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  • FIRST POST
    • blokedownpub
    • By blokedownpub 14th Jan 20, 11:42 AM
    • 19Posts
    • 5Thanks
    blokedownpub
    cautious would-be investor
    • #1
    • 14th Jan 20, 11:42 AM
    cautious would-be investor 14th Jan 20 at 11:42 AM
    A question from a cautious would-be investor -

    I have a reasonable lump of cash to invest (around 200k) and have had it sitting in an NS&I account for a good bit over a year awaiting the big correction, which stubbornly seems to not be happening.

    I've recently read "Investing Demystified" by Lars Kroijer and his whole shtick (which could be written on a beer-mat) is to realise that being able to outsmart the market is pretty much luck, so the best approach is to diversify as much as possible and balance appetite for risk by varying bonds vs stocks. I'm guessing this is pretty much what the various Vanguard LifeStrategy funds do?

    I'm still worried that the world is going to go to hell in a handcart in the near future, so I'm thinking Vanguard LifeStrategy 20%.

    Make sense? Better alternatives? Or for this kind of decision I should really be seeking financial advice?

    I'm 48 and looking to lock it away for a good while (retirement).

    Ta.
Page 1
    • AlanP
    • By AlanP 14th Jan 20, 12:08 PM
    • 1,838 Posts
    • 1,520 Thanks
    AlanP
    • #2
    • 14th Jan 20, 12:08 PM
    • #2
    • 14th Jan 20, 12:08 PM
    Before deciding on what to invest in have you considered what wrapper to put it in?

    If its for retirement would a pension wrapper, with its associated tax benefits, be the way to go for you?

    When do you want to retire?

    How much do you need when retired?

    What is your current situation as regards pension, mortgage, debts, general savings etc?

    Is there a spouse / partner to consider? Children?

    How will you feel and how will you react when markets take a tumble as they surely will at some stage?

    Are you still adding to your overall savings, as a market fall allows you to buy cheaper investments which you anticipate will increase in value over your length of ownership?
    • Albermarle
    • By Albermarle 14th Jan 20, 12:12 PM
    • 2,193 Posts
    • 1,440 Thanks
    Albermarle
    • #3
    • 14th Jan 20, 12:12 PM
    • #3
    • 14th Jan 20, 12:12 PM
    https://forums.moneysavingexpert.com/showthread.php?t=6091293

    As a starter for 10 read this thread just posted as well . Initial thoughts are as follows :
    I'm 48 and looking to lock it away for a good while (retirement).
    In which case you have time to ride out market fluctuations , so should be investing at a higher equity level than 20%
    Or for this kind of decision I should really be seeking financial advice?
    Possibly, but most likely the advisor will also recommend a higher risk/return long term strategy than VLS 20, but charge you for the privilege .( OK I am simplifying it a bit )
    • Malthusian
    • By Malthusian 14th Jan 20, 12:16 PM
    • 7,356 Posts
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    Malthusian
    • #4
    • 14th Jan 20, 12:16 PM
    • #4
    • 14th Jan 20, 12:16 PM
    I'm guessing this is pretty much what the various Vanguard LifeStrategy funds do?
    Correct.

    But if the world goes to hell in a handcart then companies and countries will default on bonds en masse, and the credit markets will seize up, and Vanguard LifeStrategy 20% will lose money like everything else. That doesn't really matter however as if you'd done nothing, the UK Government would either have defaulted on your six-figure NS&I investment or printed enough money to dramatically reduce the value.

    If we're not talking about hell in a handcart but a normal boring crash like 2008, then you would expect Vanguard 20% to temporarily fall in value by less by other funds. But it will still fall. Once you go below 50% equities you start sacrificing meaningful amounts of return for non-meaningful reductions in risk.

    Vanguard 20% is also much more vulnerable to increases in interest rates (or the expectation of them) than a fund more balanced between equities and bonds.

    If you are worried about the possibility that your future-self might panic during a crash and cash in at the bottom of the market, you should consider seeing an IFA as one of the services they offer as standard is a sense of perspective.
    • Powysshrew
    • By Powysshrew 14th Jan 20, 12:44 PM
    • 13 Posts
    • 4 Thanks
    Powysshrew
    • #5
    • 14th Jan 20, 12:44 PM
    • #5
    • 14th Jan 20, 12:44 PM
    I'm in a similar position, where having recently moved to a SIPP, I have almost all my money in cash.

