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  • FIRST POST
    • bcfclee27
    • By bcfclee27 5th Feb 18, 7:48 PM
    • 185Posts
    • 46Thanks
    bcfclee27
    Assessing your Risk level
    • #1
    • 5th Feb 18, 7:48 PM
    Assessing your Risk level 5th Feb 18 at 7:48 PM
    The main thing stopping me from investing at the moment is choosing which fund to invest in IE VLS60 or 80 & HSBC Global Strategy Balanced or Dynamic.

    Anyone have a site they can recommend where I can answer a bit more of an in depth questionnaire than the standard 6 question ones you get.

    As I'm struggling to decide where I sit with my equity / bond split.

    Thanks all
Page 1
    • TARDIS
    • By TARDIS 5th Feb 18, 8:13 PM
    • 111 Posts
    • 80 Thanks
    TARDIS
    • #2
    • 5th Feb 18, 8:13 PM
    • #2
    • 5th Feb 18, 8:13 PM
    There are various more in-depth questionnaires you can pay to complete but I'm not sure you can accurately assess your risk tolerance until you've seen how you actually react when your investments go through a crash to be honest. It's difficult to predict how you act in a hypothetical situation.

    If you're uncertain, it may be best to start at the lower end ie balanced/VLS 60. The worst thing you can do is start too high risk, panic and sell when prices dip.
    • ValiantSon
    • By ValiantSon 5th Feb 18, 8:20 PM
    • 2,039 Posts
    • 1,890 Thanks
    ValiantSon
    • #3
    • 5th Feb 18, 8:20 PM
    • #3
    • 5th Feb 18, 8:20 PM
    I understand your concern, although I'd suggest that it may be pointing you towards the lower volatility options because if you were less risk averse you would show greater confidence in the riskier funds.

    Nonetheless, you might like to look at the following:

    https://www.oldmutualinternational.com/other/Adviser/investment-and-funds/how-to-approach-investing/Risk-assessment/risk-profiler-tool/ N.B. It is American and meant for financial advisers to use with their clients. Please note, I urge real caution with using this. It might help you to think about some issues, but don't take the end result as a hard and fast one. Having done it myself just out of interest, it came out fairly close to my own perception of my risk tolerance, and fitted reasonably well with a risk assessment done with an IFA a couple of years ago, but it is not foolproof, and I had to go with some best fit options as my true response wasn't available.
    • Audaxer
    • By Audaxer 5th Feb 18, 8:33 PM
    • 1,082 Posts
    • 636 Thanks
    Audaxer
    • #4
    • 5th Feb 18, 8:33 PM
    • #4
    • 5th Feb 18, 8:33 PM
    The main thing stopping me from investing at the moment is choosing which fund to invest in IE VLS60 or 80 & HSBC Global Strategy Balanced or Dynamic.

    Anyone have a site they can recommend where I can answer a bit more of an in depth questionnaire than the standard 6 question ones you get.

    As I'm struggling to decide where I sit with my equity / bond split.
    Originally posted by bcfclee27
    How would you feel if you invested the £40k in VLS80 and HSBC Dynamic a few weeks ago, just before the prices started falling? Hopefully you would think, "that's okay I'm in it for the long run". If they continued to fall over the next few months, falling to up to 40%, would you still feel the same? If not or you're not sure, maybe you start off at a lower risk level.
    • BananaRepublic
    • By BananaRepublic 5th Feb 18, 8:39 PM
    • 1,192 Posts
    • 874 Thanks
    BananaRepublic
    • #5
    • 5th Feb 18, 8:39 PM
    • #5
    • 5th Feb 18, 8:39 PM
    I came out as 4 which sounds about right. I am cold and calculating but not a swivel eyed loon when it comes to taking risk. I did chicken out of Chinese investments.
    • bcfclee27
    • By bcfclee27 5th Feb 18, 8:49 PM
    • 185 Posts
    • 46 Thanks
    bcfclee27
    • #6
    • 5th Feb 18, 8:49 PM
    • #6
    • 5th Feb 18, 8:49 PM
    How would you feel if you invested the £40k in VLS80 and HSBC Dynamic a few weeks ago, just before the prices started falling? Hopefully you would think, "that's okay I'm in it for the long run". If they continued to fall over the next few months, falling to up to 40%, would you still feel the same? If not or you're not sure, maybe you start off at a lower risk level.
    Originally posted by Audaxer
    If that happened I would think oh b******s !!!

