What caught my eye this week.
Donald Trump’s antics finally tipped the US stock market into a correction this week, defined here as a 10% fall from the highs in the S&P 500.
The median US stock did even worse, posting a 20% decline.
According to Bloomberg, this 16-session losing streak was the seventh-fastest such plunge since 1929.
However the US market bounced on Friday. And personally, I’m seeing few signs of real panic.
Indeed why should there be? Investors de-rating US shares by a modest 10% to reflect the wildly unpredictable Washington mob ripping up the rulebook seems reasonable to me.
Besides, anyone who’s been invested in US equities for a while should still have some very fat gains to bolster their nerves.
Bear necessities
On that note: have we forgotten what a proper bear market feels like?
The Covid crash was a shock but short-lived – and there was lots else going on to distract us.
The 2022 growth stock rout largely passed UK investors by. The weaker pound that year boosted global portfolios in Sterling terms and the biggest shares soon recovered.
Most of you probably don’t even remember 2018’s ‘taper tantrum’.
It’s been a while since investors really got the willies.
You’ll be fearful when others are fearful
I even read in the Monevator comments this week a suggestion from a smart and well-regarded reader that one could avoid volatile and arguably expensive markets now, and then after a crash buy leveraged ETFs to doubly profit on the bounce.
Now each to their own and I’m all for creative thinking, but this sounds to me like bull market fatigue speaking.
We’ve had it too good for too long, maybe? Bridgewater says the most recent 15-year stretch for US stocks was the best since 1970…

…so I’m here to remind you that in a proper bear market, people aren’t thinking about piling into two- or three-times levered ETFs to earn outsized returns in some undated recovery.
They’re wondering if they’ll ever get their money back at all.
Or they’re feeling guilty about their gran who gave them £1,000 when they went to university which she saved by going without for years, and which they just vapourised in five minutes playing Gordon Gecko in the midst of a global meltdown. (Been there, got that T-shirt.)
They’re saying never again.
In a proper bear market it’s hard enough just to not sell and to get through the terrible daily news.
And when the bottom does come, few people will be listening, believe it, or even care.
Survival is the name of the game in bear markets. If you must try to market time your way through one, I’d say keep it as simple as possible and keep gearing at bay with a barge pole.
Leveraged ETFs are for bull runs and for risk-takers who really know what they’re doing. Most of us should just keep on keeping on.
Have a great weekend!
From Monevator
No Cat Food retirement portfolio Year 2: Withdrawals are go – Monevator [Members]
Hetty Green and the timeless appeal of market timing – Monevator
From the archive-ator: Asset allocation rules of thumb – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
UK economy shrank unexpectedly in January – BBC
Housing market losing momentum says RICS – Property Wire
What will be in the chancellor’s Spring Statement? – BBC
No cash ISA shake-up apparently, but Reeves still pondering cuts – Guardian
Poorest Britons now poorer than the poorest in Slovenia and Malta – NIESR
Secret millionaire pensioner, 98, leaves £1.4m to community – Yahoo News
Toy train maker Hornby to quit the London Stock Exchange – Morningstar
FCA abandons plans to ‘name and shame’ firms under investigation – This Is Money

Why the government is seeking to cut the benefits bill – Guardian
Products and services
Fixed mortgage rates take their biggest fall in six months… – What Mortgage
…and the lenders offering sub-4% fixed mortgage rates – Yahoo Finance
Get up to £4,000 when you transfer your ISA to InvestEngine our link. (Minimum deposit of £100, other T&Cs apply. Capital at risk) – InvestEngine
Natwest launches £150 cash bonus switch offer – Be Clever With Your Cash
Price gap between flats and houses hits 30-year high – Which
Luxury lounges: credit card perks “we are all paying for” – BBC
You can get up to £3,000 cashback when you transfer your pension to Interactive Investor. Terms and fees apply. – Interactive Investor
Have you got your Monevator mug yet? – Monevator Shop
Care home costs rise to £1,400 a week – Which
Homes for sale in urban villages, in pictures – Guardian
Comment and opinion
The importance of temporal diversification – Cullen Roche
How the pension freedom ‘class of 2015’ [maybe] doubled their money – T.I.M.
