Anyone Acting Defensively?

Albermarle

Roger175 said:

I'm not embarrassed to say that I'm acting very defensively. Starting around this time last year, I've significantly reduced our exposure to US markets from around 40% to around 10%. There are various reason for doing this, partly it has to be said I no longer want to be invested in a country run by the orange buffoon that is Trump, but more importantly, we are both now fully retired and have more than sufficient provision. We have, if you like, won the game. Why would we want to risk loosing a significant amount and then have to win it again? Remember the basic maths, if the markets drop 50%, there needs to be a 100% rise to get back to the starting point.

Overall we are about 55% in equities and about 45% cash (or equivalent). As long as we can keep pace with inflation, then we will never want for anything, so why would we want to have sleepless nights worrying when the next crash comes (and it will come, history and personal experience tells us that).

I think the whole point here is that it all depends on where one is the the investment journey and what risks one feels they need to take given that position. If I was still 20 years out from retirement I would be taking a very different view.

Although for context 55% equities is not really very defensive in the great scheme of things. It is a typical level ( +/- 10%) for the majority of investors over 50 ( and probably quite a lot younger than that).
The lifestyle/target retirement date type funds that Millions of people are in, typically drop well below that level as retirement approaches, even when drawdown is planned.
Away from investment forums, not that many people ever go for 100% equities even when they are younger ( even though they probably should) .

As one might put it ' One persons defensive portfolio, is another persons aggressive one' ( and vice versa) 

artyboy

Albermarle said:

bjorn_toby_wilde said:

A correction is perhaps overdue but does that have to mean a crash?

A more modest correction is also entirely possible.

But where's the fun in that?

Alexland

Cobbler_tone said:

It can't be the most sensible approach (definitely risk adverse I guess) not to invest in equities whilst they are doing really well, just because there are going to have some bumps in the road.  

Are the investments doing really well or is the share price just getting bid up in expectation of the investments continuing to do well?

As valuations rise future returns are being pulled forward increasing risk and reducing the short to medium term return expectations as the same cake cannot be eaten twice.

We've had some bumps and minor crashes but we haven't had anything awful for a while. Investors get complacent about taking risk. Trump will always chicken out, the Fed will always prop up markets, etc.

If the earnings catch up with valuations then great that will cause them to get bid up further pulling more returns forward. If earnings eventually fail to meet expectations that's not great if you put all your eggs in an overvalued basket.

Ask anyone who was heavy on bonds how it felt to see those overvalued prices crash in recent years.

Cobbler_tone

Alexland said:

Cobbler_tone said:

It can't be the most sensible approach (definitely risk adverse I guess) not to invest in equities whilst they are doing really well, just because there are going to have some bumps in the road.  

Are the investments doing really well or is the share price just getting bid up in expectation of the investments continuing to do well?

As valuations rise future returns are being pulled forward increasing risk and reducing the short to medium term return expectations as the same cake cannot be eaten twice.

We've had some bumps and minor crashes but we haven't had anything awful for a while. Investors get complacent about taking risk. Trump will always chicken out, the Fed will always prop up markets, etc.

If the earnings catch up with valuations then great that will cause them to get bid up further pulling more returns forward. If earnings eventually fail to meet expectations that's not great if you put all your eggs in an overvalued basket.

Ask anyone who was heavy on bonds how it felt to see those overvalued prices crash in recent years.

That’s the same with anything which is why diversification is sensible, as well as potentially adjusting when you are quids in. You can look at multiple avenues, eg my company shares are up 1700% in 20 years but I wouldn’t carry all my eggs in one basket. 

There is certainty in some areas, eg cash will lose value over time.

It’s similar to knowing the sensible time to cash out a bet.
If we’d all mastered it we’d be VERY rich.