What caught my eye this week.
The Litquidity video below is in horribly bad taste. I believe the Normandy landing scene in Saving Private Ryan is a truth-bomb for humanity. Every Twitter keyboard warrior should watch it a dozen times before venturing more views on Ukraine, Russia, and NATO.
On the other hand even my saintly co-blogger The Accumulator found it funny.
And as the ‘boomer PM’ you’ll spot 59 seconds in, I found it cathartic:
Saving Capital Markets – coming soon to a theater near you pic.twitter.com/pd17DZD4TT
— litquidity (@litcapital) May 11, 2022
(Follow those links to watch the video if you can’t see it embedded here.)
Talking of The Accumulator, he’s been even more of a rubbish trench buddy than usual in 2022.
Don’t get me wrong, he’s exactly the sort of comrade-in-arms you should really want.
The Accumulator ignores the market. Doesn’t sell. Barely knows whether shares are trading today.
But for an active investing junkie like me, his ignorance of the gyrations can be infuriating.
The Accumulator hasn’t even been spooked by his starting FIRE a year ago.
Sequence of returns risk might as well be a 1970s prog rock band for all he cares.
Pump up the volume
Besides his eternally doughty disinterest in short-term market movements, the other reason for The Accumulator’s stoicism is probably that he’s a British investor.
Because one thing missing from Litquidity’s meme-fest video is the weakness of the pound1.
More than 60% of a global tracker is in US assets. So UK investors have been cushioned from some of the slide that kicked off six months ago – even if their portfolios are free of home bias.
Here’s a chart crime graph plotting USD/GBP against UK and US flavours of Vanguard’s global tracker fund (as of my writing this on Thursday afternoon):
As you can see, UK investors in Vanguard’s All-World tracker (yellow) have been superficially spared much of the pain, thanks to sterling’s fall.
I say ‘superficially spared’ because our spending power really has shrunk – compared to our American cousins – over the period. We’re poorer on the global stage.
The cost of living crisis will be made worse by our weaker currency.
But I’d still take superficially over definitely any day.
Always on my mind
Where I do see many Monevator readers getting angst-y is with their bond portfolios.
UK government bonds are sterling-based, obviously. No cushioning here as yields have risen with higher inflation and rate expectations.
Further, investment grade and higher-yield bonds losses have lately been compounded by recession worries. (An economic downturn is bad news for indebted companies.)
Below we can see how bonds have sold off this year:
Prior to a sharp bounce this week, the picture was even worse. And people really hate seeing their bonds go down. Much more so than stocks.
Understandable. For years no long-term investor has bought bonds expecting much in the way of a return (even though that’s actually what they got, at least until recently).
Rather, bonds were for buoyancy in the bad times. Yet now they’ve been taking on water – just when we’d want them to float.
Unfortunately this was pretty inevitable.
Global yields hit multi-century lows after the financial crisis. Sooner or later they were likely to rise.
The snag was everyone who ever said ‘sooner’ was wrong – up until the past six months. Now we have to pay the piper.
Worse, the same issues roiling the bond market are also what’s pulling at least some of the strings of the stock market. Hence shares and bonds falling together.
The good news is lower bond prices mean higher yields, and hence higher future returns.
That’s little comfort if you already own a bunch down big. But the declines are starting to make government bonds half-attractive again, and reinvesting your bond income will help eventually.
All presuming, of course, that central banks get inflation back under control.
You win again
Anyway if your biggest problem in 2022 is that your bond fund has fallen, pat yourself on the back.
It suggests you’ve probably been doing everything right.
Because nearly everything riskier you could have bought has gone down – bar some value, commodity, and energy plays.
The video above wasn’t exaggerating.
Please note: nobody need hurry to the comments to tell me I’m overreacting and everything is calm in their mill pond.
If you’re a passive investor feeling unruffled, I get it. That’s the whole counterpoint to this article!
In contrast every active investor I know – including the UK-based ones who invariably fish in the mid and small cap arena – has been dragged through a hedge backwards.
(Important exception being the faultless Monevator house troll who will tell us in the comments he sold everything and put it all into shares of BP on 3 January and who can doubt him?)
For most of 2020, picking stocks was like shooting fish in a barrel.
In 2022 it’s been like being the barrel.
It’s a sin
The sell-off began with the raciest growth stocks, as I flagged up in December. Even the best of these have continued to fall.
Many of the highest-fliers are now priced below where they started 2020 – despite having doubled or tripled their revenues over the past couple of years.
Winning the pandemic turned out to be a curse:
Source: AWOCS
More recently the tech behemoths were pulled into the vortex. Apple, Amazon, Google and Facebook – the engines of global markets for a decade – are down around 20-30% or more.2
Cryptocurrencies have been hit for six. A leading (so-called) ‘stablecoin’ came apart, evaporating billions. (See the links in Crypt-o-Crypto below).
As for the frothiest shares – almost anything floated via a ‘SPAC’ in the mania of 2021 – it’s becoming a case of “dude where’s my decimal point?”
Falls of 80-90% are widespread.
The blue chip Nasdaq 100 was down nearly 30% by the worst of the midweek sell-off. The US S&P 500 was only a few tenths of a percent from the definition of a bear market, at least until stocks bounced on Friday.
Unusually though, UK large caps have held firm.
The FTSE 100 comprises long-despised value dinosaurs. Having survived the growth investing meteor strike – for now – they’re finally having their moment.
Stand by me
As the self-styled Tom Hanks wannabe on this metaphorical battlefield, I’d love to say I saw all this coming and I dodged all the pain.
Unfortunately like him I’m here getting shot up too.
By luck or judgement I got some things right. I saw the big and little clouds in 2021. I later sensed regime change and took fairly decisive action (not least with an eye on my interest-only mortgage.)
But as usual I also started buying apparent bargains too early.
Some of the cheap growth stocks I picked up in what I thought were the Christmas sales have since been cut in half or worse.
I almost always buy too soon. But I usually also buy ‘too good’ – I invest in higher-quality defensive companies at the bottom of bear markets.
In time they bounce, but they are far outpaced as the riskiest firms left for dead rise like a phoenix.
It’s hard to avoid fighting the last war as an investor.
So this time I deliberately looked to buy back into fallen angels like Shopify and PayPal and Square, after what seemed like decent declines.
Yet they just kept spiraling down.
Never gonna give you up
I blame the autocrats.
In late 2021 I expected inflation to have peaked by now. But China and Russia threw a spanner into that forecast, albeit in different ways.
Hence the bottom was just a trapdoor.
Is there further to go?
If we see a recession without an easing of inflation and rate expectations, then who knows when the wider market will stabilise.
Plenty of cyclical and value stocks that have done well could suffer in a stagflationary environment. The last prop would be kicked away from the indices.
That said, I’d like to believe we’re closer to the end than the beginning, at least for the better growth firms. Perhaps I’ll do a naughty active investing post about it. (Bring on our membership area so I don’t have to worry about inflicting such views on sensible passive investors!)
But wherever we go from here, we knew the pandemic market party had to end.