Never root for a recession – Of Dollars and Data
Are US tariffs on goods a prelude to tariffs on money? [Search result] – FT
The dirt tells no lies – Fortunes & Frictions
The colossal tax raid that explains why high earners don’t feel rich – This Is Money
Trump trades and European exceptionalism – Behavioural Investment
A two-tier housing market will result from half-baked leasehold reforms – Guardian
Should you ‘reset’ retirement withdrawals in a bad market? – Best Interest
How to use commodities in your portfolio [US but relevant] – Morningstar
Is a Lifetime ISA or a SIPP best for retirement saving? – Which
How the gold bullion boom sent a US recession alarm blaring [Nerdy] – FT
Naughty corner: Active antics
Better angels – Humble Dollar
The Squid Game stock market – Acadian
Charting: value or voodoo? – Larry’s Substack
The risks to equities are tailwinds to infrastructure – Institutional Investor
In geopolitics, words speak louder than actions – Klement on Investing
Stock-picking in volatile environments – Albert Bridge Capital
Hedge funds paying up to £1m for weather modellers – Bloomberg via Yahoo
Kindle book bargains
Poor Charlie’s Almanack by Charlie Munger – £0.99 on Kindle
How to Run Britain by Robert Peston and Kishan Koria – £0.99 on Kindle
Invisible Women by Caroline Criado Perez – £0.99 on Kindle
Chip War by Chris Miller – £1.99 on Kindle
Environmental factors
The great British sewer dump – Reuters
Scientists learn how migrating baleen whales transport nutrients globally… – Nature
…but why are more of them getting tangled up in ropes? – BBC
The Chinese project that led the way in water and soil conservation – Guardian
How plants are responding to a warming world – MIT Press Reader
Supertrawlers spent 7,380 hours fishing in UK protected waters – The Grocer
Robot overlord roundup
Read a story from OpenAI’s new creative writing model – Guardian
Robotaxis are here – Unchartered Territories
AI means the end of the web as we know it – Spyglass
Who needs revenue when you’re a multibillion dollar AI startup? [Search result] – FT
Not at the dinner table
‘Knowingness’ and the politics of ignorance – The Garden of Forking Paths
The new global divide makes Brexit an anomaly – Chris Grey
EU defence fund to be spent on European weapons – Semafor
How much do I really need to know? – Kottke
Trump boom versus tariff doom – Faster, Please
The real problem with tariffs – The Edgy Optimist
Short-term pain for…long-term malaise? – Drezner’s World
Why America betrayed Europe – Noahpinion
Off our beat
Rembrandt to Picasso: Five ways to spot a fake masterpiece – BBC
Woman who lived to 117 had genes keeping her cells ‘younger’ – Guardian
How to learn a language like a baby – The Conversation
Top ten Scandi life lessons after a decade living in Denmark – Guardian
Pure independence [A couple of weeks old] – Morgan Housel
And finally…
“There is a limit to how much you can cut but there is no limit to how much you can earn.”
– Ramit Sethi, I Will Teach You To Be Rich
Like these links? Subscribe to get them every Saturday. Note this article includes affiliate links, such as from Amazon and Interactive Investor.
This video from Ezra Klein interviewing economist Gillian Tett on the Trump administration’s econmic world view is incredibly interesting. It really makes sense of the madness https://youtu.be/3PXVrLH4zSU
I’m still hoping for the S&P 500 to drop another 25% – even at that level it’s still done well over the last 10-15 years. I’ve still got too much cash especially since Aviva want to cancel all their preference shares – leaving me with plenty of ammo for 4000 level S&P…..
Aside.
Some possibly useful info with interactive investor:
1
requested my PCLS on 7th March and received it on the 12th March.
2
requested my first one-off taxable withdrawal, this came on 14th.