    But I wouldn't touch the investment if anything I'd start buying more.
    • fun4everyone
    • By fun4everyone 5th Feb 18, 8:55 PM
    • 995 Posts
    • 1,529 Thanks
    fun4everyone
    • #7
    • 5th Feb 18, 8:55 PM
    • #7
    • 5th Feb 18, 8:55 PM
    Another point to consider about investment falls, which I feel is often overlooked, is the time they last for.

    A 40% drop is easier to stomach if it is over quickly and recovers sharply. However look at something long and drawn out like the dot com crash. That bear market was a real stinker that lasted 3 years and wiped large percentages off equity portfolios. It's easy to imagine you can handle a 50% drop but can you imagine logging in every day just to see your valuation go down and down and down and down day after day month after month year after year? That is psychologically hard to stomach as you will really question if it was a good idea to invest or not.

    It's easy to give the advice "only check once a year/quarter" but being honest the reality is most people check daily, especially with significant sums invested. Headline news about stocks dropping causes people to check more frequently also.
    • Thrugelmir
    • By Thrugelmir 5th Feb 18, 8:57 PM
    • 58,967 Posts
    • 52,291 Thanks
    Thrugelmir
    • #8
    • 5th Feb 18, 8:57 PM
    • #8
    • 5th Feb 18, 8:57 PM
    How much can you afford to lose?

    That's a basic but sound barometer.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • bcfclee27
    • By bcfclee27 5th Feb 18, 9:00 PM
    • 185 Posts
    • 46 Thanks
    bcfclee27
    • #9
    • 5th Feb 18, 9:00 PM
    • #9
    • 5th Feb 18, 9:00 PM
    I came out as 4 which sounds about right. I am cold and calculating but not a swivel eyed loon when it comes to taking risk. I did chicken out of Chinese investments.
    Originally posted by BananaRepublic
    I came out as a 4 also.

    So would that put me in VLS 80 or 60 territory ?
    • chucknorris
    • By chucknorris 5th Feb 18, 9:01 PM
    • 9,581 Posts
    • 14,366 Thanks
    chucknorris
    How would you feel if you invested the £40k in VLS80 and HSBC Dynamic a few weeks ago, just before the prices started falling? Hopefully you would think, "that's okay I'm in it for the long run". If they continued to fall over the next few months, falling to up to 40%, would you still feel the same? If not or you're not sure, maybe you start off at a lower risk level.
    Originally posted by Audaxer
    I think that is a too simplistic approach, for me it is all about, have I got significant sums to invest more when the price has dropped, and the time for it to recover. In in the past I did, so I was 'almost' happy when the price fell. But going forward I don't feel the same, when I sell my investment property, I can't really invest it in equities, because then I would nearly have all my eggs in one basket, and having almost retired at 60, I could not take advantage of lower prices if there was a crash. So, semi-reluctantly, I have decided that the time to invest in bonds is fast approaching. I should add that I don't need to make more money, I have at least what I need, so there isn't any point in taking on more risk (I probably won't be able to spend any additional gain anyway). Although that sounds quite simple, it took me a while to realise what I should be doing.

    So for me, the factors are:

    1. Age.
    2. Ability to re-invest in a correction.
    3. Would the gain from taking on more risk actually be a benefit.
    Last edited by chucknorris; 05-02-2018 at 9:04 PM.
    Chuck Norris can kill two stones with one bird
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    • Alexland
    • By Alexland 5th Feb 18, 9:04 PM
    • 2,594 Posts
    • 1,976 Thanks
    Alexland
    Did you have a play with the Vanguard asset mixer? It's a bit basic and only covers 30 years data but the real lesson is that there's not much difference in the average annual returns from a 60/40 mix at 9.54% and an 80/20 mix at 9.77% but there is a difference between the max annual drop of -16% and -23% respectively. Remember the max drop on a rolling year basis is likely to be higher and a market may drop for longer than one year.

    https://www.vanguardinvestor.co.uk/investing-explained/tools/asset-mixer

    So basically if you are unsure then it might be worth playing it safe to start with while you develop your ideas further.

