Are you planning for a stock market correction

SimonSeys

dont_use_vistaprint said:

Enzo_L said:

dont_use_vistaprint said:

dunstonh said:

This seemed  to be a specifically about Nvidia threat from China and Donald Trump playing around with tariffs ? Doing the usual bad guy followed by the Good Guy routine .... it was nothing like 22% on my portfolio more like 10%, While it  might fit your definition of a crash for being over 20%. It really was not one 

A stockmarket crash is defined as being over 20%  (a correction being over 10% and a pullback being over 5%).   The S&P500 fell by from peak to trough by 22%.  Global markets did not fall by as much and did not crash.

I think part of the issue is when people try to define markets and global financial systems in a mathematical/mechanical way like this, better  understand it's more of a social science.

Market corrections happen in all shapes and sizes and durations, . There's not just two boxes plus or   -20% 


 

Pullback / Correction / Crash have specific meanings and @dunstonh has helped you by explaining their meaning.

These commonly understood meanings are relevant and useful, Describing what happens to markets needs specific meaningful terms so people can understand each other.

Pretending that a specific event which meets the definition of a crash isn't actually a crash is a blind alley.

How are they useful ? Better to just say what it was , S&P lost money due to tariff fears , then got back to normal when Donald changed his mind 

https://weather.metoffice.gov.uk/guides/coast-and-sea/glossary

In the Met Office definitions for weather  “Soon” means 6-12 hours.   Similarly a storm and a gale are ell defined terms.  This is useful for conversations between competent sailors but I wouldn’t expect my mum to use the words with precision if she said she was expecting a storm tonight in casual conversation. 

SimonSeys

On topic, I know I’m not competent or skilled enough to guess the market, so I’m sitting tight.  I’m fortunate enough to have a decent DB pension in a few years, so I’m high risk (100% equities) in the DC element of my portfolio.

Alexland

SimonSeys said:

On topic, I know I’m not competent or skilled enough to guess the market, so I’m sitting tight.  I’m fortunate enough to have a decent DB pension in a few years, so I’m high risk (100% equities) in the DC element of my portfolio.

That's what makes portfolio allocation conversations so hard as the percentages mean different things in different scenarios. Sadly I don't expect any DB (or rental) income in retirement so for me reducing to 50/50 might be about the same risk profile as 100% equites for someone who expects half their income from some other reliable source. 

Something else that's changed recently is a levelling up of the pros/cons of a DB and DC scheme. People used to be very jealous of DB schemes for the 'gold plated' benefits but now we are seeing DC schemes offering additional flexibility to tilt into market opportunities, profile income for tax efficiency, leave money to beneficiaries while still being able to provide similar inflation linked income via a gilt ladder or annuity purchase.

But then next time the market crashes for people too heavy into equity or those that missed an opportunity to buy bonds at attractive yields the narrative will probably switch back to DB schemes being better especially if they are not contributing enough. DC is perhaps briefly having it's moment in the sun.

dont_use_vistaprint

Alexland said:

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.

Do you not think they factor all the macro stuff into the forecasts and have bcp ,  dr and insurance to manage and mitigate  things like fires ?

this is what separates the successful companies they perform in a more defined &  repeatable way because they are led and advised well.

When they issue bonds they index against local diesel price, global barrel price, various FX indexes with formulae running to hundred of pages, you dont have to rely on luck

uncertainty exists but is not equal across companies, sectors and geographies. 

Alexland

dont_use_vistaprint said:

Do you not think they factor all the macro stuff into the forecasts and have bcp ,  dr and insurance to manage and mitigate  things like fires ?

this is what separates the successful companies they perform in a more defined &  repeatable way because they are led and advised well.

When they issue bonds they index against local diesel price, global barrel price, various FX indexes with formulae running to hundred of pages, you dont have to rely on luck

uncertainty exists but is not equal across companies, sectors and geographies. 

In my experience working with large companies there are a lot of risks taken as it's uneconomic to adequately insure against the full impact every eventuality and they are not even resourced enough to consider them all anyway as they are under commercial pressures to keep costs and prices low. Look at the cyber losses recently announced at JLR and M&S as examples. The JLR one was so bad it impacted UK GDP.

dont_use_vistaprint

jaybeetoo said:

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.

It was about planning not prediction. 

The last big one took 15 years to recover to its former nominal value if you add in inflation related buying power it took about 22 to 23 years to recover to its previous peak. Many here could be dead if they stayed invested that long

dharm999

I made a couple of changes to our investments about 12 months ago.  Switched the ISAs from being invested in VLS60 and VLS40 to income MMF and Gilt funds and we use the monthly income towards monthly costs.  I also switched my SIPP investments to income units from acc units and the income stays invested in the SIPP within a MMF fund

At the moment with OH’s state pension, small DB pension, income from cash savings, dividends and income from the ISAs, we more than cover our monthly costs, so the capital in our SIPPs, ISAs and general investment accounts isn’t touched.  If we do need cash, i take it from one of the cash savings accounts we have.  At the moment across everything we are probably 40% cash, including MMFs, 35% equities, 20% bonds and the balance in gold and commercial property.  The cash balance is abnormally high as we are looking at gifting some money to our son, so he can buy a property.  

If markets do drop, then we will just ride it out, as even though we have both stopped working, we can reduce cash holdings to cover anything the monthly income doesn’t cover. 

We are too high in cash, but for a specific reason, and if the property purchase doesn’t work out then we will stay in cash but put it in long term fixed interest rate accounts.  If we were 10 years younger, I’d put some of it in to equities, but we don’t need to.

The allocation is relatively conservative, but it doesn’t give me sleepless nights and we can focus on enjoying not working.  

Linton

dont_use_vistaprint said:

jaybeetoo said:

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.

It was about planning not prediction. 

The last big one took 15 years to recover to its former nominal value if you add in inflation related buying power it took about 22 to 23 years to recover to its previous peak. Many here could be dead if they stayed invested that long

It rather depended on your choice of investments.  If you held Woodford's Invesco UK High Income you would have barely noticed the the .com crash. Having lived through that period that is why my asset allocation avoids a high dependence on over-valued and over-hyped non profit making tech rather than blindly following the index.

PixelPound

dont_use_vistaprint said:

jaybeetoo said:

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.

It was about planning not prediction. 

The last big one took 15 years to recover to its former nominal value if you add in inflation related buying power it took about 22 to 23 years to recover to its previous peak. Many here could be dead if they stayed invested that long

Not many go all in at the peak. So most invested now will have done so over time, so average will be much lower than the peak, so a crash could still leave you in profit. 

Also when will the crash be? No one knows. The dotcom one had people predicting years earlier. The S&P 500 reached 800 mid 1997, some started to expect a crash, it went to 1000 in 1998 when it went up further (was even a pull back from 1100 to 950 July/Aug, so over 10%). Reached 1500 in Aug 2000 taking 2 years to fall to just above 800, or back to Aug 97 level, and then a W shaped recovery.

We could see a crash soon, but we might not get one until 2028 or 2030 and the S&P have reached 8000 or higher, drop 20% back to where it was in July 2025, or 25%+ taking it to the bottom of the Trump Tarrif dip.

Agreed it is all about planning, investment horizons, etc. Waiting in cash now could see you miss out on 2+ more years of big growth. Of course if you need cash in next 10 years going all in could be too risky. 

alfred64

In the meantime the market climbs daily to ever record levels.