Advice for pension funds with looming stock market crash

Pat38493

From what I can see on a cursory look,  every stock market crash since WW2 was recovered within 4 years and mostly within 2 years, so there’s not much point panicking about a crash now if you don’t need the money for 20 years.

dunstonh

Pat38493 said:

From what I can see on a cursory look,  every stock market crash since WW2 was recovered within 4 years and mostly within 2 years, so there’s not much point panicking about a crash now if you don’t need the money for 20 years.

Almost.     The dot.com period was three negative years in a row and then took 5 years to recover after that.   Just as it recovered, along came the credit crunch.  (caveat being that there are many markets. So, this is more a generalisation).

Some people who invested prior to the dot.com crash and went heavy in techs never recovered.  The peak to trough loss was 90%.

Thrugelmir

GazzaBloom said:

Thrugelmir said:

Deleted_User said:

Trumpeting ones 1-2 year returns as evidence for a winning method = financial !!!!!!.  Its a meaningless period of time.  

For comparison, Buffett has had a more modest annualized return of a mere 20% but over a meaningful period of time.  Thats why he has quite a few billions to his name. He also took a lot of risk, of course. 

Ruffled a few feathers it seems. No trumpets on my part. Was merely attempting to give some context in a friendly discussion. If you bothered to follow the links you'll see that I've comfortably outperformed a passive global index tracker over the past 5 years. Despite holding none of the FANGS or the SP500 in any form. There's more than one way to skin a cat. 

As far as comprisons go.  Unfortunately I had to do a full time job for many years to earn a living. Unlike Warren I didn't have resources of an entire business empire nor the financial backing of an insurance company to acquire a 10% stake in a company such as Coca Cola. As it wasn't his money. He risked nothing personally. 

What Buffet and I share in common is being a disciple of Benjamin Graham and the theories behind value investing. 

That sounds very sensible and impressive. But for those who do not have the benefit of having worked in financial services, who work in a day job, with a family and don't have the time or skills to assess company fundamentals but have a pension that needs to be invested in something, what would you recommend?

Robo investing is going to be the way forward. Will enable people to invest in a well diversified basket of investments tailored to their own requirements and risk profile. Be cost effective as well. Allow portfolio tweaking to be made as an individuals circumstances change. An enhanced product when compared to the extremely rigid Vanguard LS 20/40/60/80/100 range. 

Warren Buffet recommends simply investing in Vanguard's S&P500 for the majority of such people

Read the actual quote in the context of the question he was asked. Nor forget that WB resides in the USA not the UK. Investing in foreign markets leaves one exposed to currency fluctuations. Which results in very different investment returns being achieved. Something that frequently gets overlooked. As the $ - £ exchange movement has been correlated to the direction of the markets in recent years. Reversal of this trend could result in magnified losses if coupled with a poorly performing US economy. . 

Thrugelmir

zagfles said:

Thrugelmir said:

Deleted_User said:

Trumpeting ones 1-2 year returns as evidence for a winning method = financial !!!!!!.  Its a meaningless period of time.  

For comparison, Buffett has had a more modest annualized return of a mere 20% but over a meaningful period of time.  Thats why he has quite a few billions to his name. He also took a lot of risk, of course. 

Ruffled a few feathers it seems. No trumpets on my part. Was merely attempting to give some context in a friendly discussion. If you bothered to follow the links you'll see that I've comfortably outperformed a passive global index tracker over the past 5 years. Despite holding none of the FANGS or the SP500 in any form. There's more than one way to skin a cat. 

As far as comprisons go.  Unfortunately I had to do a full time job for many years to earn a living. Unlike Warren I didn't have resources of an entire business empire nor the financial backing of an insurance company to acquire a 10% stake in a company such as Coca Cola. As it wasn't his money. He risked nothing personally. 

What Buffet and I share in common is being a disciple of Benjamin Graham and the theories behind value investing. 

Just the age old active vs passive argument. 

Agreed. The objective of the thread is to see how individuals perform in the real world with real portfolios. Remember we aren't investment managers . We're not constrained by fund remits. We can switch markets at will. Hold any asset class we wish.  Nimble retail investors can trade shares institutions cannot. My aim is to purely generate a better return than I would otherwise achieve.  Be very easy to speculate using a fantasy portfolio of 10 extremely high risk shares. As there's no real money involved. It wouldn't be taken seriously. 

For reference I've held Jarvis Investment Management for around a decade. Far longer than the start date of the portfolio thread. 

