Cash out? Enough is enough

masonic

Veloflyer said:
Do folk think this emergency cash fund is adequate to preserve wealth and the present equity driven philosophy?

I suppose it somewhat depends on when you'd envisage starting to draw on cash and when you'd stop. If your equities have only fallen, say, 10% from their previous high, then they could be worth the same as they were earlier in the same year when you were perfectly happy to sell units. If you set the starting threshold to 20% down, and stop when they recover to within 20% of their previous high in nominal terms, then for Dotcom, you'd have needed to start using cash from around August 2001 and could have switched back to equities towards the end of 2005, so would need a little over 4 years cash, but you'd need to add another 2 years to that to get back within 20% of the previous high in real terms, or another 11 years to reach that previous high in real terms.

(all based on IA Global sector average returns and RPI)

Veloflyer

Personally I would like 5 years cash as a minimum. Dot com crash took longer than 2 years to recover

Fair point - I guess we cannot use history to predict the future here, but for sure a worthy comment. Let's say 5 years cash then - I wonder if the philosophy still reasonably sound if I move 50% of the pot into a Vanguard lifestyle equity/bond ETF of some sort?     

Albermarle

artyboy said:

HedgehogRulez said:

Bobziz said:

Ah of course. If you could let the rest of us know that happens it would be most helpful.

You’ll know it when the markets plunge into the abyss in a few months time.

Or not.

Isn't this fun? Who needs Walthamstow Dogs?

You are a bit behind the times, Walthamstow Stadium closed 17 years ago .

Almost exactly at the time of the GFC, so your comment was in fact maybe quite timely...... 

Veloflyer

masonic said:

Veloflyer said:
Do folk think this emergency cash fund is adequate to preserve wealth and the present equity driven philosophy?

I suppose it somewhat depends on when you'd envisage starting to draw on cash and when you'd stop. If your equities have only fallen, say, 10% from their previous high, then they could be worth the same as they were earlier in the same year when you were perfectly happy to sell units. If you set the starting threshold to 20% down, and stop when they recover to within 20% of their previous high in nominal terms, then for Dotcom, you'd have needed to start using cash from around August 2001 and could have switched back to equities towards the end of 2005, so would need a little over 4 years cash, but you'd need to add another 2 years to that to get back within 20% of the previous high in real terms, or another 11 years to reach that previous high in real terms.

(all based on IA Global sector average returns and RPI)

Interesting and thanks. I guess 5 years cash wouldn't be unreasonable, but 15 years cash reserve would be challenging to say the least! I think the bond route deserves further consideration.
  

Pat38493

Veloflyer said:

Personally I would like 5 years cash as a minimum. Dot com crash took longer than 2 years to recover

Fair point - I guess we cannot use history to predict the future here, but for sure a worthy comment. Let's say 5 years cash then - I wonder if the philosophy still reasonably sound if I move 50% of the pot into a Vanguard lifestyle equity/bond ETF of some sort?     

Crashes don't hardly ever occur top to bottom on a single day - in many cases you would be better off sticking to a predetermined plan and continuing to sell as markets go down, based on your regular rebalancing.  If you are holding a 2 year cash buffer, you probably shouldn't be stopping all rebalancing during early parts of bear markets.  Holding 5 years of cash is nice if you can afford it but you are carrying a lot of inflation risk.

At the moment there is good grounds to think that some tech stocks are overvalued, but it will probably take an actual real world event(s) to trigger the correction e.g. one or more of the big companies associated with AI hype actually posting poor results, or some company coming up with a new invention that renders the other ones obsolete.

As an aside, I have put a small % of my pot in to a global value/dividend fund that hardly contains any tech stocks - example would be the Vanguard Global high dividend fund.  It's only about 10% of my total equities as a small hedge, and actually this was partly done for tax reasons.

