Opinions on a possible perfect storm

Albermarle

shortseller09 said:

Hallmark, your observations are valid. The recent minor correction is meaningless when you look at the level of US growth stocks compared to just before Covid, when valuations were already stretched. It's a game of musical chairs, fund managers have to be in the market because they're sh*t scared of underperforming the index, and when reality kicks in losses will look no worse than the competition. A decade of underperformance globally is probably the best we can hope for, preserving capital should be at the forefront of peoples' minds rather than trying to beat inflation. 

The  problem is by not beating inflation, you are effectively losing capital , and currently not just by one or two per cent.
Probably something we will have to live with for the near future at least, but in the long run you need to risk capital to keep ahead of the game.

GazzaBloom

I don't know if others will agree but here is my view:

There has always been periods of economic uncertainty and every year there is some bad news or crisis of some sort. Stop reading the news and keep invested.

It's less of an issue if you are still working and accumulating, keep paying in monthly, don't change your investments just because they are down in line with market conditions (assuming you had some conviction to choose them in the first place). It's easy to be sure of your investment decisions when they deliver returns consistently, unjustified doubt creeps in when they start to wobble for a year or so. A high equity content with a fair level of diversification, such as a broad index or well chosen, well managed, equity funds, may be volatile but should be the best way to try and keep up with inflation in the long term. Things will iron out in time, contributions and dividends reinvested will help smooth out the ride. Have at least an emergency cash fund to one side of say 6 months household expenses and get on with enjoying your life away from the news and Google Finance page!

If you are due to retire in next 5 years or so, build a cash pot of a few years of expenses to go alongside your investments and consider deferring retirement if things haven't accumulated or grown to meet your requirements when the date comes. Your income is your best wealth building asset, hopefully towards the end of your working life you are earning more than in the past and pay rises will help counter all or some of the effects of inflation and will increase your contributions accordingly, at least consider keeping working but maybe in a part time or different job. get rid of debt and pay off your mortgage if you can and use the spare cash to make extra contributions to your retirement savings. (This is where I am currently)

If you are retired already or committed to do so soon, I expect it's a bit more tricky and may feel more painful and worrying if you are heavily reliant on a DC pension or S&S ISA savings. Try to cut down on expenses, plan discretionary spend carefully, look for other sources of income, part time work, deliver pizzas in the evenings, sell some stuff on Ebay, side hustles, to try and cut down some of the amount you are drawing down. 

It's no real comfort, but when your investments are down, look at some of the alternative indexes, markets, asset classes and see how they have performed against your own currently and over the last 10 years or so, yes, it's rear view mirror stuff, but may help resist the creeping doubt.

Albermarle

If you are retired already or committed to do so soon, I expect it's a bit more tricky and may feel more painful and worrying if you are heavily reliant on a DC pension or S&S ISA savings. Try to cut down on expenses, plan discretionary spend carefully, look for other sources of income, part time work, deliver pizzas in the evenings, sell some stuff on Ebay, side hustles, to try and cut down some of the amount you are drawing down. 

It depends on how much of a safety margin you have built into your retirement pot(s) . If it is quite large , maybe by working a couple of years longer than really necessary, then you have less to worry about and no need to become a pizza delivery driver .

Cus

The more people think a crash is coming the better for those invested. Those who fear the crash have either sold already or never will. That leaves more buyers.
I get more worried when everyone thinks things are looking fine.

Frequentlyhere

In my opinion, whilst no two periods are the same, we can look at the 1970's for inspiration, which is increasingly rhyming with the current situation.

Portfolio Charts' heatmap is a good tool for this: https://portfoliocharts.com/portfolio/heat-map/

One thing I would point out first is that bonds are not currently in a bubble, in fact they're already crashing. US Govt. bonds are already in their 5th worst ever bear market. Long duration funds are down approx 25% *nominal*. The standard Vanguard UK Gov. bond ETF (VGOV) is down 19% from its peak, so, what, 27% in real terms?  For the 'safe' asset in one's portfolio, these are huge drops already. Of course they could go further.
I would argue that a YTM of >2.7% in a global bond fund like VAGP is looking increasingly attractive compared to cash.