    I am ready to invest but am concerned if the market is due an adjustment downwards however I am not keen on leaving as cash!
    • eskbanker
    • By eskbanker 14th Jan 20, 12:53 PM
    • 12,139 Posts
    • 15,048 Thanks
    eskbanker
    • #6
    • 14th Jan 20, 12:53 PM
    • #6
    • 14th Jan 20, 12:53 PM
    Anyone considering investing in handcart manufacturers?
    • MaxiRobriguez
    • By MaxiRobriguez 14th Jan 20, 1:38 PM
    • 788 Posts
    • 647 Thanks
    MaxiRobriguez
    • #7
    • 14th Jan 20, 1:38 PM
    • #7
    • 14th Jan 20, 1:38 PM
    If you're trying to prevent capital loss with an allocation to bonds then you're going about it the wrong way.

    It would make more sense to drip feed the money in over time, awaiting your perceived crash, at which point you invest the lot...

    And/or you could invest based on fundamental ratios: e.g - you'll invest different proportions when average P/E ratios are at X, Y, Z etc. This means investing less when markets appear to be expensive, and more when they're not quite so expensive.

    But, waiting for a crash when interest rates are so low will likely mean you're waiting for a while. New would be bond investors don't really have any alternative apart to equity if they're seeking growth, so expect equity prices to continue to rise whilst rates are low, even if the macro backdrop weakens a little. It's only in a full blown recession where zombie companies finally die that equity markets are going to see big price declines. How confident are you of a recession over the next 5 years say? How long are you willing to wait whilst giving up dividend gains?
    • blokedownpub
    • By blokedownpub 14th Jan 20, 1:53 PM
    • 19 Posts
    • 5 Thanks
    blokedownpub
    • #8
    • 14th Jan 20, 1:53 PM
    • #8
    • 14th Jan 20, 1:53 PM
    Thanks folks.

    My hell in a handcart reference I may have been over egging. 2008 levels of crashery, I was thinking. :-)

    Time-frame-wise, at least until I'm 60. I've no mortgage and already have a bit of a pension pot. Just me and my wife to thing about. No kids.

    As it's already cash in the bank then I would think there's no benefit in putting it into a pension? Transferring it into a stocks and shares ISA over time would make more sense?

    So, 60% Vanguard a sensible balance?
    • SonOf
    • By SonOf 14th Jan 20, 2:08 PM
    • 2,216 Posts
    • 2,531 Thanks
    SonOf
    • #9
    • 14th Jan 20, 2:08 PM
    • #9
    • 14th Jan 20, 2:08 PM
    So, 60% Vanguard a sensible balance?
    Not for a cautious investor.

    As it's already cash in the bank then I would think there's no benefit in putting it into a pension?
    Why not?

    Transferring it into a stocks and shares ISA over time would make more sense?
    For some it. However, pension may be better.

    and already have a bit of a pension pot.
    And is that pension sufficient?
    Is that pension for retirement provision or tax efficiency or both?
    • blokedownpub
    • By blokedownpub 14th Jan 20, 2:22 PM
    • 19 Posts
    • 5 Thanks
    blokedownpub
    Not for a cautious investor.
    Originally posted by SonOf
    Hmm, OK. Looks like I need to understand the risks. Is 60% pretty standard for a neutral investor at my stage in life?


    Why not?
    Originally posted by SonOf
    One thing I didn't mention is that I'm not earning at the moment. Am I right in thinking that the pension is only of benefit if using it to offset income tax?


    And is that pension sufficient?
    Originally posted by SonOf
    Alas no.

    Is that pension for retirement provision or tax efficiency or both?
    Originally posted by SonOf
    I've used my pension so far for tax efficiency and getting the free portion from my previous employers.
    • MaxiRobriguez
    • By MaxiRobriguez 14th Jan 20, 2:44 PM
    • 788 Posts
    • 647 Thanks
    MaxiRobriguez
    Hmm, OK. Looks like I need to understand the risks. Is 60% pretty standard for a neutral investor at my stage in life?
    Originally posted by blokedownpub
    60% equity investment will suffer in a market downturn because equity sell-offs typically are bigger than bond gains in any rotation type scenario, and with 60% equity in the portfolio this will be amplified even more. It's not an allocation split for a neutral investor, not at all.

