My uncle has advised me to sell all my shares and reinvest in bonds/gilts

Lois_and_CK wrote: »

He has predicted an imminent stock market crash. His prediction is based on the LIBOR rating. He says the last time it was at this level was just before the 2007/2008 crash. He is in the process of selling his shares and putting the money into bonds/gilts instead.

Your uncle seems to be on the right general track but "imminent" implies more timing precision than is normally possible.

If you read the Financial Times you'll find coverage of two issues suggesting an increased potential for a substantial drop:

1. Cutting back on fiscal easing of various sorts, from QE ending or unwinding to interest rate rises in much of the developed world,including EU and US. The reasoning is that this increases costs for those who borrow to buy shares and prompts some selling, while the reduced number of buyers makes markets more prone to instability.

2. The cyclically adjusted price/earnings ratio. At US levels the top 10% of the range correlates with a 25% a year chance of a major drop and it's way into that range. But correlation doesn't cause things, it just observes the connection and it has no useful predictive power for returns over a one year timeframe. It does have excellent predictive power for returns over the following fifteen years.

Neither of those can give precise timing. It's more about long term positioning and observing that now is, in historical context, a better time to be an equity seller than an equity buyer. Yet none of this means that the bull market can't continue for another five years.

The exact trigger or triggers for the next big drop just isn't knowable and nor is its timing.

I assume that the bonds your uncle is using have short terms remaining. Those change capital value much less in response to interest rate changes. Bond funds normally provide their average maturity of their holdings and one described as defensive is likely to be dominated by low maturities.

I also expect that his holdings were largely in the UK since that's a fairly common recommendation. So paying attention to UK things is fairly sensible, though the UK is greatly affected by events elsewhere.

He's also likely to give higher priority to capital preservation than long term growth and his move makes sense with that objective given his age.

Odds favour his move being a good one but that's only odds, not certainty.

Your own position is more of a challenge. A short term market drop won't be a problem aside from the stress. But the correlation between returns and P/E is good for the time span that's of interest for you. So what to do? If you don't have much invested yet, just ignore it. Low returns implies relatively cheap prices during many of the years when you'll be buying. If you've already accumulated most of your capital then a reduced equity proportion may well be a good move.

Personally, I've done most of my paying in out of income and have reduced my equities to about 50%, more based on the fifteen year cyclically adjusted P/E correlation than anything short term.

Back in 2008 I set up pension salary sacrifice down to minimum wage after the early drops, knowing that prices might get even better. In April 2009 I went all in on equities including stoozing. There's absolutely no assurance that my current positioning will work as well but at least I have seen a big drop, exploited it and know that the almost ten year long bull market we've been in isn't all there is to markets. Your uncle has probably been investing through many more cycles than me and his call, except for exact timing, seems decent but still may be the wrong one for your situation.

How well has your uncle done with investing in securities over the years? The answer to this may influence your judgement of his opinion.

ValiantSon wrote: »

As far as taking "advice" from him then he is just some bloke. He hasn't any relevant qualifications and he isn't regulated.

So what? He's presumably not charging, so it's just someone expressing an opinion. We are still allowed those.

I'm delighted for you.

Aren't you going to warn them I'm not an IFA :rotfl:

You are still missing the point. :wall:

No. You are...

My point is that he has no qualifications and his advice should be treated with considerable caution.

:wall:My point was that an IFA would be no more use in determining the timing of the next crash as Bob your uncle. Whatever qualifications they have.