Veloflyer

Pat38493 said:

Veloflyer said:

Personally I would like 5 years cash as a minimum. Dot com crash took longer than 2 years to recover

Fair point - I guess we cannot use history to predict the future here, but for sure a worthy comment. Let's say 5 years cash then - I wonder if the philosophy still reasonably sound if I move 50% of the pot into a Vanguard lifestyle equity/bond ETF of some sort?     

Crashes don't hardly ever occur top to bottom on a single day - in many cases you would be better off sticking to a predetermined plan and continuing to sell as markets go down, based on your regular rebalancing.  If you are holding a 2 year cash buffer, you probably shouldn't be stopping all rebalancing during early parts of bear markets.  Holding 5 years of cash is nice if you can afford it but you are carrying a lot of inflation risk.

At the moment there is good grounds to think that some tech stocks are overvalued, but it will probably take an actual real world event(s) to trigger the correction e.g. one or more of the big companies associated with AI hype actually posting poor results, or some company coming up with a new invention that renders the other ones obsolete.

As an aside, I have put a small % of my pot in to a global value/dividend fund that hardly contains any tech stocks - example would be the Vanguard Global high dividend fund.  It's only about 10% of my total equities as a small hedge, and actually this was partly done for tax reasons.

I appreciate the risks, but IMHO nothing here is risk free. All anyone can do is minimise the risk. Agreed about Tech, but than again folk have been saying that for years if not decades. Not a bad idea to diversify a little outwith tech as you state. Another one for me to think about..... 

bjorn_toby_wilde

Veloflyer said:

Pat38493 said:

Veloflyer said:

Personally I would like 5 years cash as a minimum. Dot com crash took longer than 2 years to recover

Fair point - I guess we cannot use history to predict the future here, but for sure a worthy comment. Let's say 5 years cash then - I wonder if the philosophy still reasonably sound if I move 50% of the pot into a Vanguard lifestyle equity/bond ETF of some sort?     

Crashes don't hardly ever occur top to bottom on a single day - in many cases you would be better off sticking to a predetermined plan and continuing to sell as markets go down, based on your regular rebalancing.  If you are holding a 2 year cash buffer, you probably shouldn't be stopping all rebalancing during early parts of bear markets.  Holding 5 years of cash is nice if you can afford it but you are carrying a lot of inflation risk.

At the moment there is good grounds to think that some tech stocks are overvalued, but it will probably take an actual real world event(s) to trigger the correction e.g. one or more of the big companies associated with AI hype actually posting poor results, or some company coming up with a new invention that renders the other ones obsolete.

As an aside, I have put a small % of my pot in to a global value/dividend fund that hardly contains any tech stocks - example would be the Vanguard Global high dividend fund.  It's only about 10% of my total equities as a small hedge, and actually this was partly done for tax reasons.

I appreciate the risks, but IMHO nothing here is risk free. All anyone can do is minimise the risk. Agreed about Tech, but than again folk have been saying that for years if not decades. Not a bad idea to diversify a little outwith tech as you state. Another one for me to think about..... 

It seems to be that there is always a market guru predicting a crash. Eventually they’ll be able to say “I told you so”.

Not the same thing, but I remember buying my house 21 years ago and reading of an imminent housing crash - negative equity coming to you soon!  Still waiting.

QrizB

"Successfully predicted 15 of the last 1 crashes" is a phrase I've seen used on this forum.

artyboy

Albermarle said:

artyboy said:

HedgehogRulez said:

Bobziz said:

Ah of course. If you could let the rest of us know that happens it would be most helpful.

You’ll know it when the markets plunge into the abyss in a few months time.

Or not.

Isn't this fun? Who needs Walthamstow Dogs?

You are a bit behind the times, Walthamstow Stadium closed 17 years ago .

Almost exactly at the time of the GFC, so your comment was in fact maybe quite timely...... 

exactly, which is why I said 'who needs it'... it's a locale I'm very familiar with although I never actually visited the track itself.

On a related note, today isn't looking that great for the US. Sell Sell Sell!

(Yes obviously it's a pretty inconsequential drop in isolation, but let's see how things develop)

HedgehogRulez

It’s happening!