3
Emergency tax was applied and was in line with this handy online calculator
https://www.hl.co.uk/retirement/preparing/tax-matters/emergency-calculator
4
Apparently emergency tax is always applied on the first taxable withdrawal as it’s not possible to get a tax code until a payment has been made. It also appears to make no difference when to get the money. I (incorrectly) thought taking the money in March would result in less emergency tax (month one) than April.
5
I had enough cash in the sipp to cover both payments, this may have helped speed things up a little – but still impressed.
6
The online paperwork was more than I expected but still reasonable, probably 30 mins to read and check everything 3 times
Thanks @boltt – my rough strategy is to let my iweb sipp become fully ajbell. Take the few years fee holiday. Then try and migrate to II for a few k kick back. It sounds like they aren’t too bad? Embark on other hand sound shocking. Had a little flutter on vwrp on Friday but may have been catching a falling knife
Not sure why the fund platforms etc ( apart from wanting the fees i guess) or the Govt. are convinced that people who have been happy to save cash but have been unwilling to trust the stock market over the years will suddenly decide they want the risk after all. But guess there will be plenty of articles about MMF and the likes of the RL Short Term Fixed Income Fund type products in the money pages/blogs but which hopefully mention the step up in risk over cash ISA if it does happen.
For the amateur investor the first market correction of a reasonable size is a valuable lesson to him/her of their actual ability to cope with market drops in their portfolio
It will set their own sleepless nights tolerance /stomach acid levels
They should then using this information set up their very own personal asset allocation which will then allow them to stay invested in the market through thick and thin ie stay the course throughout their hopefully long investment career
A reassessment would probably be needed as savings reach a reasonable level and then again also 6-7 years from retirement
xxd09
Yes, reading here and on Bogleheads it seems a) many investors have never experienced a crash; and b) expect one to be a couple of years max until the bull market resumes. I’d put the GFC in that bracket too. Saved by massive intervention of all the major central banks.
The slow grind down of the dotcom was unrelenting…
@Boltt (#2):
Recognise the too much cash situation you describe.
I started my monthly update earlier today and biggest drawdowns set me back c. 6 months, but I also had some winners too vs last months overall all time [nominal] high [at c. 3 pp off my all time real high]!
IIRC, those Aviva prefs had a generous [fixed] coupon – will losing that hurt?
Very quick SIPP turn-around; and I note your rider re having it all in cash – possibly one to watch!
I’ve been hearing some buzz about the TG61 gilt. Currently trading at £27.60. My limited understanding is that if interest rates drop then its price goes up and it can be sold for a decent profit. Of course it’s a gamble but if you’re prepared to wait a long time (maybe 10 years) the odds may move in your favour.
It seems too simple. What am I missing?
Anyone who thinks that restricting the amount one can put into Cash ISAs will magically increase the amount put into the UK stock market has been spending too much time with rich people. People would just put it into ordinary cash accounts instead and just pay the consequent tax (maybe that’s the plan). If you’ve scraped and done without to get that cash, you are not going to risk it. Readers of this blog know that is not necessarily the best idea but generally we know what we are doing. And I don’t think that is UK culture in general ( we are not the US – TG). Now I’m sure many on here would argue that is the problem and that for UK long term wealth it should be the culture. But culture change takes a long time. Again we know that you’re best bet is a tracker fund and ignore the noise but how much feeding would the sharks do on the ignorant before culture change happened?
Such a change would be very unpopular but the government have already proved willing to do unpopular things so I’m not ruling it out as happening 🙁
But I don’t think the consequences would be what they want.
I’m all for passive investing and low cost ETFs, and 10% drop on 100% gains is still mighty gains.
But, I sold out of half my SIPP of VWRL (at the peak!!!) and reinvested in some renewable energy / infrastructure investment trusts that should give double digit returns and are based on more solid foundations than tech stocks.
I might be wrong (marginally aheaso far) – but sometimes you need to take your winnings and leave the casino, before you lose your shirt.