And end it has – with a bang.
The most important thing is to keep pushing on. Just keep buying, as the man said.
Long-term sensible investing is nearly-always rewarded eventually, whether you do it passively or via a coherent active strategy.
Short-term meme stock pump-and-dump traders can win for a while. But eventually most pay for their ride.
Indeed a lot of newer investors are getting off the rollercoaster feeling a bit sick and wondering where they lost their wallets.
I hope they’re not put off investing for life.
As I said the other week, I also wonder when all this will reach the real economy.
We’ve seen a hint with rate rises and the cost of living squeeze.
I suspect central banks have been talking especially tough because they want to scare the markets into tightening conditions for them, to try to avoid excessive real-world pain. Jawboning up tighter market conditions may reduce the direct discipline they need to mete out via actual rate rises, or even forcing a recession to choke off demand. (Not that the latter will help with borked supply chains.)
But usually something big blows up in the real-world anyway.
We’ll see. Enjoy the weekend!
p.s. Alas we didn’t win in the British Bank Awards, although apparently it was close. However the organizers were kind enough to send me some of the comments (without names) you submitted in support of your votes. And they made our week! Far better than any prize to hear such generous reviews of Monevator and its impact on your life. Thanks so much to everyone who took the time.
From Monevator
Low-cost index funds that will save you money – Monevator
UK tax brackets and the personal allowance: 2022 update – Monevator
The annual ISA allowance and how to use it: 2022 update – Monevator
UK dividend tax: 2022 update – Monevator
UK capital gains tax: 2022 update – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!3
Monthly rental costs up as much as 14% as demand outstrips supply – ThisIsMoney
‘Golden era’ of cheap food is ending, says ex-Sainsbury’s boss – Guardian
Crypto billionaires vast fortunes are destroyed in a matter of weeks – Bloomberg
Access to cash will be protected under new law – Which
15 charts that illustrate we’re in – ahem – uncharted territory – A Wealth of Common Sense
Products and services
Cheapest mortgages revealed as rates continue to rise – Which
HSBC is offering a £170 welcome bonus if you switch to HSBC Advance – HSBC
Myth or magic: which energy-saving tips really make a difference? – ThisIsMoney
Transfer your ISA, SIPP, or Dealing account to AJ Bell and get up to £500 to cover costs. Terms apply – AJ Bell
How to get cheap theatre tickets – Be Clever With Your Cash
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
Village homes for sale in reach of Jubilee events, in pictures – Guardian
Comment and opinion
How to invest with a looming recession [US fixed income but relevant] – Oblivious Investor
Right for now, but wrong later – Of Dollars and Data
How much is enough? – Indeedably
Sticking to your long-term investing plan – The Irrelevant Investor
How inflation is taxed – 3652 Days
Talking with the legendary professor Eugene Fama [Podcast] – Rational Reminder
How long do bear markets typically last? – A Wealth of Common Sense
Return on hassle – Spilled Coffee
Rules of retirement – Humble Dollar
Would you do data entry on a Saturday morning? – Rad Reads
Those who live by the SORR die by the SORR – Gentleman’s Family Finances
The complex economics of growing old – Minneapolis Fed [h/t Abnormal Returns]
The ethics of index funds redux [Very wonky, but index geeks will enjoy] – ETF Trends
Stocks, rates, bonds, gold correlations: nerdy mini-special
Inflation, interest rates, and value – Musings on Markets
Larry Swedroe: when stocks and bonds fall together – TEBI
The Fed and the bond market – Verdad
Gold’s strange behaviour shows it’s no haven – Wealth Management
Naughty corner: Active antics
How do companies deal with inflation and supply chain disruptions? – Klement on Investing
Revisiting The Outsiders a decade on – Tycoonist
Is high-quality A.G. Barr’s 2% dividend yield high enough? – UK Dividend Stocks
Electric car maker Rivian – the largest IPO of 2021 – has fallen 87% – Yahoo Finance
Crypt o’ crypto
The week that shook crypto [Search result] – FT
The Normie’s guide to this week’s crypto crash – Slate
Terra: to the moon and back – Not Boring
The metaverse landlord renting out virtual properties for $60,000 a month – Fast Company
Crypto muggings: thieves in London target digital investors’ phones – Guardian
Kindle book bargains
The Great Mental Models Volume 2: Physics, Chemistry, Biology by Shane Parrish – £0.99 on Kindle
Two Hundred Years of Muddling Through: The surprising story of Britain’s economy from boom to bust and back again by Duncan Weldon – £0.99 on Kindle
Human Frontiers: The Future of Big Ideas in an Age of Small Thinking by Michael Bhaskar – £0.99 on Kindle
Why You?: 101 Interview Questions You’ll Never Fear Again by James Reed – £0.99 on Kindle
Environmental factors
The UK villagers who won’t leave their homes in the face of rising sea levels – BBC
Mapped: solar and wind power by country [Infographic] – Visual Capitalist
The Iron Curtain’s border zone has grown into an ecological haven – Science Direct
Devastating: 91% of Great Barrier Reef affected by coral bleaching in 2021 – Guardian
The Swan Song of the Hawaiian Po‘ouli – Hakai Magazine
Off our beat
Ups and downs – The Reformed Broker
A doctor’s struggles with sugar – Guardian
If you are the product, how do you take a break? – Abnormal Returns
A few beliefs – Morgan Housel
Marina Hyde: Wagnarok – Guardian
And finally…
“Early in the 1970s, most Americans had never experienced inflation, so they weren’t wary of it and allowed it to blossom. By the end of the decade, they were traumatized by it and assumed that it would never go away.”
– Ray Dalio, Principles for Dealing with the Changing World Order
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- And indeed the Euro. [↩]
- I’m using their common names for familiarity, stock ticker sticklers! [↩]
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My year to date performance on a diversified by region and asset class largely tracker based portfolio is down around 3.5% when measured in GBP. For me that’s noise in the scheme of things at this point.
Off the back of that I’m still sleeping very soundly when I look at my portfolio which I guess so far means I probably have my allocations about right from an expected volatility perspective.
So I think given the preparations The Accumulator put into preparing himself for FIRE that he has selflessly shared on this site over the years I can understand why The Accumulator isn’t yet spooked.
About level, I would say – around 3% down for the year and ok with that in the grand scheme of things. I to am mainly passive, and fair chunk of what I do have in my slow and steady active is largely in value and global quality (think City of London, Temple Bar, EGL, YHWL etc – although I do have some holdings in EWI, which has tanked). Hello asset spread, diversification and a long term time frame.
The learnings and financial maturity I have taken over the last few years, including from this wonderful blog and community, have meant I have largely avoided any mess so far. A few years ago I would have been caught up in this, I suspect – no real plan or ideas, single holdings in speculative stocks, no spread of sectors, assuming I knew right from wrong.
I have a good friend who discovered ‘investing’ via the hype of GameStop, who has told me previously he is ‘saving’ for a house deposit using mostly…..er, bitcoin. While I feel pity for the difficulties getting on the housing ladder, warnings and suggestions to him over the last few months have gone largely unheeded. A steep learning curve for many this week.
