Is MyMap3 / Lifestrategy20 a substitute for cash savings

aroominyork

dunstonh said:

aroominyork said:

dunstonh said:

I wouldnt be so worried about an equities crash but a fixed interest securities crash is more likely.   You have very little upside benefit at this point in the cycle but would be taking on a lot of downside.

How are IFAs investing their clients' non-equity money these days?

I can't speak for all models but the ones we use have increased the equity content and cash.  We have also moved investment-grade bonds out of passive to managed. 

Is it fair to say that IFAs are finding it especially difficult to know where to invest non-equity funds at the moment?

Also, how much of a consensus is there among the professionals about whether the bond bull run is over? Shallow breathing which might pick up?; on life support?; cold in the ground?

dunstonh

Is it fair to say that IFAs are finding it especially difficult to know where to invest non-equity funds at the moment?

It is probably fair to say that everyone is.  IFA, FA, DIY, the lot.  All conventional defensive options are unnattractive.

Also, how much of a consensus is there among the professionals about whether the bond bull run is over? Shallow breathing which might pick up?; on life support?; cold in the ground?

You know never try to second guess the markets.   However, fixed interest securities do tend to play their wavy line motions over decades.  As interest rates fall, the unit prices go up.  As interest rates rise, unit prices go down.      Same with inflation.   Looking ahead, it looks like both.   We have just come off a [very long] period when interest rates fell to very low levels.  This pushed the unit price up and up and gave much higher returns than you would expect.  That will unwind.  When and over how long is the big question.

JohnWinder

Invest we should, since the alternative of holding only cash is not a good strategy for most people.
If we must invest, it should be diversely to reduce risk.
With diversified assets, take the biggest risk reasonable since that’s likely to provide the biggest reward over the longer term.
The biggest risk reasonable is no bigger than you need to, and no bigger than you’re comfortable with, and no bigger than you’re able to take in view of your personal circumstances - imperfect, but it’s a way to think about it.
Proportion the stocks, bonds and cash to match that risk ‘capacity’, recognising they have decreasing expected returns and risks in the order written.

If that’s a sound basis for investing (you can question it), and if even most of the experts can’t predict the future well enough, often enough to make it profitable (beyond market returns) then what’s the point in changing your investing strategy on the basis of speculation on what might happen in the markets?

Linton

Keeping off topic......

ISTM that safe-ish corporate bonds are the best bet at the moment for non-equities as they have not been subject to anything like the same degree of price rise as very safe gilts.  Possibly could be due to there being no (or far fewer) forced buyers of corporate bonds.

As examples:

Aviva 4.375% bond maturing in 2049: £112
4.275% Gilt maturing in 2049: £163

HSBC 5.725% maturing 2030: £114
4.75% Gilt maturing 2030: £132

The downside is that we may be approaching a perfect storm with major falls in both equity and fixed interest.  Corporate bonds tend to broadly follow equity.  However the safer they are perceived to be the less the correlation.  Sterling Corporate Bond funds on average performed only about half as badly as equity and high yield bonds during the 2007/8 crash.



Back to topic:
For an 18 month time period anything other than cash would be extremely foolish.

Albermarle

So I’m considering putting all the money (around £120k) in the lowest risk multi asset I can find, eg vanguard’s 20% life strategy or Blackrock MyMap3. All I’m aiming for is to keep up with or slightly beat inflation… 

OP - In summary , you are concentrating too much on the 20% equity . The 80% non equity can also go down and due to market conditions this is a distinct possibility . It can be argued that VLS 40 ( or similar ) could actually be a safer bet.

Although with the time scale you are talking about best to keep it in cash anyway. 

Linton

JohnWinder said:

Invest we should, since the alternative of holding only cash is not a good strategy for most people.
If we must invest, it should be diversely to reduce risk.
With diversified assets, take the biggest risk reasonable since that’s likely to provide the biggest reward over the longer term.
The biggest risk reasonable is no bigger than you need to, and no bigger than you’re comfortable with, and no bigger than you’re able to take in view of your personal circumstances - imperfect, but it’s a way to think about it.
Proportion the stocks, bonds and cash to match that risk ‘capacity’, recognising they have decreasing expected returns and risks in the order written.

If that’s a sound basis for investing (you can question it), and if even most of the experts can’t predict the future well enough, often enough to make it profitable (beyond market returns) then what’s the point in changing your investing strategy on the basis of speculation on what might happen in the markets?

That is very true for equity where any company or the market as a whole could change in price by very large amounts in a few years. Whether this is up or down is unknown.

It is not the case for major government backed bonds where the price at maturity and the total return in the mean time is known exactly right from the time the bond is issued.  At the current time we know with absolute certainty (barring end of the world scenarios) that some gilts maturing around 2030 will have dropped in price by 25% at that time and we know with absolute certainty what the total return will then be. 

