Vanguard investing options in market downturn

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  • talexuser
    talexuser Posts: 3,494
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    123mat123 wrote: »
    These show:
    100% World Equity tracker
    v.
    80% bonds 20% Equity tracker

    Somewhat strange to choose different timescales.
  • A_T
    A_T Posts: 959
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    Government bonds have always done well in an equity downturn - Vanguard have a number of options.
  • Government bonds have always done well because they have previously offered a decent if unspectacular consistent yield which can be used to keep going whilst equity markets readjust. It may be different this time with bond yields at levels never seen before - indeed some gilts now offering negative yields. Whilst there are other reasons for buying bonds, a positive yield is most people's main reason for buying them.

    If someone wants to be really defensive in this market then the only real option is cash.

    If someone is prepared to take some capital risk and has a long enough investing timeframe then I'd hazard a guess that dividend paying stocks with a strong balance sheet are likely to fare best over the next five years or so.
  • Linton
    Linton Posts: 17,061
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    Government bonds have always done well because they have previously offered a decent if unspectacular consistent yield which can be used to keep going whilst equity markets readjust. It may be different this time with bond yields at levels never seen before - indeed some gilts now offering negative yields. Whilst there are other reasons for buying bonds, a positive yield is most people's main reason for buying them.

    If someone wants to be really defensive in this market then the only real option is cash.

    If someone is prepared to take some capital risk and has a long enough investing timeframe then I'd hazard a guess that dividend paying stocks with a strong balance sheet are likely to fare best over the next five years or so.


    Yes, and as safe bond prices are directly linked to interest rates any rise in rates will be accompanied by a fall in bond prices. But the current low UK interest rates mean that bond prices cannot rise significantly.


    Other than dividend paying stocks there are reasonable interest paying corporate bonds which present rather less risk than the corresponding shares: if a company goes bust the bond owners are paid before share holders and in bad times the company cannot choose to cut bond interest payments which is very different to dividends. Other options include investments with good fairly safe income include infrastructure funds, and possibly property. And then there are ITs and funds which focus on wealth preservation.



    However there is nothing with quite the same desirable properties as traditional bonds once provided.
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    poppy10 wrote: »
    Very bad advice. Actively managed funds generally do just as badly in downturns as they do in bull markets

    Far easier to avoid bad investments than find good ones.
  • seacaitch
    seacaitch Posts: 272
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    Government bonds have always done well because they have previously offered a decent if unspectacular consistent yield which can be used to keep going whilst equity markets readjust. It may be different this time with bond yields at levels never seen before - indeed some gilts now offering negative yields. Whilst there are other reasons for buying bonds, a positive yield is most people's main reason for buying them.

    If someone wants to be really defensive in this market then the only real option is cash.


    The monetary policy environment at present has parallels with that presided over by the US Fed following WW2: sustained financial repression until 1951 so as to peg US Treasury yields below inflation (ie. negative real yields) and thus reduce Govt debt-servicing costs and enable a high Govt Debt/GDP ratio to be managed downwards progressively. Holders of US Govt Bonds may not have experienced nominal losses but they saw poor real returns during that period.

    Fast forward to the 1970s...

    Both equities and longer-dated conventional bonds fare (very) badly in the face of unexpected inflation: if inflation unexpectedly rises and persists, both asset classes get hammered. Once markets have priced-in that new higher level of inflation (by raising yields, ie. lowering prices), then future returns from both asset classes can be good, but holders of them during that adjustment phase will see their portfolios get creamed, which is what happened to US Govt Bond holders (plus equity holders, clearly) in the mid/late-70s until Paul Volcker eventually took drastic steps to tame inflation.

    I suspect a lot of the contemporary view of Govt Bonds both as effective portfolio stabilisers ("diversifying assets") and as useful sources of return in themselves ("return assets"), is based on post-1982 bond market history, which produced the 35+ year bond bull market which is I suppose still (just about!) with us. But bearing in mind where risk-free rates (longer dated Govt Bond yields) are today, they cannot really act as return assets as they've done in recent decades, and their diversifying asset function/potential could well be impaired, possibly significantly.

    None of this is a revelation and has looked roughly this way for quite a few years now.
  • Hi all,
    If I wanted to invest in a fund that would do well in the event of an equity market downturn
    Invest in a short or 2X short ETF fund of whatever you think is going down e.g. FTSE 100
  • Sailtheworld
    Sailtheworld Posts: 1,551
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    Thrugelmir wrote: »
    Far easier to avoid bad investments than find good ones.

    Can you tell me five FTSE100 companies that will underperform the index in 2020? Let's review at the end of 2020.
  • Linton
    Linton Posts: 17,061
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    Can you tell me five FTSE100 companies that will underperform the index in 2020? Let's review at the end of 2020.


    Not quite what you asked but as to it being easy to find bad investments - how about the FTSE100 or All-Share vs the FTSE World.


    FTSE100 companies:


    M&S
    Centrica
    Flutter
    Land Securities
    Kingfisher
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    edited 19 August 2019 at 3:34PM
    Can you tell me five FTSE100 companies that will underperform the index in 2020? Let's review at the end of 2020.

    Didn't realise that we were in a downturn currently.

    Companies get relegated and promoted to the index on a quarterly basis. Not that I follow the FTSE 100 companies very closely on a day by day basis. Prefer to go fishing elsewhere.
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