Thanks again @TI, have a good weekend all.
When I checked last week, I was amazed to discover I was less than 2% down from my December 31st statement thanks to being only 45% in globally diversified equities and a (too big, ~20%) slug of gold.
And the strength of our glorious currency.
I trimmed the gold to 15% as it’s too volatile and made me too nervous. Want to get to 10%, without price falls doing it for me. But what do I buy?
So I’ve only lost 10% or so to markets and inflation. Not bad.
Being overweight for a while in Personal Assets Trust and also LS40 has been useful for sleep. Not the perfect tin hat for incoming fire but better than nothing.
All reminds me of the Buffet quote about the tide going out but I’m glad to say I’m wearing some Speedos.
Maybe all this Götterdämmerung means we’re closer to the end. Whilst I didn’t have a front row seat for the dot-com burst, I was watching the GFC and wondering when to invest a chunk of money. This time around said money has been invested for over ten years, so I only have some accumulated divi’s to reinvest. I would pay a modest amount to hear TI’s active thoughts…. just saying.
@Brod, I obviously don’t know your situation, but given their historic falls how about a few bonds if you aren’t too heavy already? I’ve recently made my first ever bond purchases (VAGP) and it feels good to have some different diversifiers. VAGP’s Yield to Maturity is circa 3% now, which whilst it won’t set the World alight, is a heckuva lot better than a few months ago.
Re: GBP/USD I was reflecting on this this week too. That GBP tanks every time things look dicey I suppose in the round is a good thing. It fell a thwocking circa 27% in the GFC so I guess we had our returns on ‘easy’ mode. Kind of. A case to take on more equities? or buy hedged trackers on the way up? I suspect the proper passive answer there is a resounding no.
I’m overweight in the UK and also hold property REIT’s and a high yield bond fund. My capital is now -2.46% down on the year. That includes -0.99% for drawdown spending so the actual investment return has been a fall of -1.47%. That’s not too bad.
@far_wide – thanks for the thought.
I’m already 20% in inflation linked short term bonds (GISG/GIST -hedged and unhedged versions) and 10% Intermediate US Treasuries (I’m not very optimistic about the prospects of Sterling). And 15% or so cash. The US Treasuries have been my worst performing investment by far 🙁
Capital preservation is my priority. In early retirement, I’ll be consuming most of the fixed income until my State and modest BD pension kicks in. When they do, my strategic allocation will be 60% equities and 10% each to Cash/Gold/Inflation linked bonds fund/US Treasuries. They should allow me to consistently top up the floor.
Btw, can anyone help me with a question? If Sterling declines to say parity with the dollar and I’m holding a hedged dollar denominated fund, do I get the benefit of the fall in Sterling terms? I.e. a 20% or so uplift? TIA.
Consensus so far seems to be around 2 – 3% down, I’m much worse 🙁 -6.5%, which is at least just better than my main benchmark Lifestrategy 60 -7%. My performance is down to me owning too many (about 6%) naughty active growth equities (with hindsight should have trimmed these and moved them to a tracker after their 2020, some of the are down over 30% YTD) my workplace pension tracker is also hedged 🙁
However my allocation to my active Alternatives about 10% (Infrastructure and Renewable energy, has paid off this time and these are all up.
The blog was originally set up for passive investors and for passive in investors in conventional assets measuring GBP there is no correction.
No doubt some smarty pants will pop up and say you should measure your wealth in USD but basically if you live in the UK but that’s debatable bollocks.
There is one truth on here though, sterling is a pound store currency. I haven’t owned any Uk investments that weren’t inflation linked since the brexit referendum except a house.
My biggest fear in all this is one day the government goes back to insisting that all ISAs and SIPPs are only invested in UK assets which was the case for PEPs in the last century.
@Getting Minted — I’ve been following your updates and seeing your portfolio come back with interest. IIRC your portfolio was overwhelmingly UK equity income trusts for a few years, so you’ll appreciate you’re at least 100% behind a global tracker and maybe even 200% over say 10 years (figures pulled out of my ass but I think directionally right). So quite a lot of ground to make up… 😉
Please don’t take this as a criticism! If I’d set up a drawdown portfolio when you did I’d have bought much the same stuff (though in practice I would have traded it for good or ill) which is one reason why I’ve been watching your fortunes carefully over the last few years. I guess your pivot to growth last year wasn’t ideal, in retrospect. Again, I can’t talk because I pivoted to UK equity income then traded all but FGT pretty much back for my US growth favourites around December/January. Ho hum! 🙂
@Whettam — I’m down much more than 6.5% on my unitized active portfolio, but that doesn’t quite tell the story because I sold about 1/3 of my entire ‘pot’ early doors in 2022 as alluded to above and moved it into what I now call my ‘low vol/fixed income’ portfolio (another unitized bucket with new benchmarks). That’s flat since inception so it’s definitely taken the edge off.
I may write an article about that actually, as it was done for psychological reasons as much as for returns, although it’ll definitely be in the naughty corner. While it does contain the first government bonds I’ve owned for years, there’s all sorts of other stuff in there (renewable trusts, commercial property, high yield, gold etc) and I trade something or other in there every week pretty much. So still for my sins active antics.
@ TI – As usual you are spot on: my top loosers are all bond funds. Among them, the worst is the Vanguard’s Long Duration Guilts fund. Best performers from inception are the Vanguard’s global small cap passive ETF, Life Strategy 100, Global High dividends, ishares global value etf, physical gold ETFs, FTSE100, FTSE250, Europe ex UK ETF, and the only unhedged bond ETF I hold: Ishares TIPS.
When I look at the performance in sterling, I am doing alright so far. Only down about 1% from last week and only 2% from my latest top just two weeks ago. As you pointed out very well though, I’m down more than that in US dollars (about 8%).
@TI I only started to measure my performance through unitising from start of 2021, wish I’d done it earlier. Do you still measure your two sub portfolio’s unitised together as a whole or just separately?
I’d definitely be interested in that article, I suppose I think of about 50% of my portfolio as low volatility (or at least that’s the idea) bonds, with profits, cash, defensive trusts, commercial property (which has been very volatile over last couple of years!), renewable energy trusts and infrastructure trusts.
I consider the last three as growth assets, but supposedly with a smoother ride. Other 50% is equity both PE and listed, passive and active. The active equities include both growth and more income / value orientated, this years correction has made me question whether I should still be holding active growth choices, maybe the time is coming to switch them to passive. But decided to stick with them a bit longer, as discounts have widened as well as price dropping. Ho hum! indeed 🙂
Thank you as always.
Not even looked nor had the curiosity to calculate the impact. Just plugging on with the same contributions across a diverse spread of funds for pension & building cash bucket with <3 years to go. As ever, blessed to have access to a community of similar thinkers (well on most subjects).
Spending more energy & time on what the life will look like post-trigger pull.
Beautiful Saturday afternoons can help with the visioning!
Good w/e all.