    There's also no guarantee whatsoever that your bonds will gain in a market downturn this time round. If equity markets tank because central banks are raising interest rates to combat unexpected inflation then your bond prices are going to sink in tandem.

    If you want to lower your risk by having divergent investments then you'll probably fare better with gold and cash rather than bonds this time round.
    • aroominyork
    • By aroominyork 14th Jan 20, 2:48 PM
    • 1,103 Posts
    • 381 Thanks
    aroominyork
    You need to take some time to educate yourself about risk and return. Here's one thing to read about - the efficient frontier.


    • seacaitch
    • By seacaitch 14th Jan 20, 3:02 PM
    • 261 Posts
    • 454 Thanks
    seacaitch
    A question from a cautious would-be investor -

    I have a reasonable lump of cash to invest (around 200k) and have had it sitting in an NS&I account for a good bit over a year awaiting the big correction, which stubbornly seems to not be happening
    Originally posted by blokedownpub
    That correction already happened, within your stated timeframe, and you missed it, eg. between 3rd Oct-2018 and 26th Dec-2018, US markets fell by 20%, which as per usual generated much fearfulness and forecasts for much larger falls to come as people extrapolated the near term past into the immediate future...

    As a cautious would-be-investor presumably without much/any prior investing experience, and acting solo, you'd have found it psychologically difficult to make your first investment of a large sum of "safe" cash into such a market environment, so it's not a huge surprise that you didn't.

    Your mistake here has been to look for some "optimal" or at least much better moment at which to make your investment:
    (i) it's impossible to know without hindsight when that optimal or much better moment is; and
    (ii) as alluded to above, for a novice investor without much/any prior experience, it's likely that the better the moment becomes (eg. the lower that markets get priced) the harder you'll find it to invest a one-off large sum of cash: you'll become fearful (or expectant) of even lower prices to come, due to the pessimistic news "narrative" that develops to explain the market falls that have already occurred, making it ever harder for onlookers such as yourself to leave the "safety" of cash and expose yourself to what appears to be growing market risk and volatility.


    The easiest way for novices to become accustomed to market volatility, how it makes them feel and how to deal with it, is to be feeding money in regularly, eg. monthly, over many years, slowly growing their portfolio from having zero initial exposure, to low exposure, then modest exposure, and eventually to significant exposure. This slow, steady process give people time to adjust to the idea that their investments can swing around in value by large amounts without them worrying it about too greatly, and without generating emotions in them sufficiently strong to cause them to make poor decisions ("sell low") that will negatively impact their long term returns.

    This path isn't quite open to you, as you have a one-off large sum to invest, but it suggests a possible option for you of feeding your money into the market over a set period of time (perhaps six month, a year, you decide) to a predetermined schedule that you follow unflinchingly.

    The goal of this wouldn't be to get you invested in a manner that gave you the statistical best shot at the highest return (all-in at once does that), but instead to get you invested in a way that is psychologically the easiest for you to follow and has the highest likelihood of you being able to stay the course without being unseated from your investment during the more vulnerable early phase where your volatility tolerance will be at its lowest.
    • AlanP
    • By AlanP 14th Jan 20, 3:31 PM
    • 1,838 Posts
    • 1,520 Thanks
    AlanP
    One thing I didn't mention is that I'm not earning at the moment. Am I right in thinking that the pension is only of benefit if using it to offset income tax?

    I've used my pension so far for tax efficiency and getting the free portion from my previous employers.
    Originally posted by blokedownpub
    Is your spouse earning as you could contribute to a pension in their name?

    Do you intend to return to work as you could go ISA now and then move it across in to a pension then?

    As a non-earner you can contribute 2880 nett to a pension which HMRC will gross up by 720 for you making that 3600 a year overall.
    • Ceme3000
    • By Ceme3000 14th Jan 20, 4:44 PM
    • 64 Posts
    • 60 Thanks
    Ceme3000
    I'm in a similar position, where having recently moved to a SIPP, I have almost all my money in cash.

    I am ready to invest but am concerned if the market is due an adjustment downwards however I am not keen on leaving as cash!
    Originally posted by Powysshrew
    People were posting the same concerns about imminent market crashes 12 months ago, but sitting in cash would have lost them a really good year of growth. Time in the market not timing the market and all that.

