How long to give funds to recover?

NannaH

Before cutting your losses and selling then investing in something else?
I bought two Royal london funds ( 50% bonds and 70% bonds) a year ago in my S&S ISA,   they are currently down 22%,  the intention was to pay off the mortgage with some of the proceeds  in 5 years when the fixed rate ends,  but it’s not essential. 

I don’t know whether to leave it another year to see what happens or sell now and reinvest in something like HSBC global strategy cautious or balanced.  

The cautious fund looks like a good buy as the price has dropped right back but the chances of gaining 22% growth in 4 years ?  I’d guess at the balanced standing more of a chance. 

I really don’t know what to do for the best. 

El_Torro

Why would investments in HSBC Global Strategy perform better than Royal London? What Royal London funds are you in? 

Unfortunately none of us knows what is the best course of action. The best thing to do might be to sell up and stick the money in cash, assuming that investments will fall further in the next 4 years. Hopefully that’s not the case, we don’t know though. 

Personally I would probably stay invested for now, though values might drop further I think we’ll see growth, at least before you plan to pay off your mortgage. You may want to derisk as you get closer to your sell date. Can you be flexible on when you pay off the mortgage?

While this doesn’t help you now it’s worth noting that you shouldn’t have invested for 6 years, 10 years or more is a lot safer.

masonic

NannaH said:

The cautious fund looks like a good buy as the price has dropped right back but the chances of gaining 22% growth in 4 years ?  I’d guess at the balanced standing more of a chance.

The cautious fund is likely to be ~60% bonds. The capital losses take bonds from being overpriced from the low interest rate era to good value in an era where interest rates are normalising. If rates end up in the ~3% range as forecasted for the medium term, then you wouldn't expect a recovery of capital value. The income stream hasn't been affected though, so the current yield is much more attractive than it was, but not attractive enough to generate 22% growth over 4 years, which would require a higher yield or for the small amount in equities to have astounding returns. Balanced would stand a better chance, but does this exceed your risk tolerance?

george4064

Remember that an investment needs to rise by 28% to recover a 22% fall, since the starting point will be lower after the 22% fall.

Example, £10,000 investment falls 22% to £7,800

£7,800 needs to rise 28% to get back to £10,000. (7,800 x 1.28 = 10,000)

JohnWinder

How long to wait before selling to reinvest?

My answer, before you get into your specifics, would be forever, or sell earlier if you needed the cash. The reason is that if you have a well thought out investment strategy, or even if you don’t, the investments will always be tossed around and up ended by the next financial tempest without anyone being able to reliably dodge it.  So your strategy just needs to be set up for whatever might happen (short of a 10 year nuclear war, I suppose, as protection against those sort of events simply messes with a normal life too much). Thus, you're never forced into the difficult position you say you're in now.

Your equities and bonds (and mine) have both dropped substantially recently; and although they usually don’t do it at the same time, it has happened to this extent perhaps 3 or 4 times in the last century. I think we have to allow for something that common to happen to us.
Your investment last year, to cash out in five years, should have been a very short duration fund, since one minimises the interest rate risk of bonds (which risk we have seen well realised in recent months) by matching the time horizon to need the cash with the time horizon (duration) of the bonds. Equities have very long duration, so they’re even less suitable for investing in for a period of 5 years if you’re trying to avoid having less cash than you started with. If all that describes your situation accurately, time to get a better understanding of personal investing which is not that hard, but harder than posing some questions here.

‘I don’t know whether to leave it another year to see what happens or sell now and reinvest in something like HSBC global strategy cautious or balanced.

 I don’t think anyone can give you a reliable answer to that; some might guess right, others wrongly, but no one knows, so you pretty much waste your time asking it, surely?
Earlier in the year you wrote:

So, my investment strategy for 10 years time is a bit nebulous,  I’d just assumed finding a couple of income funds with a 3-4% yield and that would be it but now it doesn’t seem that simple? ‘

 I’d say you’ve got some pretty good funds in your portfolios, and I know It’s a bit of a chore if it doesn’t interest you, but you’d be better off learning some more about personal investing and looking at more of the historical charts of asset prices to have a good feel for the subject.