Not quite seeing the issue here. In GBP terms, S&P total return index is still up 15.38% over last year, Nasdaq up 10.22%. In USD terms, that’s 0.46% and -4.03%. For indices that should be delivering something around 20% annualized vol, these moves are normal. In fact, realized volatility in equities is still too low.
Volatility is the key change in the last few years. After a period of monotonically decreasing vol in most asset classes (2013-17 being especially low), volatility is now rising back to more normal levels. More volatility means lower valuations since risky discount curves are higher, even if projection curves stay unchanged. This is a fundamental positive since it’s not healthy for all asset classes to generate positive returns all the time.
From my own perspective, my portfolio is making new highs. The large slug of macro type hedge funds are hedging the losses in the more conventional assets. My hedge funds are up 15% or so YTD. They benefit from rising volatility since they are trading entities, not investing ones. These types of funds badly lagged the S&P between 2013 and 17 but since 18 they have easily outperformed. With a third of the volatility though, they are much easier for the risk averse like me to hold.
Interesting commentary as always.
Some ups and some downs like most people I imagine, however a lot of volatility and we see some signs of panic…
Oddly I am now almost entirely passive, but if this continues then Investment Trusts get interesting, fallen from grace, beaten up holdings and previous premiums move to good discounts…
On the passive front TIPs (ITPS) has been my store of value. Interest rates rise in response to counter inflation, prices fall, but go up because of the rise in US inflation, throw in a strong dollar in times of crisis and this is quite a nice hedge for falling equity markets. The duration is intermediate so nothing like the volatility from UK linkers that tend to long duration and US Tips just about paying a real yield at 10 year duration as a bonus.
The housing market is paying no attention. We went to see 4 properties today and at none of them were we alone with the agent. All the agents had multiple pages of names other than ours on their clipboard.
Last week, after a viewing last Saturday, we actually put an offer on a property £30K over the asking price. There were 4 other offers and the owners are now ‘thinking about it over the weekend’… which, of course, we all know is code for ‘we want another Saturday full of viewings to get even more offers in’. We drove buy today and low-and-behold… the suit with a clipboard was showing people inside.
If you’re a buyer in the market at the moment you’re being treated with contempt. Agents often can’t be bothered to even answer your questions because they know there’s someone else lining up.
@ZXSpectrum48k Congratulations on being up this year.
Would love to hear of any retail-accessible decent Macro funds (for further research, not advice obvs). I have been helped this year by BHMG, which I’ve followed for a long time, but since Bluecrest wound up Allblue, I haven’t found any others I like.
@ ZXSpectrum48k – “ Not quite seeing the issue here.”
Well done that’s fantastic performance YTD. For me the issue is currently an extra 18 months working, at start of year I was at all time high for my portfolio. 5% p.a. for next two years would have meant that I would have hit my target by 55. Five months later I now need an extra 18 months to hit the same target. As @TI said earlier ho hum. TBH I’m fairly sanguine to this as I have had a very good run for years, but still frustrating as I was so close. Mr Market has in my case “snatched defeat from the jaws of victory”.
@Andrew (17)
Feel your frustration.
Nobody knows what will happen next with the economy and housing market, however, it is hard to see how the high prices can be sustained with the increasing cost of living and rising interest rates. This may play out in your favour in the next 12/18 months.
Good luck with your house search.
Lee.
“It’s obviously because of cheap money!”
“It’s obviously because of limited supply!”
Now that rates are going up but supply is still struggling (and likely to continue for property), maybe we are finally about to find out if 20 years of zooming asset prices was caused by monetary policy or supply/demand. Get out the popcorn!
(-13% YTD for my invested part – all in USD indexes. I’m still 50% in cash due following a failed attempt to buy a home during covid)
@The Investor. On a quick check I’m -49.09% against the MSCI World, and I was -70.58% on 31 December. You are directionally right that I’m well behind over the last eight years, and I don’t expect to make up that lost ground. My pivot to growth is very gradual so it hasn’t impacted too badly on total returns. My property switch has been a useful contributor to total returns, until this month. I’m not looking to trade too much at the moment and will probably pause my growth pivot soon.
I don’t agree with Wealth Management on gold being a faith trade like the bitcoin. Gold has many practical applications — it conducts electricity, does not tarnish, is easy to work and can be hammered into thin sheets as well as drawn into wire, it alloys with many other metals and its radioactive isotope is routinely used in medicine. And that’s before you stop to consider the importance of the shiny-shiny in the traditions of many Asian countries — where a significant proportion of the world’s younger population lives. Also, now that China has seen what we did to Russia’s foreign reserves, it will be even keener to move away from the USD assets ahead of its invasion of Taiwan.
Loved the article about how long bear markets last on average. It helps to put things in perspective, and it’s a good reminder that the opportunity to buy growth shares cheaply won’t be here forever.
interesting article and also in the comments. I’m around 5% – 8% down nominal off a net wealth high from earlier in the year but that’s including everything. Most people are looking nominally but in real terms it’s considerably worse and the pain will really be felt in the Autumn for some when the heating turns back on sadly.
My guess is inflation will start falling off towards the end of the year with living standards having taken that necessary leg down for many. UK economy does not look in good shape so I continue to invest globally away from the UK given we’ve no idea how or appetite to confront the unpalatable and to turn things around and the US is a better bet long term and I’m already £ exposed through property etc. I saw a mobile food bank in Charing Cross on Friday that must have had a 100 or so people queuing up – I’ve never seen that in central London, which had an affect I’ll admit – not nice at all for them.
Very interested to hear the psychology of those who’ve retired early including the Accumulator. Market volatility whilst I’m earning doesn’t bother me too much. Once you’ve pulled the pin – not so much. Number 1 rule – know yourself.
S&P 500 is down around 17% YTD. That’s no major deal historically although relatively to recent years it’s presumably a shock for newbies. It could easily a drop another 10 / 20% or go up – who knows. If you then look at the real return for US investors solely in the S&P 500 this year then that’s a negative return of 25% (CPI tracking 8.5%). That’s got to be the worst since the financial crisis I think? So it’s a bad one I think if it’s unmoved at the year end.
At least its put paid somewhat to bloggers such as Mrs Cash Beard (have a think about it)….who earlier this year mistakenly said equities would go up along with inflation. long term – best (probably) asset class to beat inflation is equities. ST – not so much probably. I agree with views that this could cause the smug FIRE’s to be a little less smug – not people on this blog!
Best inflation hedge is being in an industry where you can command a higher salary, run a fixed rate interest only mortgage (which I’m doing) invest in income producing assets and long term you should do just fine. I don’t really get how borrowing to invest is much different to borrowing on a house tbh – it’s the form of borrowing that’s key – Margin loans not for me.
The property market should surely come off although it’s a bit of a super tanker and in London (sorry Andrew) a lot of people are earning a lot of cash. (for ex an average Goldman Sachs VP (think around 8 years experience) got paid £475,000 this year according to one head hunter survey).