    However your appetite for shares may increase as the market starts looking better value and may fall back as markets start hitting historic highs.

    Alex
    Last edited by Alexland; 05-02-2018 at 9:09 PM.
    • Zorillo
    • By Zorillo 5th Feb 18, 9:05 PM
    • 197 Posts
    • 104 Thanks
    Zorillo
    I came out as four which is odd because I am a swivel eyed loon.
    • ValiantSon
    • By ValiantSon 5th Feb 18, 9:14 PM
    • 2,039 Posts
    • 1,890 Thanks
    ValiantSon
    I came out as a 4 also.

    So would that put me in VLS 80 or 60 territory ?
    Originally posted by bcfclee27
    At a guess, VLS 60.

    For what it's worth I came out as a 5, but the bulk of my investments are in VLS 60. However, this has more to do with the figures Alex gives, where returns between VLS 80 and 60 are not that far apart, but the volatility is. I'll take the greater risk if the anticipated returns warrant it: if they don't then why would I?
    • BananaRepublic
    • By BananaRepublic 5th Feb 18, 9:19 PM
    • 1,192 Posts
    • 874 Thanks
    BananaRepublic
    Another point to consider about investment falls, which I feel is often overlooked, is the time they last for.

    A 40% drop is easier to stomach if it is over quickly and recovers sharply. However look at something long and drawn out like the dot com crash. That bear market was a real stinker that lasted 3 years and wiped large percentages off equity portfolios. It's easy to imagine you can handle a 50% drop but can you imagine logging in every day just to see your valuation go down and down and down and down day after day month after month year after year? That is psychologically hard to stomach as you will really question if it was a good idea to invest or not.

    It's easy to give the advice "only check once a year/quarter" but being honest the reality is most people check daily, especially with significant sums invested. Headline news about stocks dropping causes people to check more frequently also.
    Originally posted by fun4everyone
    Thatís when you take up a less stressful hobby such as base jumping, cave diving or ice hockey to take your mind off the markets. I opted for the third choice.
    • BananaRepublic
    • By BananaRepublic 5th Feb 18, 9:22 PM
    • 1,192 Posts
    • 874 Thanks
    BananaRepublic
    I came out as four which is odd because I am a swivel eyed loon.
    Originally posted by Zorillo
    Perhaps I was wrong about my own nature. Maybe 5 is completely barking, the full Nigel Farage with a side salad and fries.
    • bcfclee27
    • By bcfclee27 5th Feb 18, 9:25 PM
    • 185 Posts
    • 46 Thanks
    bcfclee27
    Did you have a play with the Vanguard asset mixer? It's a bit basic and only covers 30 years data but the real lesson is that there's not much difference in the average annual returns from a 60/40 mix at 9.54% and an 80/20 mix at 9.77% but there is a difference between the max annual drop of -16% and -23% respectively. Remember the max drop on a rolling year basis is likely to be higher and a market may drop for longer than one year.

    https://www.vanguardinvestor.co.uk/investing-explained/tools/asset-mixer

    So basically if you are unsure then it might be worth playing it safe to start with while you develop your ideas further.

    However your appetite for shares may increase as the market starts looking better value and may fall back as markets start hitting historic highs.

    Alex
    Originally posted by Alexland
    Thanks Alex that asset mixer has made my decision
    • bcfclee27
    • By bcfclee27 5th Feb 18, 9:26 PM
    • 185 Posts
    • 46 Thanks
    bcfclee27
    At a guess, VLS 60.

