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Post by rgs2001uk on Mar 13, 2018 21:04:56 GMT 7
You can read all the books you want, study all the theory, get into on online discussion groups, at the end of the day, its all meaningless, charts and graphs, ratios, throw them out the window. The bottom line is, what are you comfortable with, at the end of the day, its your money, you are the on who has to sleep at night. Yours is an approach that only the naturally talented and gifted few can adopt, the rest of us mere mortals need all the help we can get. I'm even considering enrolling in a course of study on this very subject, there's a very convincing-sounding Polish gentleman who may be just the job AND I can do all the learning from the comfort and safety of my living room, what can possibly go wrong. mate, my portfolio came from bitter experience, I have posted before about sleepless nights fuelled by nicotine and caffeine, and swore to myself, never to go through that again, property market crashes, stock market and currency crashes, your post about people losing thier job stuck a chord with me, been there done that. Years ago my portfolio was 100% defensive, my train of thought was, if I lose this job tomorrow what happens? I built up a nest egg, then ventured of into investing territory. A few years ago my split was 75/25, today thanks to equity gains its about 80/20. I am a fool unto myslef, and its probably cost me thousands in lost returns, but as I mentioned before, I today have 20% of my portfolio in NS&I. I view it as nothing more than taking a hit for car house and health insurance. If the shoit hits the fan tomorrow, I can sleep easy knowing I certainly have enough to tide me over til my first pension kicks in at age 60, and enough til my second kicks in at 65, as mentioned before I stopped paying class 3 years ago, nothing more than a ponzi scheme My portfolio bares no resemblance to my fathers, he wants regular income, I want capital growth. If the truth be told, I am doing nothing more than babysitting a portfolio someone else will inherit, hence I have to keep it as simple as possible. PS, have been searching for an aim, how about polish zloty or bitcoin?
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Post by rgs2001uk on Mar 13, 2018 21:40:50 GMT 7
I'm slightly surprised that Scottish Mortgage and Monks are rated as being such high risk by FE and MS, especially the former which I imagine is down to its 22% investment in China. What you refer to as "risk" is in fact historical volatility. Any rating given is simply based upon that statistic, and has nothing to do with what the underlying investments are. Usually it's calculated using the last 3 years' data, and is measured relative to other funds in the same sector. In your particular case, have a look at the following chart. You'll see that Lindsell Train (yellow) has had a much smoother ride (i.e. is less volatile) than Scottish Mortgage (red) or Monks (blue). LT, , A whopping 23%, sorry not for me. www.hl.co.uk/shares/shares-search-results/l/lindsell-train-investment-trust-ord-75p
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AyG
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Post by AyG on Mar 13, 2018 21:48:05 GMT 7
I presume you're referring to the premium to NAV of the Lindsell Train Investment Trust. Chiangmai's subject was actually Lindsell Train Global Equity, which has had a pretty decent run. www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/lindsell-train-global-equity-class-d-income
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Post by rgs2001uk on Mar 13, 2018 22:00:52 GMT 7
Sorry, you are correct, my bad, will need to do further analysis, thanks for the link.
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Post by rgs2001uk on Mar 13, 2018 22:04:14 GMT 7
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Post by Fletchsmile on Mar 13, 2018 22:32:48 GMT 7
It's not age that should lead one to reduce volatility, but the need to spend one's capital. If one lives purely upon natural income and doesn't touch the capital then volatility shouldn't be an issue. Since market crashes tend to be very short* an alternative approach is to keep a few years' expenses as cash so one doesn't need to touch one's investments when the market is down. Going 60/40 doesn't actually help when bonds and equities move in the same direction, which they sometimes do. As I mentioned before, the correlation has been as high as +0.86. If one needs to cash in when both equities and bonds are down, then sequence risk can become a serious concern. * Typically 2-3 years. 4½ years in the case of the 1929 crash. See for example: awc2.com/how-fast-markets-recover/ www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.htmlThink I've mentioned before - people need to very careful about using crashes and recovery times for how much cash/ other liquid financial instruments should be held. It is one useful measure of course, but it has some big holes in it. A key issues is that while crashes do represent large falls, what normally happens is that recoveries following crashes can be swift. This can understate how long someone can go with a portfolio losing money or making very little/ not making money when someone is drawing on it to live off. eg for S&P 500 31 Dec 1999 was at 1469 "how fast markets recover" statistical analysis type papers will show you that mid 2007 the market "recovered", eg 1 Jun 2007 was at 1530. So they stop the clock. 