Logged onto my kids isa for a nosey this weekend after setting it up a year or so ago. 1 passive global fund. About 3% down. My missus says we should get a regular bank account I say we’ve got 17 years of growth ahead!
Not sure how far my stuff is down I suspect similar. Being at the beginning though I’m not bothered just means cheaper buying going forward. Probably harder for folks nearing retirement?
Very enjoyable post, thanks. Given my age I attempt some sort of minimax approach, trying to minimise maximum possible loss. The war in Ukraine is now hardly a black swan event as we can see it but I am surprised at the apparent insouciance of the markets to this situation given its potential to swerve into international calamity, with all the talk being of central bank actions, yield curve and cost of living prognostications. Except perhaps the strength of the dollar which just may be the canary in the coal mine.
I only update The Spreadsheet quarterly, and we were still flat or slightly up at the end of march, so expect am about 3% down rn like the majority.
I’ve moved to Singapore and rebuilding my cash reserves at the moment, but left all my Isa and pensions monies as they were. On the one hand the nominal values are cushioned by Sterling’s capitulation but on the other I’m not looking forward to drawing down any of it in the next 18 months or whenever the £ recovers (if ever).
The crypto bloodbath has been very entertaining, particularly as I consolidated everything last year into BTC, inadvertently taking ATH profits on some coins that are, um, less valuable now. (still have XRP bags though)
Let’s hope calm descends once people have sold in May and gone away.
Very interesting reading in a number of those links. I’m sitting here with 7 weeks left in my 3 month notice period (and so as you can easily work out 2 more paydays) before I am out and testing those rules of retirement. I’ll turn 58 a few days before, so it isn’t a very early retirement. I’m veering between excited and terrified. I’ve got 2 DB pensions which kick in at 62 and 67, as well as state pension, so I’ll have around £40000 pa from then, which ought to cover all our actual needs, so the rest is to live on until they kick in, and provide the luxuries thereafter. But the big risks are inflation (those DB pensions are indexed, but capped at 2.5% in deferment and 5% in payment, so a sustained period of high inflation will kill their buying power) and SORR (since it’s implicit in the projections that we draw quite heavily at the start). However I’m on balance fairly relaxed, and trying to bask in a feeling of “enough”. Asset values have dropped for sure, but not by that much (I’m probably overweight in US markets, but thinking in £). I’m not checking that frequently. And I think I still have some earning potential if it comes to that, which I hope it won’t
@ Brod #8
“If Sterling declines to say parity with the dollar and I’m holding a hedged dollar denominated fund, do I get the benefit of the fall in Sterling terms? I.e. a 20% or so uplift?”
Assuming you mean hedged to the pound, then it shouldn’t make any difference. Isn’t the point of hedging to remove currency fluctuations, be they against you or in your favour? Apologies if I’m overlooking something that my inexperienced brain can’t see.
@Nebilon:
Some thoughts:
Re your DB schemes and inflation:
a) Is your revaluation (during deferment) described as 2.5%PA compound or just 2.5% PA? If it is the former and were inflation to drop back down below 2.5% before your take your pension then the revaluation calculation can make up some of its previously “lost” buying power. AFAICT, compounding only ever applies to revaluation and not indexation.
b) Depending on your early retirement factors it may be worth considering taking the DB’s early to benefit from the higher indexation cap (vs revaluation cap) if you believe inflation will stay high for a protracted period.
c) One other thing you may need to be wary of is the erosion of the higher rate tax threshold.
The Litquidity video was originally posted, iirc, on the forum reddit. There’s a subreddit called “WallStreetBets” which hosts all sorts of anarchic and daft stuff such as videos like the above, people showing screen shots of big bets, rare big wins, and even bigger losses (aka “loss porn”), and general speculation on (mostly US meme) stocks and very, very occasionally some decent DD.
It used to be just traders talking about using options in their roles in investment banks. Gradually, and then at hyper speed during lockdowns when people were getting free gov money and working from home, it expanded and now has millions of people reading and posting. It was mentioned in large newspapers and the media (eg Cramer on Mad Money) when the ‘meme stocks’ were rewarding holders, but those days of glorious gains were no more from the start of 2022.
If you enjoyed the video, head on over and sort the posts by ‘Top’ for many others.
@ AlCam. Good points. I think the revaluation of the first bit of DB will be capped over the whole period so a blip of high inflation will be recovered. The other one is in fact not capped at all, as I’ve just checked (I just assumed it would be…).
On early retirement, I’ll be keeping an eye on that as it’s possible it might be to my benefit to take the second bit early to keep under the lifetime allowance. That will be more acute if that stays frozen.
On the last bit, about higher rate tax, well, true but I’m not sure I can do much about other than perhaps take as much as I can out of pension at basic rate and move it to ISAs or top up hubby’s pension while he is still working. But also I’ve been a higher rate tax payer most of my working life (never quite got to additional rate, but did have my personal allowance clawed back till I left private practice…) and I don’t have an objection in principle to paying some tax. Someone has to or we are screwed
I wonder why I detect a sense of deep-seated worry reading many of the comments above? Perhaps it’s because you have to be in your fifties to remember high inflation and low growth (‘stagflation’). I remember well the savage nature of the early 1980s recession – I was living in a Midlands city at the time; the manufacturing sector was literally being demolished and it took me nearly a year to find a job after leaving Uni. I regularly meet up with clients in their early 40s who are struggling with the very idea of rising interest rates and soaring inflation. They are nearly all highly-leveraged into the housing market, have inadequate savings, virtually no essential insurances, and many are in a very poor financial position.
I, for one, just have a hunch that inflation will just ‘go away’ anytime soon, but I hope I’m wrong. Probably not https://consciousnessofsheep.co.uk/2022/05/11/reality-bites/ though!
Apply Occam’s Razor to your financial stuff – the simplest answer to a problem is likely the best. I meet too many people leading busy lives who have gathered together an incredibly complex ‘suite’ of financial products along they way. Any good IFA should be able to sort the wheat from the chaff, and that sorting process is becoming and imperative.
Oh, and one very good thing consequent to rising bond yields has been the decent rise in annuity rates in recent weeks. I get more and more enquiries about these ‘safety-first’ approaches to life-long income, certainly many more since 2015 and the introduction of so-called ‘pension freedom’. why might that be?
I meant “not go away anytime soon”!
A proper look at all my accounts last week revealed about a 5-7% loss in guilts/bonds, but otherwise everything else looked healthy enough.Charts of index funds show only recent dips in most regions but still near top of index chart heights. I also changed charts to total return as income distributing funds look much worse if you dont consider income being reinvested.
I honestly don’t see the huge losses – the main losses look concentrated in tech equities stocks so anyone heavily in tech will take more.
I also use my own region proportions as despite US being great and all, equity wise, the only part of indexing I don’t like is the near 70% US and Canada exposure if you do it in its purest sense at global world (especially developed markets). Hence, I now rebalance once a year or VERY occassionally after huge sudden gains (rebalance out of what looks like inflated highs) in any specific regions.