    If you are really nervous, why not drip feed into equities?
    Last edited by Ceme3000; 14-01-2020 at 4:44 PM. Reason: Spelling
    • xylophone
    • By xylophone 14th Jan 20, 4:44 PM
    • 32,002 Posts
    • 19,877 Thanks
    xylophone
    I'm not earning at the moment.
    Do you have any "relevant earnings" in excess of 3600 gross in this tax year?

    If not, then you can still contribute the limited amount as in post above.

    If neither you nor your spouse have used your ISA allowances for this year, then you might consider opening S&S ISAs - if you are interested in Vanguard funds then see

    https://www.vanguardinvestor.co.uk/investing-explained/what-are-lifestrategy-funds?cmpgn=PS0319UKPASRI0001&gclid=EAIaIQobChMI1N GVvsOD5wIVxbTtCh0e-gMJEAAYASABEgKpgvD_BwE&gclsrc=aw.ds

    https://monevator.com/using-vanguard-lifestrategy-funds-life/

    Index investing is discussed here

    https://monevator.com/index-investing-guide/

    https://monevator.com/low-cost-index-trackers/

    Platform comparison here

    https://monevator.com/compare-uk-cheapest-online-brokers/
    • blokedownpub
    • By blokedownpub 14th Jan 20, 7:37 PM
    • 19 Posts
    • 5 Thanks
    blokedownpub
    Thanks all.

    seacaitch, really interesting about the psychological nature of all of this. Exactly how I'm feeling. I might go hybrid and invest an initial chunk then drip feed from there. At least feel like I'm making inroads. I'm hoping I won't be trigger happy to remove on a downturn.

    AlanP, I'll have to look into the pension thing. Neither myself nor my wife are earning at the moment. I will be returning to work and at that point I'll take advantage the tax efficiencies.

    xylophone, Thanks too for the links. Useful bedtime reading. We've still to use our ISA allowances. Shall certainly get onto that.

    Certainly feeling better armed.
    • C_Mababejive
    • By C_Mababejive 14th Jan 20, 8:12 PM
    • 10,962 Posts
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    C_Mababejive
    Well it’s a scary business and I’m scared too but doing nothing is not an option . Cash in the bank or a car&put savings account is no good . I’m invested in low cost trackers typically very diverse , global etc . The way I look at it , every single person in every e of those companies have lifestyles and families to support . Better still , they are all working for me . They all want to do well and the companies they work for want to do well . With all that goodwill and hard work going on, what could go wrong ? Sure we have the odd correction but the system gets over it and marches on and those people are all still working for me .


    You may feel safe holding your 20 notes but they are intrinsically worthless .They are just pictures of the Queen.

    What is worth more ? A picture of the Queen with the number 20 printed on the corner or a share in 3000 global companies all working for you and paying you money as a thank you for lending them your picture of HM Queen ?
    Last edited by C_Mababejive; 14-01-2020 at 8:41 PM.
    Feudal Britain needs land reform. 70% of the land is "owned" by 1 % of the population and at least 50% is unregistered (inherited by landed gentry). Thats why your slave box costs so much..
    • Audaxer
    • By Audaxer 14th Jan 20, 10:28 PM
    • 1,991 Posts
    • 1,237 Thanks
    Audaxer
    seacaitch, really interesting about the psychological nature of all of this. Exactly how I'm feeling. I might go hybrid and invest an initial chunk then drip feed from there. At least feel like I'm making inroads. I'm hoping I won't be trigger happy to remove on a downturn.
    Originally posted by blokedownpub
    That sound like a good plan. If you invest a decent chunk of your savings initially and the value falls soon after, don't feel too disappointed as that will be a good time to invest some further funds.
    • benbay001
    • By benbay001 14th Jan 20, 11:14 PM
    • 152 Posts
    • 146 Thanks
    benbay001

    I've recently read "Investing Demystified" by Lars Kroijer and his whole shtick (which could be written on a beer-mat) is to realise that being able to outsmart the market is pretty much luck.
    Originally posted by blokedownpub
    Thats widely believed, yes.

    I'm still worried that the world is going to go to hell in a handcart in the near future, so I'm thinking Vanguard LifeStrategy 20%.
    Originally posted by blokedownpub
    Oh.
    Well that was a quick change of course.
    Saving Pennys To Pay For Petrol Powered Toys
    Im A Budding Neil Woodford.
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