And we have another 46 months of 47 to deal with – it isn’t over yet!
@a1cam
Yes, dividends were 7-9% – but about 6.5% pa based on purchase price. I had organised £24k pa in cumulative irredeemable dividends in perpetuity (rsa, aviva, ga, Santander) . Unfortunately irredeemable doesn’t mean what you think it does!
I’m hoping to convert into global tracker but need a big crash asap. In hindsight I’ve probably not taken enough risk, or the wrong risks
It’s going to be an interesting 2025
Further to @Boltt (#2) experience…. Just gone through similar for my wife’s first UFPLS withdrawal. As expected she paid £4k+ in emergency tax. Used the HMRC P55 form to claim the tax back and it was in her account within two weeks. So not at all bad really…
Which double-digit ITs are those, @Gentlemans Family Finances? I’ve not seen any renewables ITs returning more than c.7%. Good luck, btw!
@Boltt:
AIUI they were perpetual in the sense that when you bought them they had no fixed redemption date, however they can be cancelled / were callable (i.e. the issuer can redeem them at any time). If they were described as “irredeemable” when purchased, then something seems off to my eyes.
Nicely timed article – unlike large pension funds one advantage of controlling my SIPP is that I can sell everything and move to cash relatively quickly. This is, in my opinion, an advantage that rarely gets mentioned. After two years of spectacular returns on the US market together with The Donald scattergun approach to US (ex) allies I have just liquidated the equity portion of my SIPP. It now 80/20 cash / bonds. Only time will tell if it is a good decision. I have a DB pension so I am not totally dependent on SIPP.
I can’t understand all the chat about trying to get more money into the stockmarket. How does this help UK companies ? Even IPOs are just a change of ownership ( and make the founders rich) and as for buyback….
@Boltt
You are correct, seems irredeemables can be bought out! I did not know that. I better understand why you said “interesting” now too!
The only thing that worried slightly with the market downturn was my recent annuity application was in progress. The wheels turn slow on these things – I was hoping the donor pension plans had been encashed and the outcome wouldn’t be affected. I was lucky – completion letter arrived Saturday and the annuity is slightly more than quoted! Always worried something will kick off when I do something like this.
Most of those 99p Kindle books are available at the same price on the Kobo eBook store if you don’t want to send a few pounds to the billionaire company. I just signed up a Kobo account due to the recent Amazon change to restrict downloads, thanks to helpful comments over on the SLS blog.
@Paraquat The £1.7Bn market cap TRIG renewables IT pays 10% dividend but my ISA provider won’t let me buy it. UKW is almost there at around 9%, I’ve got some of that. The AIC Screener is a good place to go for checking these out https://www.theaic.co.uk/investment-company-screener
I find it somewhat amusing that people are trying to make sense of the ‘policies’ of a well documented narcissistic bully with moronic disposition and even perhaps a sprinkling of early dementia. He appears to have discovered the word ‘groceries’ only recently. He believed immigrants were eating dogs and cats…
And now we’re supposed to believe there’s a clever master plan behind his tariff flip-flops and a market correction is good because he’s doing it?
Americans seem to have elected a meme president. This was ok for cryptocurrencies where the consequences aren’t as catastrophic. Good luck!
@Boltt:
Also very interesting to note that [AFAICT] the regulatory change that allows your irredeemables to be cancelled cuts across all insurance providers – so your chosen diversification path in this instance also failed too. I doubt anybody could have seen that coming, but …
I am not very familiar with preference shares, but OOI were they only ever issued by insurers?
@a1cam
https://moneyweek.com/investments/stocks-and-shares/share-tips/605082/the-highest-yielding-pibs-and-preference-shares
There’s quite a few insurers banks and building societies on the list, but also a few others. Not sure on the history but the old fixed income investor site closed down a while ago and was v useful.
I was also intrigued with perpetuities from the actuarial exams 2.5% consols etc. they were “cancelled” a while back too (in the original sense of the word)
Perhaps the infrastructure bonds/investments are a modern take on prefs, I haven’t read the detail yet.