I know such deviations are against the spirit of indexing, but near 70% exposure to US and Canada just doesn’t comfort me, so I artificially decrease percentage target and inflate other regions in their original proportions/ratios, with a bit of ‘world’ index picking up the rounding errors as my percentages change ever so slightly year to year (talking a few percentage points max)
Markets might be down, but this looks very far from a crash to region index investors. The bonds going down doesn’t really bother me much, they are what will stop a 30-50% equities crash bothering me when it finally comes along.
I am still holding too much cash but I don’t think that is as risky as it should be – if inflation eroded my cash so quickly over the next 3-4 years that I became worried about it, less well off people would be starving in the UK and dying due to the cost of living – I can’t see real living standards being allowed to drop too far.
@Nebilon:
The rules of DB schemes are notoriously complex and can run to hundreds of pages! I would suggest you do a deep dive into your schemes rules. There may be other surprises: both good and bad.
Also, if your DB that has capped revaluation has been deferred for a few years it probably has some “revaluation credit” which could be immediately useful to you.
Indeed taxes are taxes. However, as you note when you leave the world of work and await your pensions some tax planning opportunities may naturally arise.
The LTA is a whole other thing. IMO there are many helpful pages on the LTA at Monevator.
Lastly, I do not think I can disagree with Mark M’s sentiment that: inflation may not go away any time soon.
Now, I can’t control, nor predict the future (nor can anyone else), but one can follow one’s ‘hunches’. I’ve been an IFA for over thirty years, and I am picking up the sense that people’s attitudes to certain matters are undergoing a sea-change. Increased volatility in markets has unsettled many investors, especially those novices who have been in the markets for a period of less than a dozen years or so. I’m seeing much more interest in paying down mortgages now compared to a year ago. After all, my regulator, the FCA, would take a very dim view of my recommending taking out a mortgage just to invest in the stock market – then, perhaps, the reverse is beginning to happen? Paying off debt, even mortgages, frees up hard-earned income to set aside for the future and, if you wish, increase consumption today (although more and more of our income will be spent on ‘essentials’, it seems to me).
Some younger people are getting their personal insurance product suite in order (establishing ‘self-reliance’?), older ones concentrating on that most difficult thing, generating sufficient income in an inflationary environment (hint: extremely difficult). More are realising that having too much money produces anxiety (it really does), whereas those with inadequate funds are realising that an impoverished old age beckons. The whiff of poverty is growing stronger, I’m afraid, in all cities, towns, villages, and hamlets. I see this personally in my local due to my involvement with two village charities.
It’s almost as though one legacy from the pandemic lockdowns is a greater sense of self-reliance. I think that is a very good thing – after all, the paternalistic provisions of nice ‘final salary’ pensions in the private sector is fast fading in the rear-view mirror! The rest of us are realising that we are at the utter mercy of “Mr Market” and account fees and have few, if any, guarantees.
What I have learnt in my 30-odd years might be based on a paragraph in a book published by Samuel Smiles in 1875 (“Thrift” ISBN 81-88280-57-7), although I first read it only a few years ago: –
“We do not say that men should save and hoard their gains for the mere sake of saving and hoarding; this would be parsimony and avarice. But we do say that all men ought to aim at accumulating a sufficiency – enough to maintain them in comfort during the helpless years that are to come – to maintain them in times of sickness and sorrow, and in old age, which if it does come, ought to find them with a little store of capital in hand, sufficient to secure them from dependence upon the charity of others.”
I think Smiles was right in 1875, and a nuanced version of this ‘Victorian Value’ is relevant today. “Sufficiency” is a very powerful word in financial planning, I think.
@MM – good to see you pop up in the comments again. Interesting point about the personal insurance product suite. Did you once write an MV article on what they were? One thing that would be interesting is how that suite changes w.r.t both age and FI?
I’ve only got life insurance, sometimes I wonder if its worth paying the premiums if you’re FI, likewise, there will be an age when it doesn’t make sense to keep paying either.
I don’t really know if I’m stupidly over-insured or woefully under-insured? Its tricky to say (well for me, possibly not for you).
Hello, Rhino,
To answer your question: –
Unless 1) you are very well-off, or 2) your employer provides it (remembering it is lost if you leave) then “disability” insurance (also called “income protection” or “permanent health” insurance) is the rational first choice. This provides tax-free replacement income from an insurance policy should you get crocked. I’d always recommend a long-term contract with ‘guaranteed premiums’, written to your state retirement age (just in case ‘the best laid plans of mice and men’ don’t work out as hoped), with a elimination period tied in with your sick pay arrangements (if any) and with increasing benefits pre-and post-claim. The elimination period is the time between getting sick and when the insurance kicks in. This might be four, eight, thirteen, twenty-six, fifty-two or even one hundred and four weeks. As you probably guessed, the longer the elimination period, the less the cost. The younger you are when the plan is purchased, the cheaper it will be. You can usually insure 60% to 75% of pre-sickness income.
There are some truly excellent products available to UK consumers but be prepared to pay up as the risk of claiming is six times the risk of dying prior to age 65-70, so the insurers price accordingly. The longest claim I have ever dealt with lasted 27 years – the shortest about 18 months as the client, thankfully, made a good recovery. The policy is still there – it can’t be binned by the insurance company – just in case.
Next up, probably, “critical illness insurance”. Basically, an appropriate lump-sum (or, less commonly chosen, an income) should you get diagnosed with one of those conditions we sometimes think about as we age, like cancer, or anything grim like that. Often arranged with mortgages. I have dealt with 26 or so claims over the years, including two children (they had meningitis and both made full recoveries and are adults now). Only one of those individuals died because of his illness. All bar three were for cancer. Good options are available, and the market is competitively priced. Choose wisely – contract nuances are important.
The CI claimant who died also had life insurance. That’s because he had three dependents and a working spouse. If you don’t have those, then you likely have little need for life insurance (some single people do take it out to cover their mortgage so the property can be left to somebody). Buy term life insurance, split between lump-sum and ‘family income benefit’, subjects that I wrote about on this site yonks ago. Inexpensive stuff, term life, as 97% of policies don’t pay out which is, of course, the optimal outcome!
I was at an IFA conference a couple of weeks ago. Astonishingly, I was the ONLY IFA there who regularly arranges insurance policies! That’s because they are not “aren’t I clever with your investments and pensions” products and seen as unprofitable to deal with. That’s nuts, and I really enjoy working with people who need a “protection suite”, as I think it so important. Clearly, I sincerely hope an entire waste of a clients money, but other stuff can quickly turn to dust if an unexpected disaster takes place.
Finally, there is no-one who craves these kind of insurances more AFTER an event that could have been insured happens. I was recently arranging some simple, inexpensive policies for a couple who had a friend who suddenly died at age 37. Whilst having a death-in-service payout of £90,000, he left his widow, and a weeks old baby and a toddler, so I was told, with a £400,000 mortgage and there was no money in the family to help, a disaster.
Nowadays, most of the protection policies I help set up are all done remotely by ‘phone and email – the underwriting telephone calls are always interesting (and people tell the truth on the ‘phone, more so than face-to-face, as it is less uncomfortable if, for example, if you are a bit tubby.
