Your correction strategy?

I will continue to drip-feed and not worry about timing anything. The more you tinker and faff about with your investment strategy, the more stress you will have if it goes wrong, and the more you will want to "check how my strategy is doing".


If your investment horizon is long enough, just leave well alone and get on with your life!

This is really a philosophical question. You have to believe that we have free will to worry about a correction strategy. If everything is predestined it won't matter want you think you are doing. You might take the position that of course we have free will....we have no choice......In that case we will make choices and end up with a singular result, but what about all those realities where you made different choices and ended up doing better? at least you can console yourself that you didn't end up in one of the disastrous realities....or maybe you did.

james_09 wrote: »

Setting your risk to say 60/40 with a view to increasing to 80/20 after a crash is just another way of trying to time the market, which as we know most people get wrong.

Do we know that? I'm not sure that such studies don't include in the timing the market bag, the uninformed investor who buys whatever the latest hot topic is and sells out when it goes down! Not uncommon behavior unfortunately but not in any way related to what I am suggesting, which is just a slightly aggressive form of rebalancing - a strategy that we do know works!

james_09 wrote: »

at if the market doesn’t crash like you are expecting? What if it just carrys on increasing for another 5-10 years at say a much slower pace.

You would be stuck with your 60/40 allocation waiting for a crash, when you would have been better off at 80/20 from the start.

A crash in the next few years is not a certainty.

If I thought a crash was a certainty then I would not be in 60% equity would I;) I am quite happy with returns just ticking along - the 60% equity is within my comfort range.

What I am suggesting is really just an application of the famous investing philosophy "be fearful when others are greedy, and greedy when others are fearful" which comes from the king of wise investors, Warren Buffet.

For me fearful is 60% equity and greedy is 80%. Others with greater faith and more conviction might go from 0% to 100%!

james_09 wrote: »

All I'm saying is you may well end up worse off than if you stuck with your risk profile of 80/20 from the start.

That is of course a possibility - but if we don't have a major correction then I don't need to be taking risks to generate extra wealth/income. I guess if I was in the accumulation phase and needed high returns to achieve my objectives I might take a different view but I'm not. I can survive quite well with returns only a few percent over inflation - if we get a crash of say 50% then things become a little tighter and my cash will need to work harder.

Who says a risk tolerance has to be a single number - a range depending on available funds (or position in the market cycle) seems eminently sensible.

My point about risk adjustment in your pf is that the likely upside/downside risk profile of the market will have changed following a large drop, assuming it isn't a global Japan c1989 scenario.

When I invested in to my SIPP I was comfortable with the historic risks associated with a roughly 50% equities + 10% property set up.

Fast forward a couple of years and the market has dropped 40% how can the downside risk be the same at that point as it is now?

It doesn't mean it can't/won't fall further but it surely means you'd be increasing your equity holdings at a point far closer to the trough than your original starting point.