Should I hedge stock investment because it's "overheated"?

beeza650

@OldScientist I will be putting some of the leftover cash in gilts. The reason for switching a chunk to equities is this house purchase might be 5 years..but it might be 10 or even 12 years away. My youngest kid is 7. I can't keep sitting by, like I have for decades, watching my very hard earned savings not keep up with house prices.

beeza650

@megatower I have waited a very long time already. How long would I drip feed in for

PixelPound

https://forums.moneysavingexpert.com/discussion/comment/82049958#Comment_82049958

The biggest damper on investment returns is strategy but timing. Many people look to finding a perfect strategy before they invest and so delay starting the investment which can end up being months or years which costs more than the difference in what funds they invest in or platform they use. If you are using an all-world, putting some in now means you've started.

You need to factor in your risk tolerance, the idea behind a bond element is that it dampens the fall as bonds can go up, or if they fall it's far less. If you are someone who might panic and withdraw after a crash then it's thought the bond element might be enough to stop the panic.

In addition to the total withdrawal panic, there's the dabbling panic. We have a crash, some of your funds fall 40%, but maybe others less so. Would you stick with your preset plan or pull funds from those that fell hardest and move into those that didn't fall as much as deemed safer.

Keeping cash is more for those who would want to start withdrawing it, e.g. in retirement, so you can use the cash buffer instead of selling at depressed prices. If not needing to use it, not sure what spare cash would be for.

megatower

https://forums.moneysavingexpert.com/discussion/comment/82050387#Comment_82050387

You'd probably need to decide for yourself, from your personal risk tolerance and the market conditions. There are some good points here from other people. If you're not sure or comfortable, then be conservative, target the drip feed for a longer period to start with, and you can adjust as it goes or you learn. If you waited that long already, it doesn't matter too much for a little longer or slower. On the plus side, the interests rate is still relatively high for cash while you wait.

InvesterJones

As previously mentioned, do check what you're actually getting with your 'value' choice - there is a very high proportion in a single memory manufacturer which has risen the AI boom and is very fashionable, so it's not much of a diversifier away from what you fear might be overheating.

But this argument of 'aren't stocks over priced right now?' comes up time and time again, even on these forums. By that reckoning, they've been overheated for much of the last decade or even further. We can't tell what the future holds and being a contrarian investor is tough for anything other than ultra-long time frames. Rather than trying to second guess the market for future winners, it might be more sensible to look at non-equity investments for diversification, accepting the likely hit on returns for it.

Bostonerimus1

Without knowing the OP's age and the status of their personal finances how is it possible to offer an opinion about what they should do with their cash? We can go on about the historical returns of various asset classes, but unless we know the OP's circumstances what good is that?

masonic

https://forums.moneysavingexpert.com/discussion/comment/82050710#Comment_82050710

OP will need to make their own decision. They've put forward a proposal for discussion and we are discussing it. The information shared may or may not be useful in helping them reach a decision, but it is not for us to give personalised financial advice here.

beeza650

Exactly...you don't need to know all that. I'm not looking for complete financial planning. Just a discussion around how heated stocks are and whether that needs a diff investing strategy. It's been really useful so far thanks. FWIW. Gross worth exceeds 2m so I can "afford" a loss, I just don't want to walk headfirst into one that's all

kempiejon

https://forums.moneysavingexpert.com/discussion/comment/82050758#Comment_82050758

if you think stocks are overheated, as is often the case and are young it makes less difference for the next 30 years investing. If you think stocks are overheated what about other divisefrsifiers corporate and government debt, commodities, gold, currencies and so on?

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82050758#Comment_82050758

Well how much growth do you need to hit your goals by what kind of date? Perhaps consider that first and foremost - if you don't actually need much growth then why take on more risk than you need to? Perhaps you'll be fine with inflation linked gilts for example.