7.5 years is quite a length of time to make next to nothing on your stocks, a capital gain of 4%. OK there's dividends of let's say 2% a year on S&P In this case dividends plus about 4% for 7.5 years holding. Not many people can live off a 2% yield from their portfolio for 7.5 years. In reality they would be dipping into cash. Anyone who can live off 2% a year yield BTW wouldn't be far off doing so with pure cash. For a retiree aged 65 in particular if they can live off 2%, they can likely live off cash. Or they could live off bond yields so questionnable why they should risk equities .... but what happened not long after is more of a worry and further highlights the gaps in this time to recovery analysis. A key point being just recovering to back where you started isn't enough for someone who needs to take money from their portfolio ... it gets worse. As at 31 Dec 2008 S&P was back at 903 . That's down almost 40% from the 1469 of 9 years earlier. Even dividends of 2 % a year aren't going to cover that loss. 9 years of making loss won't show up in their analysis, and could cause someone's portfolio needing 4% to 5% returns to suffer irreparable damage. This is one area where the average 2-3 years or 4.5 years in their analysis falls down, and can give false levels of comfort. If someone had been taking out 4%-5% a year and divs were giving only 2%, that means a compounding loss of 2% to 3% p.a on top of market decreases. 1) Compounding negative returns really aren't nice to portfolio survival rates. Also: 2) If someone need 4% on lets say $1469 originally when they started out in 31 Dec 1999 that's around $59. At 5% would be around $73. When the market has (double dipped) again to 903 in 2008 a takeout of $59 would be more like 6.5%, whereas $73 would be more like 8%. These are very large hurdle rates to make back So drawing conclusions like how much cash someone needs to hold from these statistical recovery times can be very dangerous. I doubt many people would have got by with 2-3 years and "waiting for recovery" under this scenario. [BTW In Dec 2010 S&P had recovered to 1257. But that's still down 15% after a full 11 years. ] Just recovering back to where you started is much less important to someone who needs 4% to 5% from their portfolio to live off. Particularly when we're talking periods of 7.5 / 9 / 11 years of this going on. Just 2 to 3 years cash while waiting for recovery isn't going to cut it for these scenarios. Similar periods can be observed for UK markets and worse still for others like Nikkei. What you really need is to get back to "recovery + 4%/5% p.a. compounded for the time it takes to do so" if you need to live off it. Plus hope there aren't any really big spikes that create horrendous hurdle rates along the way to recover from. 2-3 year cash will likely cover the big spikes but not the compounding.
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chiangmai
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Post by chiangmai on Mar 14, 2018 4:55:09 GMT 7
Yes, the ISN is IE00B3NS4D25 , it's a very good fund, the only slight downside is the OCF is higher than most at 1.39% but that's more than offset by consistent returns.
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chiangmai
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Post by chiangmai on Mar 14, 2018 5:20:54 GMT 7
I think I've done a decent job (eventually) of regional allocation but my allocation by asset type is now in tatters, I'm close to holding a dinner plate of equities along with a taster of bonds on the side plus a large helping of cash for the mains! Perhaps I'm looking within this ring-fenced investment portfolio for the sort of diversification that doesn't really exist: gold is out; property seems highly lacklustre; linkers are defensive and bonds are too complex/risky to understand at this juncture.
So perhaps MA funds are the ones to fill that gap, leaving it to the professionals to decide on bond selection. On that note, Trustnet did a decent piece recently showing which MA funds fell least during the recent market correction, OM Cirilium Conservative Portfolio R and LF Prudential Dynamic Focused 0-30 Portfolio P came out on top but they're both funds that return only 5% per year plus the OCF and entry fees are quite high, with higher than normal platform charges on top they are close to a breakeven proposition.
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chiangmai
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Post by chiangmai on Mar 14, 2018 5:22:51 GMT 7
Another very good fund of the same type and calibre is Baillie Gifford International B, ISN GB0005941272 , I've held it also for over five years and it's very worthwhile.