Chris_English

lamont77 said:

My dad thinks that there is a crash around the corner that could well blow 2007/2008 out of the water, so I was wondering if I should move my pensions investments into a single low risk broad fund to stem any potential loss? 

Should you move your investments because of what your dad “thinks”?

No.

GazzaBloom

Thrugelmir said:

GazzaBloom said:

Thrugelmir said:

Deleted_User said:

Trumpeting ones 1-2 year returns as evidence for a winning method = financial !!!!!!.  Its a meaningless period of time.  

For comparison, Buffett has had a more modest annualized return of a mere 20% but over a meaningful period of time.  Thats why he has quite a few billions to his name. He also took a lot of risk, of course. 

Ruffled a few feathers it seems. No trumpets on my part. Was merely attempting to give some context in a friendly discussion. If you bothered to follow the links you'll see that I've comfortably outperformed a passive global index tracker over the past 5 years. Despite holding none of the FANGS or the SP500 in any form. There's more than one way to skin a cat. 

As far as comprisons go.  Unfortunately I had to do a full time job for many years to earn a living. Unlike Warren I didn't have resources of an entire business empire nor the financial backing of an insurance company to acquire a 10% stake in a company such as Coca Cola. As it wasn't his money. He risked nothing personally. 

What Buffet and I share in common is being a disciple of Benjamin Graham and the theories behind value investing. 

That sounds very sensible and impressive. But for those who do not have the benefit of having worked in financial services, who work in a day job, with a family and don't have the time or skills to assess company fundamentals but have a pension that needs to be invested in something, what would you recommend?

Robo investing is going to be the way forward. Will enable people to invest in a well diversified basket of investments tailored to their own requirements and risk profile. Be cost effective as well. Allow portfolio tweaking to be made as an individuals circumstances change. An enhanced product when compared to the extremely rigid Vanguard LS 20/40/60/80/100 range. 

Warren Buffet recommends simply investing in Vanguard's S&P500 for the majority of such people

Read the actual quote in the context of the question he was asked. Nor forget that WB resides in the USA not the UK. Investing in foreign markets leaves one exposed to currency fluctuations. Which results in very different investment returns being achieved. Something that frequently gets overlooked. As the $ - £ exchange movement has been correlated to the direction of the markets in recent years. Reversal of this trend could result in magnified losses if coupled with a poorly performing US economy. . 

Interesting point about robo investing and while I don't use it I find it very interesting and agree that it could be a great tool for non professional investors. I wonder how prevalent and accessible it will become among the majority of UK company DC pension schemes though, who tend to flock to the large providers such as Aviva, Legal & General for their pension plans.

With regards Buffet's quote, I am referring to the comments in his 2013 letter to Berkshire Hathaway shareholders linked below. 

“Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power.

I have good news for these non-professionals: The typical investor doesn’t need this skill. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”

the whole section ‘Some Thoughts About Investing’ starting on page 16 is worth a read.

https://www.berkshirehathaway.com/letters/2013ltr.pdf

Your point ref. USD/GBP exchange rates is noted and it is a risk, but with the USD still regarded ad the safe haven currency during periods of financial stress, it can work in the favour of a UK investor and certainly has since the 2008 crash.

In my view, even though the overall S&P500 index valuations are high and many people fear bursting of the bubble, I choose to invest substantially in the US and will do so for the long term, that's my choice.

It's not all based on fair sensible reason or a rationale though, I have spent a fair amount of time in the US from El Paso to Portsmouth, New Hampshire, from Long Beach California to Greensboro North Carolina and many, many other places in between, and I have a great fondness for the US and some of it's people, despite it's many problems, and annoyances!

The core values of just 2.5 million people that went from defeating the largest military power in the world and declaring itself a new country in 1776 to putting a man on the moon 193 years later is an incredible rise, although I note that empires and countries that dominate the world have risen and fallen often, through history, and when we look back in 300-500 years, history may record the decline of the US and rise of another…

….but I don't expect that to be the the UK!

jim8888

I am a big fan of the US too and previously invested heavily into that market. When Trump got in, I decided to rebalance my allocations and spread my money more across global funds and then watched the Dow head into the stratosphere (doh!) However, most global funds seem to have their heaviest exposure to the US anyway, so I'm not complaining. GazzaBloom - nice to read something positive about America and I share your sentiments.

