Are you planning for a stock market correction

Alexland

kempiejon said:

Am I right, equity markets are smaller than bonds and commodities

According to MSCI the global fixed income market is 141 trillion USD compared to public equites at 108 trillion see 2:50 in the below Bogleheads University video published a few days ago from their annual event a couple of months ago.

I can't comment on commodities as it probably depends how you measure it as the earth has a lot of resources.

https://www.youtube.com/watch?v=IThPL1Q6upw&t=5s

[Deleted User]

hallmark said:

It's easy to go round in circles and end up tied in knots with this stuff (speaking from experience)

Even following advice that's generally regarded as sound can be tricky, for example

"Be fearful when others are greedy and be greedy when others are fearful"

Even if you want to follow that advice, it's very unclear exactly how:

Let's say you've been invested awhile and are currently sitting on large gains.  What's the greedy move, taking profits and moving to cash now in the hope of buying back in if there are falls?  Or continuing to stay invested hoping for even bigger profits?

A deceptively tricky question IMO. You could argue that either approach is greedy.  Or fearful.

I think you'll find that the answer is both! Taking profit whilst remaining invested at your original allocation, meets the spirit of that sentiment but continuing to buy whilst increasing your allocation, does not. You made the decison some time ago to invest at a certain level and you were rewarded for that bet. Taking the profit from that gamble whilst maintaining the original bet is neither fearful nor greedy.  

You will need to examine your motivation for whatever action you take because that will determine what drives your decision and only you understand that.....not every option has to fit the label of greed or fear, many times you're simply executing a strategy that was initiated some time ago and you're simply following through.

Linton

boingy said:

I think the sky has been about to fall on the stock market for at least a couple of years now. If you ran for the safety of cash back then you'll have missed out a whole heap of gains. Make safe any money you'll need in the next couple of years and leave the rest to ride the rollercoaster.

I think 2 years needs in lower risk investments  is far too short a period to enable many people to accept a major fall in equity prices without losing sleep or selling in a panic and crystallising their losses. Everyone investing life changing amounts of money really needs to decide what is appropriate for their own psychology and circumstances.

dont_use_vistaprint

Linton said:

boingy said:

I think the sky has been about to fall on the stock market for at least a couple of years now. If you ran for the safety of cash back then you'll have missed out a whole heap of gains. Make safe any money you'll need in the next couple of years and leave the rest to ride the rollercoaster.

I think 2 years needs in lower risk investments  is far too short a period to enable many people to accept a major fall in equity prices without losing sleep or selling in a panic and crystallising their losses. Everyone investing life changing amounts of money really needs to decide what is appropriate for their own psychology and circumstances.

We talk so much about people making rational , data informed decisions but if the smartest people doing this aren't how should we expect the rest of us to? 

If investors made decisions based on the audited & published earnings reports and forecasts things would not overvalue or drop to the extent they do. 

We all make decisions on emotions , mostly fear and greed but we then try to justify it as rational with some carefully selected data.

Human ability to accurately assess risk is abisymal

we suffer a whole range  of bias and aversions that make us do things in spite of data. 

[Deleted User]

dont_use_vistaprint said:

Linton said:

boingy said:

I think the sky has been about to fall on the stock market for at least a couple of years now. If you ran for the safety of cash back then you'll have missed out a whole heap of gains. Make safe any money you'll need in the next couple of years and leave the rest to ride the rollercoaster.

I think 2 years needs in lower risk investments  is far too short a period to enable many people to accept a major fall in equity prices without losing sleep or selling in a panic and crystallising their losses. Everyone investing life changing amounts of money really needs to decide what is appropriate for their own psychology and circumstances.

We talk so much about people making rational , data informed decisions but if the smartest people doing this aren't how should we expect the rest of us to? 

If investors made decisions based on the audited & published earnings reports and forecasts things would not overvalue or drop to the extent they do. 

We all make decisions on emotions , mostly fear and greed but we then try to justify it as rational with some carefully selected data.

Human ability to accurately assess risk is abisymal

we suffer a whole range  of bias and aversions that make us do things in spite of data. 

