated trackers that can be used to represent various subsets of these in differing proportions, but none can genuinely be said to illustrate the 'right' answer as such, so choosing certain indices over a nominated time period is pretty much the dictionary definition of 'selected'!

I'm not saying that there are better historical analyses though, but just observing the unarguable truth that past performance can't be relied on as a definitive indicator of the future, so by all means cite that study (as I do too sometimes), but with the relevant caveats attached, rather than representing it as a factual statement of future performance, even if investors happened to pick the same specific indices used in that analysis.

You have not offered any information of any use for someone who needs to decide whether or how to invest.

The problem with simply poo-pooing any data that might be offered is that people need better information to base their decisions on than what the side of bed they got out of on the morning. 

In the absence of possessing a crystal ball, looking at historical data is the next best thing. Looking at the average performance of the major global stock markets over the past 50 years seems pretty fair to me.

I am not suggesting that I know what is happening in the future. Obviously I don't. I am simply pointing out that, based on historical performance, a 5 year investment into a stock market tracker fund has a 12% probability of a loss and 88% probability of a gain. It could be either, but the facts suggest the latter is far more likely than the former. 

eskbanker

steampowered said:

eskbanker said:

There's no such thing as "the stock market" for a start - there are numerous markets around the world. There are a wide range of indices and associated trackers that can be used to represent various subsets of these in differing proportions, but none can genuinely be said to illustrate the 'right' answer as such, so choosing certain indices over a nominated time period is pretty much the dictionary definition of 'selected'!

I'm not saying that there are better historical analyses though, but just observing the unarguable truth that past performance can't be relied on as a definitive indicator of the future, so by all means cite that study (as I do too sometimes), but with the relevant caveats attached, rather than representing it as a factual statement of future performance, even if investors happened to pick the same specific indices used in that analysis.

You have not offered any information of any use for someone who needs to decide whether or how to invest.

The problem with simply poo-pooing any data that might be offered is that people need better information to base their decisions on than what the side of bed they got out of on the morning. 

In the absence of possessing a crystal ball, looking at historical data is the next best thing. Looking at the average performance of the major global stock markets over the past 50 years seems pretty fair to me.

I am not suggesting that I know what is happening in the future. Obviously I don't. I am simply pointing out that, based on historical performance, a 5 year investment into a stock market tracker fund has a 12% probability of a loss and 88% probability of a gain. It could be either, but the facts suggest the latter is far more likely than the former. 

I've already explained that I have no issue with that data set but it's all about how it's presented, but I think you're finally beginning to understand the point I was making, in that you're now belatedly adding the reference to historical performance, although still don't seem to have got to grips with the variations between different indices and trackers, by generalising about "a stock market tracker fund".

Hopefully, even if you can't, most can understand the difference between your original unqualified statement:

"Over a 5 year period, the chance of making a loss on a stock market tracker investment is about 12%"

and the more accurate

"In a study of two global equity index trackers over the fifty years to 2020, only 12% of 5-year periods produced losses"