What to invest savings in

Booge

Hi

i have around £100k in savings getting no interest and deflating against 10% inflation.

any advice on what to invest in?

stock market seems a risky investment at the moment given projected recession. 

Likewise housing market

i still have £240k outstanding mortgage but because I have £450k of equity in the property I still seem to get quite good remortgage offers even though rates have risen. So reducing mortgage does not seem to yet make sense 

gilts and corporate bonds are affected by fluctuating interest rates 

not sure what that leaves me with. 

I’m inclined to just get a fixed rate bond of 3% for 12 months with a building society and then invest in stock market when we hit bottom of recession

any Thoughts ?

jonathan 

kuratowski

The stock market is forward looking, it has already digested the recession and moved on to look at future prospects.

Another problem is that you won't know when we hit the bottom of the recession, this is only known with hindsight, you can't recognize that moment at the time it occurs.

In short, market timing does not work.  If you are going to invest this money for the long term, invest it now.

DannyCarey

If you do nothing, inflation will destroy at least 10% of the value of your 100k, per year. Probably more. 
If you put it in that 3% bond,  you will lose at least 7% of the value, probably more. 

If you put it in the stock market in broad based indexes, you probably will see some volatility, but if your goals can be at least 4/5 years away, then you have the best chance to grow your money.

No-one can time the bottom of a recession. 

Booge

Not convinced that market timing doesn’t work when it’s fairly obvious a recession is coming. Not convinced market has already priced it in either. My personal view is it’s going to be much worse than people think and the mother of all recessions is coming. 

Yes it’s impossible to call the bottom of a market but at least let it go down a bit before investing. 

wmb194

kuratowski said:

The stock market is forward looking, it has already digested the recession and moved on to look at future prospects.

Another problem is that you won't know when we hit the bottom of the recession, this is only known with hindsight, you can't recognize that moment at the time it occurs.

In short, market timing does not work.  If you are going to invest this money for the long term, invest it now.

Careful. A mild recession, perhaps. Something more? Probably not. The market is regularly incorrect.

The OP could, however, look to some middle ground i.e. some combination of shares, bonds and savings accounts. Possibly think about the wealth preservation investment trusts.

wmb194

Booge said:

Not convinced that market timing doesn’t work when it’s fairly obvious a recession is coming. Not convinced market has already priced it in either. My personal view is it’s going to be much worse than people think and the mother of all recessions is coming. 

Yes it’s impossible to call the bottom of a market but at least let it go down a bit before investing. 

You've answered your own question, then. Chase the best savings accounts. It could be a mixture of instant access and bond accounts, You could even consider Premium Bonds. Then drip-feed into the stockmarket when you think there's enough blood in the streets.

sienew

Booge said:

Not convinced that market timing doesn’t work when it’s fairly obvious a recession is coming. Not convinced market has already priced it in either. My personal view is it’s going to be much worse than people think and the mother of all recessions is coming. 

Yes it’s impossible to call the bottom of a market but at least let it go down a bit before investing. 

The market disagrees with you.

DannyCarey

Booge said:

Not convinced that market timing doesn’t work when it’s fairly obvious a recession is coming. Not convinced market has already priced it in either. My personal view is it’s going to be much worse than people think and the mother of all recessions is coming. 

Yes it’s impossible to call the bottom of a market but at least let it go down a bit before investing. 

What's that based on? Why do you think this time it's so radically different? 

Booge

It doesn’t have to be radically different to a normal recession for market to drop eg 2008. 

I don’t know exactly how bad it’s going to be. But with the extraordinary energy price rises it appears to me that people are going to stop spending and there will be a consumer led recession. Small businesses are going to go bankrupt. And if inflation CPI is now at 10% I cannot see how inflation is supposed to top out at 13% as suggested by BOE, if average household energy bill is going up to £6k next year.  More likely 25-30%. 

Europe will do worse than rest of the world due to impact of gas prices. 

But also respected people like michael burry have sold their whole share portfolio. Warren Buffett is holding more cash. Ken Clarke the former chancellor is saying he expects a “severe recession”. 

Jonathan 

pjread

I guess the real question is what do you (or I, or anyone else on this forum) know that the market as a whole doesn't?

Market timing can work, it can also work against you - if you get it right a couple of times you'll be convinced you have some kind of midas touch, but it'll take a lot of luck for that to not revert to mean over a few attempts too.  Best bet would probably have been dripping in that 100k whilst building it up; the next best is maybe dripping in over the next couple of years.

JohnWinder

…with a building society and then invest in stock market when we hit bottom of recession...

It’s a good idea, and you could pull it off; but you ask for our thoughts, and as we know so little about you we have to assume you’re an average person. With that, we can look beyond ‘good ideas’ and see what really happened with those good ideas in the past.
JPMorgan’s quarterly report (J.P. Morgan Asset Management’s Guide to the Markets for 3Q 2022, page 63) quotes the Dalbar research which consistently shows the average investor gets a lower return than the funds they’re invested in because they try to time when to buy and sell the mutual funds they use. If they’d just left them alone they’d get better returns. The chart in the JPMorgan report shows the average fund investor getting a 3.6%/year return over the last 20 years whereas a boring 60/40 portfolio that wasn’t messed with returned 7.4%. That’s a lot to give up for losing courage or trying to be clever. Morningstar finds a similar outcome. https://www.morningstar.com/articles/1101942/are-you-leaving-money-on-the-table-from-your-funds-returns
The average professional fund manager does better, trying to buy and sell using good ideas, but the research time and again shows that almost none can consistently beat a comparable benchmark index.
Now, you may be well above average compared to individuals who invest in funds, we don’t know (do you?), but you’re unlikely to be better than the best professional fund manager.

Not convinced that market timing doesn’t work..

 Indeed, it can work and does for above average clever or lucky people, no question. A chart I saw recently indicated you had to get the market timing right about 75% of the time for it to improve your returns (although it was market timing based on only one economic indicator of wages). The future may be different. Here is the chart: Here today, gone tomorrow:
‘The impact of economic surprises on asset returns. Vanguard Research, November 2018.’. The future may be different.