    For what it's worth I came out as a 5, but the bulk of my investments are in VLS 60. However, this has more to do with the figures Alex gives, where returns between VLS 80 and 60 are not that far apart, but the volatility is. I'll take the greater risk if the anticipated returns warrant it: if they don't then why would I?
    Originally posted by ValiantSon
    Great point well made.
    • Alexland
    • By Alexland 5th Feb 18, 9:43 PM
    • 2,594 Posts
    • 1,976 Thanks
    Alexland
    Thanks Alex that asset mixer has made my decision
    Originally posted by bcfclee27
    Also worth checking out the Vanguard forecasts for 10 year forward returns in the below article. Although they anticipate that 60/40 and 80/20 are likely to have similar returns the upside possibly for 80/20 extends about 1% higher.

    https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/why-investors-prepare-for-lower-returns

    They are forecasting forward return at less than half the historical rate at around inflation levels so that possibility of 1% extra starts to be meaningful.

    I look at all of this and conclude I am a 70% risk appetite but willing to extend to 80% in the right market conditions.

    Alex
    Last edited by Alexland; 05-02-2018 at 9:48 PM.
    • Audaxer
    • By Audaxer 5th Feb 18, 9:47 PM
    • 1,082 Posts
    • 636 Thanks
    Audaxer
    Another point to consider about investment falls, which I feel is often overlooked, is the time they last for.

    A 40% drop is easier to stomach if it is over quickly and recovers sharply. However look at something long and drawn out like the dot com crash. That bear market was a real stinker that lasted 3 years and wiped large percentages off equity portfolios. It's easy to imagine you can handle a 50% drop but can you imagine logging in every day just to see your valuation go down and down and down and down day after day month after month year after year? That is psychologically hard to stomach as you will really question if it was a good idea to invest or not.
    Originally posted by fun4everyone
    Maybe that is why psychologically it is good to hold some cash, so that when there is a big drop you see it as a good opportunity to invest more at the lower prices.
    • bowlhead99
    • By bowlhead99 5th Feb 18, 10:39 PM
    • 7,988 Posts
    • 14,532 Thanks
    bowlhead99
    At a guess, VLS 60.

    For what it's worth I came out as a 5, but the bulk of my investments are in VLS 60. However, this has more to do with the figures Alex gives, where returns between VLS 80 and 60 are not that far apart, but the volatility is. I'll take the greater risk if the anticipated returns warrant it: if they don't then why would I?
    Originally posted by ValiantSon
    You are right, it was not much of a sacrifice to add a high bond component to the equities over the 30 year period ; adding 20% more bonds dampened the volatility of the equities somewhat without over-diluting their performance. So, the extra returns from going 80% equity perhaps didn't warrant it.

    But, what we have just had in the bond markets is pretty much a 30 year bull run which is coming to an end, so a tool that shows you how the bond returns were quite high and not a drag on your equities over those 30 years, is not necessarily what you need to hear.

    If you are talking about whether the *anticipated* returns (from now going forwards) warrant a particular approach, that's different from whether with the benefit of hindsight, the recorded returns seemed to warrant it.

    One could say that 60/40 was the 'sweet spot' and there is at least one prolific poster on these boards who got nice and wealthy by using that ratio over three decades by investing a large proportion of income while tilting his equities to the US market which happened to be the best performing market in the developed world. He would say that based on his personal experience, a 60/40 mix of equities to bonds in trackers is everything an investor needs.

    IMHO, history and hindsight is great for coming up with theoretical proofs of what you should have done over a period but chunks of history that give conventient results can't unfortunately always be relied upon for a look-forward projection.

    The projection in Alexland's later Vanguard link is only a projection of course but it does at least incorporate the recent state of the equity and bond markets rather than just saying that for a given proportion of historic 10 year time periods from different start points, bonds did this and equities did that.

    From that later link you are not looking into what you would have got with the *actual* strong bond markets of the last three decades but what you might get given a whole range of potential outcomes for bond markets. Which might legitimately not be as strong as they were over the previous three decades, changing your conclusions on the optimum mix, even if there is some maths elsewhere that says the 'efficient frontier' sweet spot in terms of stocks vs bonds is 60:40.
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