In the worst case though, almost everything suffers in the white heat of inflation. The exception in the 1970's was Gold and commodities, and whilst a small allocation to gold might be an idea, I'd think it's unwise to assume a repeat. Meanwhile, commodities have already soared somewhat.

So, what to do?  Firstly, diversify.

- Don't disregard cash as an asset. https://portfoliocharts.com/2017/05/12/understanding-cash-will-make-you-a-better-and-happier-investor/
- As already discussed, bonds are becoming increasingly good value.
- Equities could well suffer also but should still hold their value (if not return much)  in the long run.
- One could consider small allocations to Gold/commodities/REITS

Second - Try and cast your eyes to the long term and lower your expectations. If we see anything like the 1970's, we should count ourselves as doing very well to achieve a 0% real (after inflation) return in the next 5-10 years - you can play around with that heatmap tool and see how difficult it is to do even that during that period. 

I know there are still differences between now and then by the way, I'm just trying to illustrate an approach for if the worst case does pan out. Which I have to admit, does feel more likely than usual.

Sarah1Mitty2

hallmark said:

This isn't a fob-off, but essentially this kind of logic: https://www.pensioncraft.com/bond-bubble-explained/

I'm far from a bond expert, but the little I think I understand is that rising base rates are cryptonite for bonds and it looks like we're going to see at least some base rate hikes (altho I do think the fed talks the talk more than it'll walk the walk).

Re property, what I mean is there's been almost no time during the last 20 years when everybody you ask didn't think that property was insanely expensive.  I agree this is an amateurish anecdotal way of looking at it.  But equally, there surely could/should be SOME point where property valuations return to nearer where they were 30 years ago (i.e."normal" people could afford a house without selling their soul) as opposed to today's valuations where lots of people simply cannot afford to buy under any circs.  That kind of thing.

Anecdotally a relative of mine trying to sell their house seems to be getting feedback that mortgages are getting harder to obtain for some people, i don`t know the exact details though.

Bridlington1

I think house prices are in a vicious circle. At the moment because of the high levels of inflation and low savings rates people are pouring their money into property as it has traditionally held its value. This has sparked a spike in demand for property which is pushing prices up further, resulting in increased inflation, which speeds up this process. It makes sense especially given the fact that many people were able to save a great deal of money during the pandemic and now fear their savings being wiped out by inflation.

I can't see inflation slowing down soon though given that the Producer Price Index is up to 19.2% (according to the ONS), which is usually a good indicator of where inflation is heading. The only way to really eliminate inflation as I see it would be to drastically hike the base rate up, but this won't happen any time soon as it would push up the cost of servicing the national debt (already £83billion a year) as well as car-crashing the economy, raising unemployment and create a cost of living crisis in itself. I can't imagine this would be very popular.

adindas

hallmark said:

Commodities in a bubble.

As I say, all thoughts welcome, as I'd rather like to be persuaded I'm wrong

While some commodities are in bubble majorities are not.

Oil are not in Bubble

Gold and Gold Miners are not in Bubble

Raw Materials, basic materials are not in Bubble

Semi conductor chips are not in bubble

Etc

Also other industries are still performing well

Consumer Staples, Grocery Stores and Discount Retailers, healthcare, Utility/Energy, Freight and Logistics, DIY and Repairs stores.
Generally speaking in the bear market, there is always be a niche bull market and vice versa. Rotating your portfolio is one of the well known strategy.

fizio

History on stocks markets and property seems to suggest that dip or no dip, crash or hmo crash, but in time everything will be backup to new highs.. 

Thrugelmir

Bridlington1 said:

 The only way to really eliminate inflation as I see it would be to drastically hike the base rate up, but this won't happen any time soon as it would push up the cost of servicing the national debt (already £83billion a year) as well as car-crashing the economy, raising unemployment and create a cost of living crisis in itself. I can't imagine this would be very popular.

Central Banks primary function isn't too be popular. A decade of fiscal policy has simply created more inequality.  Given the low levels of the base rate globally . Increasing borrowing rates is actually beneficial to those that save. Rather than leverage with debt.