These absolute certainties for future dates give you close to absolute limits  on the prices between now and maturity.  You are never going to get prices that guarantee a 50% total return loss at maturity nor an enormous profit.

Corporate bonds sit somewhere between these two extremes.

Therefore you certainly can time investment in the bond market to meet your objectives.  Which is why Wealth Preservation funds with clear medium term objectives look an interesting investment far better that those funds which have arbitrary fixed allocations to particular types of bond with maturity dates that are not linked to any objective.

aroominyork

Linton said:

Keeping off topic......

ISTM that safe-ish corporate bonds are the best bet at the moment for non-equities as they have not been subject to anything like the same degree of price rise as very safe gilts.  Possibly could be due to there being no (or far fewer) forced buyers of corporate bonds.

As examples:

Aviva 4.375% bond maturing in 2049: £112
4.275% Gilt maturing in 2049: £163

HSBC 5.725% maturing 2030: £114
4.75% Gilt maturing 2030: £132

The downside is that we may be approaching a perfect storm with major falls in both equity and fixed interest.  Corporate bonds tend to broadly follow equity.  However the safer they are perceived to be the less the correlation.  Sterling Corporate Bond funds on average performed only about half as badly as equity and high yield bonds during the 2007/8 crash.

And short duration obviously comes into play, although investment grade short duration feels like it's getting towards towards 'picking up pennies in front of a steamroller' territory.

Thrugelmir

Linton said:

Keeping off topic......

ISTM that safe-ish corporate bonds are the best bet at the moment for non-equities as they have not been subject to anything like the same degree of price rise as very safe gilts.  Possibly could be due to there being no (or far fewer) forced buyers of corporate bonds.

As examples:

Aviva 4.375% bond maturing in 2049: £112
4.275% Gilt maturing in 2049: £163

HSBC 5.725% maturing 2030: £114
4.75% Gilt maturing 2030: £132

The downside is that we may be approaching a perfect storm with major falls in both equity and fixed interest.  Corporate bonds tend to broadly follow equity.  However the safer they are perceived to be the less the correlation.  Sterling Corporate Bond funds on average performed only about half as badly as equity and high yield bonds during the 2007/8 crash.



Back to topic:
For an 18 month time period anything other than cash would be extremely foolish.

Both the bonds you quote are actually floating coupon. 

Linton

Thrugelmir said:

Linton said:

Keeping off topic......

ISTM that safe-ish corporate bonds are the best bet at the moment for non-equities as they have not been subject to anything like the same degree of price rise as very safe gilts.  Possibly could be due to there being no (or far fewer) forced buyers of corporate bonds.

As examples:

Aviva 4.375% bond maturing in 2049: £112
4.275% Gilt maturing in 2049: £163

HSBC 5.725% maturing 2030: £114
4.75% Gilt maturing 2030: £132

The downside is that we may be approaching a perfect storm with major falls in both equity and fixed interest.  Corporate bonds tend to broadly follow equity.  However the safer they are perceived to be the less the correlation.  Sterling Corporate Bond funds on average performed only about half as badly as equity and high yield bonds during the 2007/8 crash.



Back to topic:
For an 18 month time period anything other than cash would be extremely foolish.

Both the bonds you quote are actually floating coupon. 

Thanks, I was not aware of that and dont see any easy way of finding out.  However given current risk free interest rates it would appear that there is virtually no down side risk to the returns other than that of the issuer and a lot of space on the upside.

Thrugelmir

Linton said:

Thrugelmir said:

Linton said:

Keeping off topic......

ISTM that safe-ish corporate bonds are the best bet at the moment for non-equities as they have not been subject to anything like the same degree of price rise as very safe gilts.  Possibly could be due to there being no (or far fewer) forced buyers of corporate bonds.

As examples:

Aviva 4.375% bond maturing in 2049: £112
4.275% Gilt maturing in 2049: £163

HSBC 5.725% maturing 2030: £114
4.75% Gilt maturing 2030: £132

The downside is that we may be approaching a perfect storm with major falls in both equity and fixed interest.  Corporate bonds tend to broadly follow equity.  However the safer they are perceived to be the less the correlation.  Sterling Corporate Bond funds on average performed only about half as badly as equity and high yield bonds during the 2007/8 crash.



Back to topic:
For an 18 month time period anything other than cash would be extremely foolish.

Both the bonds you quote are actually floating coupon. 

Thanks, I was not aware of that and dont see any easy way of finding out.  

The base information can be found on the LSE website. Corporate bonds take various forms. Not just pure fixed term interest. 

Not that trading individual Corporate bonds is easy for a retail investor. Majority are thinly traded often off book. BOE bought up a fair amount as part of the original QE exercise. Which is in part why yields on blue chip remain extremely low.