When there is no need for asset diversification?

Thrugelmir

fizio said:

I’m not sure there is a right answer as the counterpoints all make sense so its probably down to a personal decision of either reducing risk to near 0 or being relaxed about ups/downs of the markets 

Until you experience a "situation" you'll never know what your risk tolerance is. I'd be concerned that there's actually a high degree of complacency rather than a relaxed attitude. There's no shortage of confirmation bias when it comes to interpreting matters, often incorrectly as there's a large amount of assumption in the view expressed. Teaching your Grandmother to suck eggs as the old saying goes. 

cloud_dog

I am enjoying the thread and the comments posted.  We will likely be in a similar sort of situation come retirement with 90% of our desired income covered by guaranteed sources (DB, SP), meaning well over the necessary income level is covered by said DB/SP.

So, I ponder the question of leaving it invested 100% in global fund(s) or utilise one or more of the many mixed asset or defensive investments.  I am currently minded to go with the MA approach, but this is due to the weight I give to bearing in mind my own longevity and what would be easiest for those left behind (sorry to bring the thoughts down 🙄).

JohnWinder

itwasntme001 said:

I used to think passive is the only way.  Now I am not so sure.  I think the opportunity for active investors is bigger now than it has been for a long time.

Whether a bigger opportunity, whatever that means, translates into something useful like 'better than index fund returns' we will find out when the SPIVA reports come out in the coming months/years. I'm less sure anything has changed.

Prism

JohnWinder said:

itwasntme001 said:

I used to think passive is the only way.  Now I am not so sure.  I think the opportunity for active investors is bigger now than it has been for a long time.

Whether a bigger opportunity, whatever that means, translates into something useful like 'better than index fund returns' we will find out when the SPIVA reports come out in the coming months/years. I'm less sure anything has changed.

Active investing is not just about returns, especially for those in retirement. Income, diversification (away from big companies), risk reduction, inflation proofing and others can be desired over return.

Prism

lozzy1965 said:

Thrugelmir said:

itwasntme001 said:

Deleted_User said:

If you have more than enough capital, then there is a large plausible range for what percentage in equities is probably going to work out OK - i.e. either a relatively high, or a relatively low, percentage in equities, will probably be fine. But I would favour going relatively high, on the basis that attack is the best form of defence, i.e. gains in good periods are a good way to cushion yourself against losses in bad periods.

But I wouldn't go for 100% equities. Around 75% is plenty; that gets you close to the returns of 100% equities (because of the "rebalancing bonus"), and makes the bad periods significant less bad than with 100% equities. Maybe if you're only trying to spend 1% of your capital per year, you could go 100% equities, but even then, why do it?

I think in bull markets people have a tendency to prefer option 1.  Then when a nasty bear market hits (maybe after a few years since the peak), people wish they had gone for option 2.

Current bull market started in March 2009. There's a generation of equity investors who've never known anything different.  When's the next 7 year bear market going to strike, or a decade of US stocks underperforming inflation, or a debt crisis.........

Brexit Crash?  Covid crash?

They were pretty much non events. The effects of a proper economic crisis can last for many years. The 1970s and 2000s were both long periods when equity returns could not keep up with inflation for over 10 years.

Malthusian

lozzy1965 said:

I guess this thread is probably aimed more at the seasoned investors who know that the markets go up and down all the time, so don't panic when they go down.

A seasoned investor knows that when markets go down there is no guarantee as to when they will ever go back, if ever, so ravaging a plummeting portfolio on the basis of "the last crashes lasted a year, 6 years and 6 years so as long as they do the same this time, I'll get away with it" is not a great idea.

In addition, as they get older seasoned investors turn into aged, more nervous investors. In the pits of every crash you will read articles in the financial trade press about an aging adviser who, after holding through every previous crash, has pulled half or all his clients' money into cash because "this time it's different".

Thrugelmir

JohnWinder said:

itwasntme001 said:

I used to think passive is the only way.  Now I am not so sure.  I think the opportunity for active investors is bigger now than it has been for a long time.

Whether a bigger opportunity, whatever that means, translates into something useful like 'better than index fund returns' we will find out when the SPIVA reports come out in the coming months/years. I'm less sure anything has changed.

Only 16.1%  of active UK small cap fund managers underperformed the benchmark in the first half of 2021 ( 20.4% in 2020). As gets posted ad nauseam. There's a place for both in a well diversified portfolio. Some markets are better suited than others. Time spent researching with an open mind can be highly productive. 

jimjames

lozzy1965 said:

Thrugelmir said:

itwasntme001 said:

Deleted_User said:

If you have more than enough capital, then there is a large plausible range for what percentage in equities is probably going to work out OK - i.e. either a relatively high, or a relatively low, percentage in equities, will probably be fine. But I would favour going relatively high, on the basis that attack is the best form of defence, i.e. gains in good periods are a good way to cushion yourself against losses in bad periods.

But I wouldn't go for 100% equities. Around 75% is plenty; that gets you close to the returns of 100% equities (because of the "rebalancing bonus"), and makes the bad periods significant less bad than with 100% equities. Maybe if you're only trying to spend 1% of your capital per year, you could go 100% equities, but even then, why do it?

I think in bull markets people have a tendency to prefer option 1.  Then when a nasty bear market hits (maybe after a few years since the peak), people wish they had gone for option 2.

Current bull market started in March 2009. There's a generation of equity investors who've never known anything different.  When's the next 7 year bear market going to strike, or a decade of US stocks underperforming inflation, or a debt crisis.........

Brexit Crash?  Covid crash?

Although most of the recent crashes bounced back very quickly afterwards. Even the Covid crash was recovered to previous highs within 6 months so some people will expect that. The early 2000s dot com crash was ongoing for several years with prices dropping until around 2003/4. That's very different to the rollercoaster of ending the year higher than the start despite a 40% dip in between.

Alexland

lozzy1965 said:

Brexit Crash?  Covid crash?

I don't even remember 'the Brexit crash' but I guess something happened to the FTSE100 which was insignificant to us as global investments generally went up due to the devaluation of the pound.

The covid crash was a bit bad for a short while (and our kids did really well from investing their cash JISAs) but when thinking of major crashes in my period investing I tend to focus on the dot com and financial crisis.

I had very little invested in the dot com crash but back then even before it started I was buying a physical copy of the FT every day and thought it looked quite bad and it was good training for understanding the financial crisis when my instinct was not to panic but increase contributions to buy more cheaper fund units. I think that was the first time I put my whole annual bonus into the pension although now I do it differently to take advantage of 'lumpy sal sac' where bonus month is one of the best months to draw lots of income at the lower NI rate.

It's not really fair to look at just the depressing part of the cycle or certain countries to show that equities don't eventually keep up with inflation. Over the whole of the 2000s they delivered a total return similar to inflation and even during the wall street crash we have to remember there was devaluation so stuff got cheaper. Going forward I would say the biggest challenges to equities delivering real growth will be adapting to climate change as a lot of historic returns were made by trashing the planet which cannot continue.

bostonerimus

Crashes are usually temporary, any Brexit or Covid crashes have long since worked themselves out and the markets have recovered. The bigger issue with Brexit and Covid are the slower long term effects predicted with reduced growth over many years. Unfortunately those statistics will always be interpreted in a political way and people at the sharpe end of the economy will actually feel the effects...for good or bad.