Next recession, trade wars, up to 50% portfolio losses
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3) We live in unstable times. Trump/China/tariffs/long time since the last recession... it could all go t*ts up at any time.
Times are always unstable. That's why timing the market, if one is a long term investor, is pointless. Instead better to spend ones times rationalising why to buy or hold something in particular. The world never stops.0 -
I recently read an article by Vanguard in which they are saying we should only expect gains on 3-5% going forward. The good times are over for the time being. Is a 3-5% upside really worth a 30% loss risk should a crash happen? Surely it's better to have 1% upside from a savings account with 0% loss risk.
We can all have different opinions of what the future brings. Myself - i expect a 20% gain (again) over the next year. I could be wrong of course.0 -
Plan for the worst, hope for the best.We can all have different opinions of what the future brings. Myself - i expect a 20% gain (again) over the next year. I could be wrong of course.
Well, OK, don't plan for the very worst as (a) it's depressing and (b) you will have to work unnecessarily hard if you never take any investment risk over your lifetime. So plan for something better than the worst, but have an awareness of what the worst might be so you aren't surprised or scared by it.0 -
bowlhead99 wrote: »Plan for the worst, hope for the best.
Well, OK, don't plan for the very worst as (a) it's depressing and (b) you will have to work unnecessarily hard if you never take any investment risk over your lifetime. So plan for something better than the worst, but have an awareness of what the worst might be so you aren't surprised or scared by it.
Absolutely. All my investments are for my retirement. Worse case I retire in 20 years (my plan) and best case in 10 (a lucky alternative). Thats the only plan I really need at the moment. The flexibility of not having a fixed date at the moment does a lot to reduce worries of a crash. I have been through 2000 and 2008 without budging (though admittedly things are much more transparent these days) so I reckon I can withstand another.0 -
3 to 5% is better than inflation. If/when there is a 30% crash, the markets will recover (like they always do), just make sure you don't sell when things go down.The good times are over for the time being. Is a 3-5% upside really worth a 30% loss risk should a crash happen? Surely it's better to have 1% upside from a savings account with 0% loss risk.
So, I am moving to cash for the time being. Utilising my 3% Tesco accounts, and possibly an NS&I saver account for the rest.
You need to think about your long term objectives. It's a poor choice not to be invested in the markets for the long term if you want serious growth. I know from my own experience. And I too, like you, switched into all cash at times and missed out on growth.
Why not have a mix of cash and equity/bond investments? That's what I do. Set the mix so that it balances your risk and you know you can hold investments through any short term volatility while you have cash as a backup. Going all in then all out is a poor investment strategy.
Why not consider lower risk VLS funds to limit your downside?0 -
Point remains though:
Invested: 3% upside, 30% risk.
Banked: 1% upside, 0% risked
Do the math.0 -
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The point is that Vanguard or nobody else have a clue what the upside is % growth is. Or chance of a crash. Or drop in a crash.
You can't do the maths when you don't know the numbers to plug in
We do know some of the numbers:
- We know that banking money has 0% capital risk.
- We know that in the Credit Crunch some portfolios lost 50% of their value. So 30% in another crash is pretty safe and not even a worst-case scenario.
- We know what interest banks pay. It's 1%-1.3%.
The only figure we don't know is the upside of investing. But that's why I quoted Vanguard themselves. They said "3%-5%".
So we do know what the figures are. And I haven't made any of them up. It is what it is.0 -
That 3-5% is probably a rate of return after inflation. Whereas, even at current inflation rates, you won't have a 0% loss risk - more like 100% risk of a small loss. That's with inflation at a little over 2%.1) I recently read an article by Vanguard in which they are saying we should only expect gains on 3-5% going forward. The good times are over for the time being. Is a 3-5% upside really worth a 30% loss risk should a crash happen? Surely it's better to have 1% upside from a savings account with 0% loss risk.
With talk of trade wars and worst case scenarios, it would be prudent to plan for double-digit inflation without any significant increase in savings rates. That would give you at least a 10% loss risk. But without the potential for double-digit gains on the other side. Three years of such double-digit inflation rates and you could be seeing the spending power of your cash reduced by a third.0 -
We do know some of the numbers:
- We know that banking money has 0% capital risk.
- We know that in the Credit Crunch some portfolios lost 50% of their value. So 30% in another crash is pretty safe and not even a worst-case scenario.
- We know what interest banks pay. It's 1%-1.3%.
The only figure we don't know is the upside of investing. But that's why I quoted Vanguard themselves. They said "3%-5%".
So we do know what the figures are. And I haven't made any of them up. It is what it is.
Are you expecting to need to access your investment when this crash happens?
If you leave the money invested, it's just a paper-loss, not an actual loss. Just need to leave it there and wait for the market to pick up again. Over the long-term (10-20years), these large dips, small dips, small increases and large increases all average out over the years, and generally, this will amount to decent average gain. A gain that will likely far outperform 1-1.3% interest in savings, but more importantly out-perform inflation. Something your 1-1.3% savings rates will fail to do....0
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