Timing the market

fancible

Yes I know you can't 😁 I currently have £50k sitting in Premium Bonds and another £10k in cash. I want to start feeding this back over a 18 month period (3 ISA tax years) into global growth Investment Trusts/Funds (various options I could potentially consider)

I know you can't time the market like I said and various people will have different opinions, but my gut feeling is that for various reasons a major correction is more likely to happen in the next 12 to 18 months than not.

I am therefore now considering feeding my monthly contributions into a wealth preservation trust instead (RICA/PNL/RCP/CGT) until the market corrects (whenever that is!) and then moving it across into more growth orientated funds/trusts like Scottish Mortgage/ Fundsmith or something similar (various options like I said) Moving into one of the safe haven funds in the meantime will mean I will get a bit of growth from any current market growth (better than leaving it in Premium Bonds anyway)

I know time in the market is more important than timing the market, but I am 51 and if all goes well with the market (ie a big drop in the near future and I get all the benefit of any subsequent market upturn) I could potentially have a investment horizon of only 5 to 7 years. (My pension is currently invested in a low risk fund as well, ready to move across into a higher risk fund once the market corrects)

Bottom line is I am currently protecting myself against the downside of the market (as far as you can while still being in the market - I know wealth preservation trusts aren't immune from market downturns), I am trying to maximize the potential of the subsequent upside in the future.

Thoughts?

 

jamesd

Your actions appear generally consistent with the medium and short term projections of what cyclically adjusted price/earnings ratios in many markets imply. However, while I follow those things, I also recognise that there is no certainty and that there can be merit in having some capacity to benefit whichever way markets go. So I have reduced but still quite substantial equity holdings, which are concentrated outside the US, possibly the most vulnerable market.

Linton

I think you would be better aligning your investments with your intended use of them rather than jumping in and out of the market.  You say an investment horizon of 5-7 years.  If you are retiring then presumably half the money wont be needed for further 15-20 years say during which there could be several booms and busts.

Your allocation could be something like cash for the first 2-3 years of retirement increasing to 5 years as you get closer to the date, lower risk funds for another 5-10 years and then the rest in 100% equity.  This would give you all the short/medium term protection you need without possibly jeopardising long term growth as what happens in the short/medium term to the 100% equity tranche does not matter.

fancible

jamesd said:

Your actions appear generally consistent with the medium and short term projections of what cyclically adjusted price/earnings ratios in many markets imply. However, while I follow those things, I also recognise that there is no certainty and that there can be merit in having some capacity to benefit whichever way markets go. So I have reduced but still quite substantial equity holdings, which are concentrated outside the US, possibly the most vulnerable market.

Yes, the FOMO is a good reason to keep invested, so you have probably done the right thing by still keeping a substantial stake in the market. I am probably being uber cautious, but have done really well over the past few years with Scottish Mortgage in particular and am currently happy to to lock those gains in. Might be kicking myself in 2 years if there hasn't been a major  correction yet and I've missed out on major growth. Oh for a crystal ball  😁

BritishInvestor

fancible said:

Thoughts?

 

Out of the thousands of funds available, why do the same funds always pop up?

Prism

BritishInvestor said:

fancible said:

Thoughts?

 

Out of the thousands of funds available, why do the same funds always pop up?

Because in general maybe they are the good ones?

[Deleted User]

my gut feeling is that for various reasons a major correction is more likely to happen in the next 12 to 18 months than not.

I am with you.  One reason: corrections happen every other year, on average. Sometimes several times a year.  Your gut is predicting normal market behaviour. 

Linton gave you good advice re market timing.  Stop guessing and messing and follow an appropriate allocation. 

“Wealth preservation” is a marketing gimmick.  Go for it if it makes you feel better

El_Torro

"I know it's not possible to time the market but what do you think about me trying to time the market?"

Personally I think if you're sure you're right about a major correction in the next 12 - 18 months then leave your £50k in Premium Bonds and £10k in cash where they are and invest after the correction. Make sure you buy at the bottom of the market though, don't want to lose any of the upside. 

You might make money this way, or you might find that you were better off investing it all straight away. Even if you do invest it all now you can still take steps to avoid cashing in your investments when they are low.

What some people do when they have a large amount of money to invest is divide it into 12 chunks and invest every month for a year. That way any significant drops in the first few months mean you don't lose as much as you could have done. This is more than likely going to net you less benefit than investing it all straight away, but if it makes you feel better then it might be a good compromise to what you're suggesting. 

MaxiRobriguez

Growth stocks look a bit racy but there's a tonne of defensives which aren't expensive if not cheap which can be had whilst the whole world seemingly forgets they exist.

Secret2ndAccount

I say that if you stay out of the market until Jan 1, you will miss out on gains of between 5 and 10%. That would pay for half your correction if it occurs.

If the market goes down 15% will you jump in? Or will you look at the graph and think that it definitely has another 5% to go, and wait longer, perhaps missing another 5-10% growth opportunity.
What if it goes down 12% then starts going back up again? Should you get in, because that was your drop and you want to capture the upside? Or was that just the precursor, and the big drop is coming down the road?

2 years from now it will be easy to see what you should have done. It's a whole lot harder to call while it's going on around you.

You are already averaging in over 18 mths. That's a cautious approach which leaves you mostly in cash for much of the time. If you have a long time horizon, and you want to invest for growth, then invest for growth.

fancible

Deleted_User said:

my gut feeling is that for various reasons a major correction is more likely to happen in the next 12 to 18 months than not.

I am with you.  One reason: corrections happen every other year, on average. Sometimes several times a year.  Your gut is predicting normal market behaviour. 

Linton gave you good advice re market timing.  Stop guessing and messing and follow an appropriate allocation. 

“Wealth preservation” is a marketing gimmick.  Go for it if it makes you feel better

Sure there are corrections every year, I'm talking about major corrections like 2008 and 2020. They certainly don't happen every year. But I don't have a crystal ball and maybe I am just being over cautious in my old age 🤷 Linton has given me some sound advice which I will seriously consider.
Not sure about wealth preservation funds being a gimmick however. Ruffer was only down 0.7% in the first quarter of 2020 year (compare that to other funds) and also finished the year 17% up 🤷