Equity markets are forward looking, audited reports are looking backwards. 

dont_use_vistaprint

Linton said:

boingy said:

I think the sky has been about to fall on the stock market for at least a couple of years now. If you ran for the safety of cash back then you'll have missed out a whole heap of gains. Make safe any money you'll need in the next couple of years and leave the rest to ride the rollercoaster.

I think 2 years needs in lower risk investments  is far too short a period to enable many people to accept a major fall in equity prices without losing sleep or selling in a panic and crystallising their losses. Everyone investing life changing amounts of money really needs to decide what is appropriate for their own psychology and circumstances.

I'm in retirement and hold around 6-8 years cash, everything else currently in VLS80 and property (roughly 1/3 each pot) and I have a small pension just started to cover bills. 

Im torn whether to live off interest at 4% chipping away at the savings capital or transfer it to something like BIPS where the capital has a chance of staying untouched & income potential double.

Problem is either scenario works fine and probably many others do. 

Alexland

dont_use_vistaprint said:

If investors made decisions based on the audited & published earnings reports and forecasts things would not overvalue or drop to the extent they do. 

Buying mainly on past performance wouldn't be rational either as the prospects of companies will have changed since the period the reports cover. A company may have had a fire in its warehouse, signed a major new customer, launched an amazing product, be subject to new regulations, get access to cheaper loans, their customers might have less disposable income, etc.

And of course the environment may have changed and another asset class may be more or less attractive affecting prices people are willing to pay, Eg in a zero interest rate it was rational to overpay for bonds and stocks if you thought that would continue for a long time. Or people might just feel sore after a crash or optimistic after a long period of stable gains.

The swing of the pendulum is unavoidable so it's easier to embrace the uncertainty and invest accordingly.

MK62

dont_use_vistaprint said:

Linton said:

boingy said:

I think the sky has been about to fall on the stock market for at least a couple of years now. If you ran for the safety of cash back then you'll have missed out a whole heap of gains. Make safe any money you'll need in the next couple of years and leave the rest to ride the rollercoaster.

I think 2 years needs in lower risk investments  is far too short a period to enable many people to accept a major fall in equity prices without losing sleep or selling in a panic and crystallising their losses. Everyone investing life changing amounts of money really needs to decide what is appropriate for their own psychology and circumstances.

I'm in retirement and hold around 6-8 years cash, everything else currently in VLS80 and property (roughly 1/3 each pot) and I have a small pension just started to cover bills. 

Im torn whether to live off interest at 4% chipping away at the savings capital or transfer it to something like BIPS where the capital has a chance of staying untouched & income potential double.

Problem is either scenario works fine and probably many others do. 

Problem?.....

Bravepants

The Growth part of my portfolio is 100% in Vanguard FTSE Global All Cap and will stay there. It's currently a six figure sum which I intend to keep invested for the duration, or at least until I might need advanced old age care in another 20 to 30 years or so. 

I have a similar six figure sum in a Short Term Money Market fund, which I may use to top up the growth fund if there is a drop, or hold in reserve in case my partner and I decide to move house in the next decade or so. Although we haven't found anything suitable yet.  

My current and, indeed future, income needs and wants are met by a good DB pension, an income portfolio (currently SIPP and GIA) which is not directly invested in any of the high profile AI focused tech companies, and a small low-stress part-time job. State pension kicks in in 10 years or so. I don't need the job but it's a bit of a social thing and I consider it a paid hobby!   

Partner is invested in pensions and growth funds, but holds a lot more cash than me. She still works full-time, but wants to retire in 3 or 4 years.  

I'm still able to save and invest a four figure sum of new money each month. So no worries about any crashes in this neck of the woods.

If I've got 20 years left to live then bring on the crash/correction sooner rather than later I say! 

 

 

jaybeetoo

If you can predict when the next crash is going to happen, when the bottom is then reached and thus start to invest again, you’ll be a multi-billionaire.  Even the professionals are bad at trying to second guess the market.  Through all the downs including the 1987 crash, I’ve just stayed invested.