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Post by ludacris on Mar 15, 2018 12:03:05 GMT 7
I'm one of those people who definitely can't remember what it's like to have inflation and rising interest rates I came across this BusinessWeek article from 1979 that describes a very similar time period. It's all I need to read to put my mind at rest and stay the course over the long-run with equities. ritholtz.com/1979/08/the-death-of-equities/chiangmai, if you're worried about commissions and fees check out Interactive Brokers. Their platform has a steep learning curve, but I've found it's worth it for the low fees. I pay a flat 6GBP commission on LSE transactions plus the 0.5% stamp duty exchange tax (my continent went to war to get rid of that tax!). I've also turned off market data since I can get it from the LSE website (obviously not recommended for active traders, but IT's barely move during the day anyways), and they waive their monthly inactivity fee for accounts greater than $100,000USD. So basically, my annual platform and commission fees are close to zero. I only pay minimal commissions/tax when I buy more and/or rebalance a couple times a year. www.interactivebrokers.com.hk/en/index.php?f=1590&p=stocks1
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chiangmai
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Post by chiangmai on Mar 15, 2018 13:50:51 GMT 7
I'm one of those people who definitely can't remember what it's like to have inflation and rising interest rates I came across this BusinessWeek article from 1979 that describes a very similar time period. It's all I need to read to put my mind at rest and stay the course over the long-run with equities. ritholtz.com/1979/08/the-death-of-equities/chiangmai, if you're worried about commissions and fees check out Interactive Brokers. Their platform has a steep learning curve, but I've found it's worth it for the low fees. I pay a flat 6GBP commission on LSE transactions plus the 0.5% stamp duty exchange tax (my continent went to war to get rid of that tax!). I've also turned off market data since I can get it from the LSE website (obviously not recommended for active traders, but IT's barely move during the day anyways), and they waive their monthly inactivity fee for accounts greater than $100,000USD. So basically, my annual platform and commission fees are close to zero. I only pay minimal commissions/tax when I buy more and/or rebalance a couple times a year. www.interactivebrokers.com.hk/en/index.php?f=1590&p=stocks1Unfortunately, my pension can't be moved from the London platform that it's on and since I'm not UK resident I can't get an IFA to act for me hence the larger than normal platform and trading fees. But thanks for the tip anyway, perhaps useful for others who are reading the thread. It's worth noting that the investment funds I do hold charge on average around 0.83% per year plus the platform charges are another 0.5% with a further 0.5% for not having an IFA.
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Post by rgs2001uk on Mar 15, 2018 21:42:56 GMT 7
I'm one of those people who definitely can't remember what it's like to have inflation and rising interest rates I came across this BusinessWeek article from 1979 that describes a very similar time period. It's all I need to read to put my mind at rest and stay the course over the long-run with equities. ritholtz.com/1979/08/the-death-of-equities/chiangmai, if you're worried about commissions and fees check out Interactive Brokers. Their platform has a steep learning curve, but I've found it's worth it for the low fees. I pay a flat 6GBP commission on LSE transactions plus the 0.5% stamp duty exchange tax (my continent went to war to get rid of that tax!). I've also turned off market data since I can get it from the LSE website (obviously not recommended for active traders, but IT's barely move during the day anyways), and they waive their monthly inactivity fee for accounts greater than $100,000USD. So basically, my annual platform and commission fees are close to zero. I only pay minimal commissions/tax when I buy more and/or rebalance a couple times a year. www.interactivebrokers.com.hk/en/index.php?f=1590&p=stocks1Good man, keep reinvesting those dividends. Seen the charlatans come and go over the years, The Inca Gold Fund, Ostrich farms in Australia, Property in Bulgaria, blah blah blah. Nothing but white noise, keep your nerve, dont listen to the naysayers and keep the faith. www.hl.co.uk/shares/shares-search-results/m/monks-investment-trust-ordinary-5p
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Post by Fletchsmile on Mar 16, 2018 16:30:44 GMT 7
Just had a look at swapping HDIV to IPE. One of the things I hate about ITs sometimes. The spreads are wide when I look at both HL and StanChart quotes. IPE bid-offer 76.4 - 78.4 (approx 2.5% spread) HDIV bid-offer 89.6 - 91.4 (approx 2% spread) Not that many trades going thru either and volumes look a bit weak. All recent trades are on the buy side for both too. So while one side might go thru easily the other may be some waiting around and may not go thru at all, which gets annoying In contrast for a unit trust I'd probably be doing both based on NAV with no bid-offer spread to suffer, and no messing around = knowing both sides will go thru at fair prices . Guess I'll have to be patient, as I don't want to suffer those spreads and then get caught only one side going thru. Next thing you know the day is over, and tomorrow the market shifts unfavourably for the gap Well today I became the proud