InvesterJones

Certainly now would be a better time to buy additional funds, but since you've got the funds already it's a trickier question. You should have been made aware of the potential for funds to fall in value before you invested in them, and therefore you will have already asked yourself this question at the point you did invest, so what's changed? One year is almost certainly too short a timescale to draw conclusions on performance, so unless your circumstances have changed or you have come across new information it's hard to justify. That said, it's only natural, so sometimes I ask myself - ignoring recent performance, where would I invest now, if I was starting afresh? It's that ignoring recent performance bit that's important, so that you try and make a judgement based on factors that will perhaps be more deterministic than past performance (e.g. asset type, fees, value etc.)

ScarletBea

Yes, I agree to only sell if you need the cash.
Despite the drop, mine are still higher than after the 2008 crash, I've realised that eventually everything comes up
(although to be fair I've got a spread of sectors and regions)

aroominyork

An upside of the recent turmoil (and not even turmoil with a capital T) is that people who started investing during the last decade now have a better understanding of markets. The bond bull run led many inexperienced people, myself included, to see bonds almost as a lower volatility equivalent of equities. We are now likely to make decisions that align better with long term market dynamics.

NannaH

I picked the RL funds because the info specifically said it was suitable for a five year time frame,  of course with the benefit of hindsight I would have waited and just stuck the cash into a mix of easy access and fixed savings, like I’ve just done with the bulk of our cash savings. 

I’m more annoyed with myself than anything, I’ve never (and will never again) stuck in a lump sum when investing,  it’s always been drip fed.   

It is a stand alone thing that has no real bearing on our other long term investments,  I’d just really like to not potentially lose half of it by hanging on stubbornly.  The funds crept up recently to around a 15% loss then suddenly dropped again but I think that was before the mini budget. 

The mortgage is a bit of a red herring,  after the 5 year fix at 1%,  there are only about 30 months till the end of the term, less than £10k. 

Our circumstances have changed dramatically in a year though,  up until January DH was salaried at almost £60k, he left to retrain and takes his final exam in 3 weeks to be a self employed Gas engineer, so apart from a 3 month temp contract, we’ve been living off what was in the bank plus he’s paid for his training,  tools and a van too.  

So at the moment, money is tighter, that’s why I’m more concerned about further losses. 

Linton

One cannot predict the future but in my view any fund with a high % of bonds is likely to only recover slowly.  The reason is that bonds bought more than a year of so would have been priced on the basis of a very low interest rate.  Over time these will be replaced by bonds with higher interest rates and bonds as an asset class will return to its former role as a safe diversifier to equity.  But this process will take several years.

On the other hand one can argue that the major falls have already taken place and that further significant falls could be unlikely.

So what to do?  If your time scale really is 4 years and the money matters then I would put it into a higher interest fixed term cash account.  I think it would be foolish is to take on higher investment risk to recoup your losses quickly - in 4 years it's a gamble.  You could win or you could lose.

MarcoM

Linton said:

One cannot predict the future but in my view any fund with a high % of bonds is likely to only recover slowly.  The reason is that bonds bought more than a year of so would have been priced on the basis of a very low interest rate.  Over time these will be replaced by bonds with higher interest rates and bonds as an asset class will return to its former role as a safe diversifier to equity.  But this process will take several years.

On the other hand one can argue that the major falls have already taken place and that further significant falls could be unlikely.

So what to do?  If your time scale really is 4 years and the money matters then I would put it into a higher interest fixed term cash account.  I think it would be foolish is to take on higher investment risk to recoup your losses quickly - in 4 years it's a gamble.  You could win or you could lose.

Would treasury gilts such as TN26 be useful to OP?