'Cautious' investor profiles

Unpensioned56

What are financial advisors directing cautious investors to now? A relative consulted a financial advisor 18 months ago with an inheritance, had their very inexperienced approach to investing identified as cautious, and was directed towards a very bond heavy profile - so is now looking at significant losses. They're only a few years off retirement so it's not great. Was this bad advice, or just really rough luck? Should they just sit tight now? And what should those with a 'cautious' profile be doing now? 

masonic

What were they planning to do at retirement? Going bond-heavy is an effective way to lock in an annuity rate, as these are tied to bond yields. If bonds rise, annuity rates fall and vice versa, so it derisks the annuity purchase. The loss experienced over the past couple of years would be compensated for by higher annuity rates available now vs then.

As to what they should be doing now, the first thing would be to bring their concerns to their adviser. She or he is best placed to field questions on the investment strategy, and will know more about the relative's personal circumstances than could be divulged here.

(IMHO, and not intended as advice) a good option for a cautious pension investor nearing retirement at this time is a bond-heavy portfolio, built from money market, short duration and index linked bond investments. How bond heavy, and in what proportions, to be decided according to personal circumstances. A case could be made for including longer duration bonds as interest rates reach their peak and there is risk of rates falling.

Malthusian

What are financial advisors directing cautious investors to now?

It will be different for every adviser and every client. One thing they will all have in common is that "cautious" investors will have done worse over the last year than higher-risk ones. 

It is impossible to say whether it was good or bad advice given the limited information available, but complaining that "some guy on the Internet wasn't told to invest as much in bonds and their portfolio did better" is a good way to ensure that any complaint will be rejected, as a complaint about poor performance.

Being a few years + 18 months away from retirement (around 5 years? longer?) doesn't in itself preclude a long-term investment from being suitable, if they weren't planning to draw on all of it when they retired.

Linton

Unpensioned56 said:

What are financial advisors directing cautious investors to now? A relative consulted a financial advisor 18 months ago with an inheritance, had their very inexperienced approach to investing identified as cautious, and was directed towards a very bond heavy profile - so is now looking at significant losses. They're only a few years off retirement so it's not great. Was this bad advice, or just really rough luck? Should they just sit tight now? And what should those with a 'cautious' profile be doing now? 

Getting the right portfolio for your circumstances is not simply a matter of cautious vs ambitious.  It is more complex than that especially in retirement.  That is why those with little understanding of investing need to talk to an IFA if the consequences of failure are life-changing.

The recent large fall in bond prices occurred because of circumstances that have not been seen for over 40 years.  Some people did see it coming but most did not.  I predicted it before the event but the size and speed of the fall surprised me. So it would be unfair to attach too much blame to the advisor.  There really are very few, if any,  alternative simple approaches appropriate for a naive investor.

The important thing is what to do now.  In my view the money has gone, at least for the short to medium term future.  So no point in waiting for a reversal.    If a cautious bond-heavy portfolio was right 18 month ago then it is probably right now.  However if the pot is large (say > £100K) and the reduction in value of the portfolio has changed the relative's situation it may be sensible to talk to the IFA again, or choose a new one, to see how the money can now best be invested to meet the relative's needs.

GeoffTF

Unpensioned56 said:

What are financial advisors directing cautious investors to now? A relative consulted a financial advisor 18 months ago with an inheritance, had their very inexperienced approach to investing identified as cautious, and was directed towards a very bond heavy profile - so is now looking at significant losses. They're only a few years off retirement so it's not great. Was this bad advice, or just really rough luck? Should they just sit tight now? And what should those with a 'cautious' profile be doing now? 

The adviser did what he was required to do. If he had advised a cautious investor to buy an equity heavy portfolio and the equity market had crashed, he would be facing a compensation claim. He advised a bond heavy portfolio and there was a bond market crash. A compensation claim would fail because he did what the rules require. Bonds are now much cheaper. It makes much more sense to be holding them now that it was when your relative bought they bought them. Equities have not fallen so much, and are now relatively more expensive. Selling bonds to buy equities would not make much sense. I do not expect that your relative has become more risk tolerant as a result of this experience.

adindas

Unpensioned56 said:

What are financial advisors directing cautious investors to now? A relative consulted a financial advisor 18 months ago with an inheritance, had their very inexperienced approach to investing identified as cautious, and was directed towards a very bond heavy profile - so is now looking at significant losses. They're only a few years off retirement so it's not great. Was this bad advice, or just really rough luck? Should they just sit tight now? And what should those with a 'cautious' profile be doing now? 

Another good example of an investor complaining about heavy bond profile in his portfolio. Differentiate cautious investor with people aiming to generate secure short term cash-flow and/or for tax avoidance. Keep in mind you might keep losing your money due to inflation.

In the last two years there are reasonable number of similar complains have emerged here in this MSEs sub forum.

There is a similar recent discussion here on this sub-forum.

https://forums.moneysavingexpert.com/discussion/comment/80051246#Comment_80051246

Read that through, adapt with personal circumstances. Each to their own, but I personally do not rely on random people on the internet cheering up each other.  I personally believe more in

1. Statistical evidence.

2. Wall street strategists

3. Strategy from proven Billionaires investor. Keep in mind you do not need to be Billionaire to copy strategy from proven Billionaires investor. That is what the scaling, the percentage, the fractional shares for.

4. Authoritative Investigating literatures

Read the discussion above and make your own decision. If not enough read authoritative investing literature, learn from proven investors.

Also do not forget for a short term, you have a risk free alternative in saving account earning 7%. 6.15% reasonable number of saving earning 5.5%+. If you keep your money into individual short term bond less than three years to be held until maturity, then you are not investing, it is functioning similar to saving. For some people saving get more interest than short term bonds.

Just my personal preference, not to sell an asset, investment for a significant loss if I believe they still have chance to recover if you give it more time. Once they reach break even, it is good to make an escape and learn the lesson.

It is your money you are investing; So make your own decision.