owner of 1 share in IPE . My order was finally "part-filled". I finally sold HDIV at an acceptable price on 6 March. OK I hadn't been doing every day since 12 Feb but had tried most days over a couple of weeks Since then I'd been trying every day to buy IPE at around mid-price so I didn't suffer the outrageous 2.5% spread. I'd even set a good til cancel trade. Today it shows as 76.60 - 78.4, compared to 76.4 - 78.4 on most days. So after a further 10 days, I finally got 1 share at 77.4 . At this rate I wonder if I'll still be alive when my order is fully completed WaF Joke This was more about curiousity and testing things out than anything. We're only talking a few thousand pounds. But before putting further money I wanted to see if I could enter/ exit investment trust bond funds easily in difficult times. February's events seemed like a mild trial run The answer was a resounding no. So I've reached the conclusion to stay away from Investment Trust bond funds in future. For these 2 their size is only about THB 125mn to THB 150mn. A very strong argument for the larger more liquid unit trusts as a vehicle for bonds, if someone wants a collective investment rather than the individual bonds. While the IT bond funds managed are OK. The liquidity just isn't there, the spreads at 2.5% are outrageous, and it's a pain in the arse waiting for decent volumes. Charges aren't cheap either, I suspect due to their sub-optimal size not allowing economies of scale. Had it been a real crisis in February and had I really wanted to exit or enter serious money, I would have been seriously p*d off. Bonds in particular for me are held among other things for liquidity purposes. Ease of entry/exit during a crisis is well worth bearing in mind for your investments. For bond funds in future I'll stick to unit trusts for the increased certainty, low spreads and liquidity [Edit: forgot to add the stamp duty of 0.5% on purchase too making entry charges for IT bond funds even worse]
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Post by ludacris on Mar 16, 2018 23:37:38 GMT 7
Hi Fletch, I've been thinking about your post #80 and what someone would do if they had to go through that.
Let's say someone is fully invested in equities and is planning retirement based on the 4% rule. Let's also say their portfolio includes equity income funds that push their overall dividend yield to 2% (see below) and they also have a 2 year cash emergency fund (equivalent to 2 years at 4%). To keep things simple, let's use the S&P 500 index for market returns.
That person was most likely accumulating during the 80's and 90's, and let's say they retire right at the very top in 2000. It takes a while to realize you're in a deep bear market, but even if they still sold their 4% up to a year after the peak they would still be taking huge profits. After the first year when the bear market is realized, they stop selling and start using their emergency fund. But their dividend yield is 2%, so to maintain their 4% lifestyle their cash fund only draws down 2% per year and would last for 4 years if the 2% dividends are combined with the cash.
So that gets us to 2004 and the market has mostly recovered and they can start taking 4% out again (selling 2% + 2% dividends), but then like you said the market crashes again in 2008. This time that person is really screwed because they already suffered a crash at the worst possible time right after they retired, but now they're in an even worse position because their emergency cash fund is gone. So this time they have no other option but to decrease their spending. So let's say they decrease to 3% (possibly not even counting for inflation since 2000). Dividends are still 2%, so they only have to sell 1% per year. The selling of 1% per year goes on until about 2012 when the market has recovered most of its losses.
I ran some numbers on excel for the above scenario and you still break-even as of 2018.
So after 2 market crashes in the first 10 years of retirement, having a 2 year emergency fund and being flexible on your withdrawal rate looks like you can still have a successful retirement.
Also, although lots of people only have US equities, more realistically you would also have international and emerging markets which did well during that flat decade and with rebalancing could have added to returns. Increasing exposure to equity income funds would give more dividends and reduce selling near the lows as well.
In addition, I think it's easy to forget that bear markets and corrections are defined based on the drop from the absolute peak, and most people if they've been accumulating over decades will hopefully only temporarily lose a few years of gains during corrections. During crashes 10 to 15 years can be wiped out until the market recovers, but that's where the emergency fund and being flexible on withdrawal rate come into play. That's far from being completely wiped out though (in theory anyways!).
What do you think?
I also want to ask your opinion on equity-income funds vs. bonds. I've been looking at theses funds, and when I add them at about 30% total allocation to my portfolio it pushes the dividend yield up to 2%.
JPGI.LSE JP Morgan Global Growth & Income (3.94%) SCAM.LSE Scottish American Investment Company (3.0%) IVPG.LSE Invesco Perpetual Global Equity (3.17%) HINT.LSE Henderson International Income (3.31%) JAI.LSE JPMorgan Asian Income Trust (3.94%)
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Post by ludacris on Mar 17, 2018 12:51:38 GMT 7
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