Hope that helps.
Thanks for including my blog post.
My own experience of the boom was that I missed out and didn’t gain too much – an expensive education perhaps.
But I’ve now got to the point where I look at my numbers each month and feel nonemotional about them.
If my SIPP is down £10k (which it has been) I don’t lose sleep.
If it’s up £10k I don’t break out the champagne either.
I can’t control share prices and thinking yourself a genius for your financial success is foolish.
However, there is going to be a lot of people who are burnt badly by the collapsing house of cards – and it won’t be those who are diversified and importantly – stayed out of the sectors/shares which boomed
@MM
I bought a PHI policy in 1996 for £1000 pcm cover (6 month waiting period) – not sure about indexation or increases, but it only costs £9.99 pcm. I’m 52 and (90%+) retired so I’m not even sure if I could claim – probably should cancel it.
Critical illness cover seems expensive (to me) – but that would have been handy way of settling the mortgage!
B
Hello, Boltt. I’m glad you didn’t make a claim. Remember, the plan will only really cover lost earned income, so if you don’t have much, you might indeed take a view on its continuance. Must be a level sum insured at that amazing premium! CI cover is expensive for older people – there is an obvious reason for that, if you think about it.
Thanks for another great discussion everyone — I’ll just add a few general responses. 🙂
I’m pleased to see the comments confirming my hunch about UK investors, and equally pleased that the majority are feeling in good shape.
Just do remember this currency benefit could (should) unwind in time; like most I think the pound is down as an artifact of USD strength rather than the UK economy getting any *weaker* than it was (I don’t think the UK is in a great spot, as much discussed partly thanks to Brexit, but I don’t think the spot it’s in got a lot worse in 2022).
Regarding whether there’s anything to see here or not, as so often with investing those of us who see it differently may simply be playing a different game / looking through a different lens.
If you only have three settings on your status dial — (1) financial crisis / Lehman collapse panic (2) business as usual (3) wild euphoria — then absolutely we’re in category (2) 🙂
Similarly if you’re prone to looking at things on a ten-year view, there’s nothing particularly out of the ordinary here so far for equities (though I’d still suggest the bond move is notable. Again, understandable. But notable.)
However with a more granular lens it’s IMHO undeniable shit has been getting real, to coin a phrase.
You don’t even have to look to the high-growth / speculative stuff for big moves.
The Nasdaq index was down around 30% this week — bear market.
At its low point Scottish Mortgage Trust – the UK’s largest investment trust, so no tinpot sideshow — had halved.
The main S&P 500 index was about 0.5% away from an official bear market on Thursday. Granted we didn’t hit that level, but there have only been (from memory) 25 or so US bear market markets since the 1920s by this definition! So it’s something that happens, and will again. But it’s not an everyday occurance.
The average long/short US hedge fund (supposedly hedged) is down over 18% year-to-date (source: FT Companies section this weekend)
And many of the big US prime brokers are reporting deleveraging at big firms.
So to me something *is* going on. And we can understand why big adjustments have taken place without sort of suggesting they haven’t. 😉
People said nothing was up in late 2021 as the likes of ARK imploded. Well, something *was* up. 🙂
But again, few of these viewpoints are wrong (and some are certainly healthier than others 🙂 ) It’s more as I (/Morgan Housel…) say they reflect different ‘games’ / lens / goals / portfolios / aspirations / timescales.
That said I do also agree with the comments about some emotional recalibration towards normalcy, and similarly short-term volatility reverting at last to, well, volatility! 😉
Re: My portfolio, unitization, sharing more, whatnot, all noted and I’ll have a think.
Again I really want to put this stuff behind a low-cost membership area where it can be caveat emptor for naughty active investors to enter and read at their own risk. Most people should be doing the @TA thing, including many of us who don’t, and so I’d rather keep it sectioned off.
Finally, as GFF alludes and @GettingMinted sportingly confirms, I wouldn’t go too crazy to join some of the victory laps I’m seeing from very conservative / value minded investors who feel vindicated now. It will take a lot more of this for UK and European indices to catch-up with the US outperformance of the past 10 years, even after the recent falls. (Not to say it couldn’t or even shouldn’t happen. Just pointing out this recent winning streak has a lot of catching up to do.)
Also while I note the AQR guys for instance think value is still extremely cheap versus growth — and its founder has become a billionaire in part by eventually being right about this sort of thing — it seems to me a lot of wood has already been chopped, at least for the growth-iest firms.
Absolutely shares could continue to re-rate down, but I suspect that would be more of a market wide affair from here.
Also I kind of disagree with the spreading notion that old fashioned value stocks would do well with ongoing high inflation. I’d rather have a brand name like Coke or a capital-light business model such as Alphabet versus a factory that needed raw materials and constant repairs and reinvestment in a long-term environment of rising prices.
Indeed we’ve never really been through an inflationary period where intangible assets were so overwhelmingly important to the valuation of large companies… so let’s watch this space! 🙂
Hello @MM
I am just old enough to remember the early 80’s too and feel a similar way to you; I always have been a bit worried about inflation and generally thought moving manufacturing to China only temporarily lowered it rather than permanently killed it.
The mortgage on my house was 14.5% when I first bought it in 1991 too, so have always found interest rates artificially low too, especially since QE started after the global finacial crash.
Fortunately, in the risk free part of my portfolio, I have a large holding on Index Linked NS Certificates which I plan to hold onto, whilst I spend cash in my early-ish retirement.
I never did get the ‘free lunch’ promised by Modern Portfolio Theory of selling the ILNSC’s to buy equities when markets were too low, because there was no way I could sell equities to buy ILNSC’s when markets were too high. I just rebalanced my portfolio as I went in the accumulation phase directing new cash to what was underweight, which seemed good enough.
I will have a look a at the book you mentioned. There is a completely free copy here if anyone is interested:
https://www.gutenberg.org/ebooks/14418
for download.
Project Gutenberg do some nice old books that are out of copyright, which fits in nicely with the title I suppose.
Regards.
@markmeldon it’s interesting about insurance – my take has always been that you should have insurance for a risk that would cause a cost you can’t cover, so I still have insurance on my house and cars, and buy travel insurance. But as I am about to retire and have nearly paid off the mortgage, I’m not sure I anymore need much else. Noting of course the issue with how to pay for long term care which has been covered by monevator recently
I’ve always had quite good life cover through work, and had hubby paying for cover which would pay off the mortgage until recently when kids left home and mortgage became very small compared to our total net worth. At that point I don’t think we need it, if one of us is bereaved there is enough saved and available to live quite well on. But I would never underestimate the value of decent cover: a close friend of mine died suddenly at age 39 leaving 4 kids under 10. Luckily her life cover and spouse and children’s pension were generous.
@AlCam. I’ve spent the last 30+ years working as a pension lawyer, so am all too familiar with pension scheme rules. But of course the ones I am a member of are not something I can control the rules of : membership is something you take as is or leave (and I know enough to take). But you are right that it’s probably worth double checking what my entitlements really are!