A not too volatile 4-6% real yield doesn’t seem too much to ask, does it? Perhaps there’s a Ta:Ti article already
@Boltt:
Thanks.
In principle, an ideal flooring product – to which you may wish to add some form of “inflation shaping”.
IIRC, consols go back to before the Napoleonic wars and the final ones were cancelled (as you say “in the original sense of the word”) about a decade back.
I assume your Prefs were all bought off you at a slight premium to the [then] current market price – but OOI was that a premium to the price you paid? Also, did you have any of them (assuming this is/was allowed) in an ISA?
You must now have a pretty huge cash pile*; a very interesting challenge indeed. Do you have any [cunning, or otherwise] plans other than hoping/waiting for a significant market correction? I asks as for other reasons I am somewhat cash heavy and have been for some time now whilst I await said market opportunity. Thus far, I have struggled to come up with anything else.
Re: “A not too volatile 4-6% real yield doesn’t seem too much to ask, does it?” You’ll be lucky!
*IIRC, you also sold some BTL’s
@AlCam #20 > I am not very familiar with preference shares, but OOI were they only ever issued by insurers?
My Dad used to work as a fitter for Whitbread and he had preference shares, presumably as some part of Sharesave from way back when. These were converted into ordinary shares last year. So not just insurers, it seems.
@crazycaps #8, my understanding is also that the price of gilts is inversely correlated with interest rates. So if/when interest rates fall, the price of TG61 and other gilts trading below par will rise.
You might be lucky and see such gains after a few years (or c10 as you have written). Absolute worst case scenario would see you waiting until 2061 to obtain a return of the face value, during which time you would be receiving 0.5% interest. Not one that would match my time horizon.
I think a recent article/comment on Monevator explained how you could benefit from such a play if you had significant money outside tax exempt accounts and were a higher rate tax payer (gilts being exempt from capital gains tax but not income tax). IIRC the idea was to find a gilt trading below par maturing soon with a very low coupon/interest rate. 2061 could be a bit of a push.
I can see the potential benefits of doing this in a GIA but not in an ISA/SIPP.
I failed to edit my post above to say the effective rate would be around 1.8% at the current price,so better than 0.5% but not great/better than inflation.
That’s very kind @TI but, in reality, less smart and well regarded than, I like to think, widely read and inquisitive 😉 I’d just caution against rejecting anything out of hand. As the quote from the Garden of the Forking Paths (in this w/e’s links) puts it “too many people think they’re thinking when they’re merely rearranging their prejudices.” Might there be circumstances where a small amount of leverage might perhaps work?
If you look at the discussion in #28, 34, 37, 38, 39, 40, 42, 44, 47, 49, 55, 57, 60 and 63 in last w/e’s comments I’m not saying that you can (predict and) sidestep a crash (i.e. go to cash) and then load up on LETFs at the bottom (whenever that is, impossible as it would be to tell at the time).
I am saying though that, in certain limited circumstances – where there’s been a large drawn down and you’ve stayed invested (and hitherto unlevered) – and if the market then starts trending upwards (e.g.’s: above 200 DSMA, and/or ‘golden cross’ of 50 above 200 DSMA and/or 3+6+12 mnt equal weight absolute momentum positive), and provided that both volatility (VIX below say 25) and leverage finance costs are not too high (10 year T-Bill below 4%), then it *could* work. The odds are much more in your favour than in other circumstances.
For example a year ago I pseudonymously submitted a LETF idea to this TAA blog:
https://alvarezquanttrading.com/blog/upro-tqqq-leveraged-etf-strategy/
I haven’t implemented this myself (yet), but it does show that, in a low interest environment (2010 onwards), where leverage funding costs are low, it is quite possible to get up to a Sharpe approaching 1 (0.91) and CAGR of over 20% (24.4%) over 14 years (to 31/12/23).