GazzaBloom

jim8888 said:

I am a big fan of the US too and previously invested heavily into that market. When Trump got in, I decided to rebalance my allocations and spread my money more across global funds and then watched the Dow head into the stratosphere (doh!) However, most global funds seem to have their heaviest exposure to the US anyway, so I'm not complaining. GazzaBloom - nice to read something positive about America and I share your sentiments.

I come across many posts on forums where people appear to be almost irrationally adverse to investing in US stocks, I know we all have our biases but I really don't believe that the US stock market will go from where it is today to zero in the rest of my lifetime, yes, Tech leads the S&P500, and yes the leading companies are trading on high P/E ratios but it's not like Amazon, Microsoft & Apple have run out of road and are about to immediately decline is it? Their earnings suggest quite the opposite.

Will this bubble burst? hell yes, but will it also recover? hell yes. It's not like the rest of the world markets won't be affected by a US crash, they will all suffer, there will be no safe place apart from a cash buffer and ability to reduce drawdown, to ride the storm out with in retirement, and while accumulating, the ability to resist selling out and keep buying month in month out via your pension/savings contributions.

It's easy to confirm our investing decisions with facts and stats to back up our points but as I mention above my interest in investing, quite heavily in US stocks via a low cost index tracker (in the region of hundreds of thousands of pounds)  is partly borne from emotion, gut feeling and general belief in America. I am not afraid to admit it.

Thrugelmir

GazzaBloom said:

Thrugelmir said:

GazzaBloom said:

Thrugelmir said:

Deleted_User said:

Trumpeting ones 1-2 year returns as evidence for a winning method = financial !!!!!!.  Its a meaningless period of time.  

For comparison, Buffett has had a more modest annualized return of a mere 20% but over a meaningful period of time.  Thats why he has quite a few billions to his name. He also took a lot of risk, of course. 

Ruffled a few feathers it seems. No trumpets on my part. Was merely attempting to give some context in a friendly discussion. If you bothered to follow the links you'll see that I've comfortably outperformed a passive global index tracker over the past 5 years. Despite holding none of the FANGS or the SP500 in any form. There's more than one way to skin a cat. 

As far as comprisons go.  Unfortunately I had to do a full time job for many years to earn a living. Unlike Warren I didn't have resources of an entire business empire nor the financial backing of an insurance company to acquire a 10% stake in a company such as Coca Cola. As it wasn't his money. He risked nothing personally. 

What Buffet and I share in common is being a disciple of Benjamin Graham and the theories behind value investing. 

That sounds very sensible and impressive. But for those who do not have the benefit of having worked in financial services, who work in a day job, with a family and don't have the time or skills to assess company fundamentals but have a pension that needs to be invested in something, what would you recommend?

Robo investing is going to be the way forward. Will enable people to invest in a well diversified basket of investments tailored to their own requirements and risk profile. Be cost effective as well. Allow portfolio tweaking to be made as an individuals circumstances change. An enhanced product when compared to the extremely rigid Vanguard LS 20/40/60/80/100 range. 

Warren Buffet recommends simply investing in Vanguard's S&P500 for the majority of such people

Read the actual quote in the context of the question he was asked. Nor forget that WB resides in the USA not the UK. Investing in foreign markets leaves one exposed to currency fluctuations. Which results in very different investment returns being achieved. Something that frequently gets overlooked. As the $ - £ exchange movement has been correlated to the direction of the markets in recent years. Reversal of this trend could result in magnified losses if coupled with a poorly performing US economy. . 

Your point ref. USD/GBP exchange rates is noted and it is a risk, but with the USD still regarded ad the safe haven currency during periods of financial stress, it can work in the favour of a UK investor and certainly has since the 2008 crash.

Nothing to do with being a safe haven. Exchange rates fluctuate as cycles wax and wane. Currency exposure is just another facet of risk. You could have bought US $ assets at an exchange rate of $2.12 in 2004. Means nothing now. 

[Deleted User]

The issue of “currency risk” when holding foreign assets is a bit of a red herring.  Currencies are just measuring tapes. Its the intrinsic value of the asset that translates into how many Hondas you can buy when you sell the asset.  Currency fluctuations can have impacts in the short term but not in context of pension investment.  

Robo advisers are not competing against the likes of Vanguard.  Many use a mix of Vanguard’s funds.  Passive investors won’t use Robos. Robos compete with human advisors offering ongoing portfolio management services.  They are cheaper and remove the “human emotion” element which is considered to be harmful.