Hi,
I’m transferring my Dad’s pension from Royal London and was thinking of going for the Vanguard Target retirement 2015: 70% bonds / 30% equity with 60% of his pension value then maybe drip feeding the 40% of it into bonds/equities every month over the next couple of years. He is 66, so I don’t want to make any mistakes. I know nobody can give me any financial advice, but maybe you could tell me if my thinking is too conservative or two risky?
I don’t get bond funds. I have abandoned them in favour of the real thing. I have a one to ten year UK Gilt ladder. OK there are purchase and sale fees and the returns are not great but I know what I am going to get and when I am going to get it and I am not paying annual fees to someone to hold them for me. I am also fortunate to have some index linked saving certificates in my bond verses GDP based equity allocation. I have kept skeleton bond funds of those I was invested in to assess my strategy but for now I feel I am in control and I am sleeping easier.
@Nebilon:
Got it – and it should therefore take you considerably less time to come to terms with the scheme rules applicable to you (and what they really mean) than I needed. I guess part of the reason for the complexity of DB schemes is that they have to evolve over time due to legislation changes, etc.
I pulled the plug over five years ago with a not entirely dis-similar outline plan to your “the rest is to live on until they kick in, and provide the luxuries thereafter”. And whilst this remains the general plan some key details have changed; largely due to factors outside of my control.
The extent to which SORR may become an issue for you is, of course, somewhat dependent on how you have structured “the rest”. We chose to floor the gap until DB commencement. And, whilst this is expensive – in both absolute and opportunity cost terms – I have no regrets to date.
A final thought is to be careful about locking yourself into anything completely irreversible at this stage as your plans and needs will almost certainly change. IIRC, I have made one irreversible decision so far.
Best of luck.
@TI. The Nasdaq is down 25-30% since the start of the year but it had almost doubled since the start of 2020. Some of the puff in that market had to come out and given how fast it went up, it was likely to fall just as fast. It’s still up 50% in less than 2.5 years which is still a very very strong performance.
I’m still overweight Nasdaq trackers in my equity portfolio (albeit my equity portoflio is less than 25% of my total) and will happily hold it. Whatever damage I’m taking, my “competition” is taking an equivalent or worse battering. Those that invested in ARKK are now 70-75% of the highs and 20% lower than the start of 2020. Good.
@Andrew. The housing market will pay attention … it just lags horribly since it’s such an illiquid market. As wealth levels decline into rising living costs and rising leveraging costs, London property will not be immune. Of course that assumes the govt (knowing what those voters really want) don’t come up with another donkey scheme to prop up prices.
@Tom-Baker. Not easy to access any decent macro HFs these days. They are all soft or even hard closed. 2017/18 was the time to invest since nobody wanted them then. Millennium is the ultimate rock steady fund. I invested more in March (already up 10%) but has a 5 year waiting list for new investors. Brevan Master and Alpha are getting too big but they have made positive returns in 17 out of the last 20 US equity falls so that negative correlation is too valuable to lose. I’m still in Bluecrest (original investor from 2000) but since 2017 cannot reinvest profits. I find it odd that people never mention Platt. Most successful UK hedge fund manager by a country mile yet they always talk about the odious Odey.
The fall in value of sterling since 2000 is really something, nearly 80% in spending power, let alone since Bretton Woods was abandoned in 1971, about 92%!
https://www.inflationtool.com/british-pound/1971-to-present-value
Not much point in simply comparing to the USD either, as that also is being devalued hand over fist.
http://pricedingold.com/pound-sterling/
This never-ending money devaluation just cheats normal workers who are wage-dependant, inflates asset prices and makes long term planning something like playing 4D chess. The economic dogma of achieving a steady 2%pa devaluation, as aimed at by the Fed, Bank of Japan, ECB and Bank of England , is clearly both not possible with any reliability, and not obviously helpful. If the hope of 2% pa inflation targets was that people / firms would take on a manageable amount of debt which over time would be eroded by inflation, thus encouraging productive investment, the outcome seems to have been the opposite – ever greater financialisation and speculation, short termism over long term strategy, small businesses being consumed by large ones with more borrowing ability, and gearing up to the neck by everyone from B2L investors to firms (at one point Pizza Express had £1m debt for each restaurant!) and countries.
It’s also completely avoidable, the government just has to tell the BoE to stop targeting an unachievable 2% pa fall and commit to maintaining sterling versus some hard yardstick (gold is the historical norm because it is steady, but could be anything), which was achievable with near-perfect reliability even in the age of Jane Austen and quill pens just by scratching or creating money, as an ETF does each day to follow a commodity value. There is no need to hold massive gold stocks – the assets held by the BoE actually declined through the 1800s as economic growth went ballistic. Commodity ETFs are not super low cost because they are buying and selling vast amounts of underlying assets each day – they just create or scratch their shares to maintain exchange-value of the assets they hold.
It is far easier to maintain a currency’s value against one hard commodity than to chase a chimerical 2% pa reduction measured across thousands of items moving in price, make-up and subjective value. No team of economists or conference of politicians ever decided that ongoing currency debasement with no tie whatsoever to an underlying value-measure was a good idea – Bretton Woods was just abandoned by Nixon as he sought to goose interest rates to get re-elected.
My strategy at the moment is not to look. Sit tight, see it through, it will all be okay in the morning. Whatever happens, that Saving Private Ryan video puts things in perspective, by which I mean that this was actually how it ended for many young men decades ago. How they’d have liked to see their retirement, never mind worrying about ours.
@ZXSpectrum48k
Cheers for the reply.
Platt is a beast. I loved that interview he did in Hedge Fund Market Wizards. I thought he’d returned all money & was just doing internal stuff now (with incredible results, as they don’t have to worry about client concerns about volatility)? Congrats for still being in.
Hedge Fund Market Wizards interesting also for the number who haven’t survived, despite some impressive years.
I hadn’t heard of Millennium – will have to research more. Shame about the waiting list!
And re: BH – yes, there’s always a slight concern when the AUM gets too big.
Odey – ugh.
To further comment on Mark Meldon’s points about insurance policies, I found out about family income benefit from his post on this blog.
I took out a policy with Mark so my partner would have enough guaranteed money coming in from predictable sources he understood in the event of my death. Psychological and emotional peace of mind. The investment income would still be coming in, but he wouldn’t need to engage with the investments to pay essential bills.
Half of our income is from investments but it’s me who manages those and just dealing with the tax return will be more than he can manage (no, not going to an accountant. The charges are into 4 figures and every one I have approached didn’t know what a REIT was).
As a side benefit, the policy will be passed onto our son if my partner dies first, thus providing the nearest thing to a db pension he is going to get.
I’ve been telling all my friends about these policies as they are low priced and the peace of mind is fantastic knowing it’s there.
The final thing is that it’s free to set one up. It’s one of the few products which is still commission based. Otherwise we wouldn’t have been able to do it.
Thank you very much “The Hare”!