[NB: (warning, and my apologies in advance for, long) ‘technical’ note on the unusual (“strange”) choice of using an EM equity ETF, and not a US equity one, as a regime change trigger: this comes from the Defensive Asset Allocation model of Keller and Keuning back in 2018, which is on SSRN. The rationale for VWO is from Keller and Keuning backtesting various alternatives as ‘canary in coalmine’ assets, and is covered at both the penultimate and final paragraph of page 6 of the paper, and in the penultimate paragraph of page 23. The former states, “we search for the best canary universe with 1,2,3, or 4 assets..(from..SPY, VEA, VWO, BND)…To prevent data snooping, we split the Dec 1926 – Mar 2018 full-sample..period into in-sample..Dec 1927 – Dec 1970 and out-of-sample Dec 1970 – Mar 2018. Now, we search for the best protection assets…by optimizing the return/risk indicator… This in-sample optimization will allow us to use the resulting “optimal” canary universe with DAA while avoiding data snooping risk at the out-of-sample period from Dec 1970. So, what is..best…canary universe from …SPY, VEA, VWO, BND? This turns out to be the combination of VWO…and BND”. On the final page of the paper (but before the Appendices) Keller and Keuning discuss why VWO and BND might give the best results since 1926, noting, “Finally, we did not discuss why (bad momentum of) VWO and BND..would be a good “canary” in predicting crashes in terms of economic theory. Of course, bad BND performance might reflect higher US bond yields resulting in lower appeal of US stocks..But explaining the rationale for bad VWO performance as [a] canary for stocks seems more complicated. It might be because VWO reflect sensitivity of Emerging Markets to crashes in Developed Markets. It might also suggest a currency signal: when the US dollar becomes stronger, EM currencies become relatively weaker pushing down EM indices (in USD). And we know that the US dollar and US stock markets are often negatively correlated (see e.g. Hedgey, 2018). But more research is needed here”]
I will also include below some info. on an additional risk with LETFs which, AFAIK, is not covered anywhere else on the web other than in the simulation which I’ll link to: namely the ‘sequence of interest rates’ risk with leverage financing costs. This factor IMHO invalidates all (other) studies of simulated LETF performance for periods before the LETF, or an equivalent LETF, existed (there are scores of these types of multi decade simulations). I think that it’s important for people to be aware of this as its otherwise very much overlooked and greatly exaggerates what the multi decade performance of LETFs would have been if they had existed before they did.
[As a part 2 to the above]: on 20 and 23 December 2023 two articles appeared on the estimated effects upon LETF performance of the finance costs over the very long term, using a simulation of 3x S&P 500 (UPRO ETF) going back to 1913. The articles are at “howiinvest.com” and are respectively entitled “Backtest blind buying UPRO to 1913” and “1955 & 1913 LETF backtest”. The methodology for calculating the LETF finance costs are described in one of those articles as follows: “the SPXTR monthly return, multiplied it by 3, subtracted a 1% annualized expense ratio, and subtracted 2 times the ten year treasury yield… …..this isn’t a perfect calculation for a synthetic UPRO since institutions borrow at shorter term rates and the fund uses a daily multiplier not a monthly one. This is just a way among many of estimating and I have chosen inputs that will let us go back to 1913. The 2 year yield doesn’t go back that far in my data set.” As shown in the charts in each article, the simulated 3x S&P 500 LETF with Buy and Hold goes from massively outperforming the S&P to significantly underperforming over the full 110 years and, obviously, with very much greater volatility than the index. Based on my ‘back of the envelope’ arithmetic, the extent of the leverage financing cost drag appears to be of the order of a 9% p.a. reduction in returns over the full period 1913 to 2023 and an approximately 11% p.a. reduction in returns from 1955 to 2023. Usefully, one of those two articles (the 1955 and 1913 LETF backtest one) includes a link to a xls format download of the data used, and covering the period 1st January 1956 to 1st December 2023
Think I’ll just continue to invest, once a month, every month, high days and low days… into a global tracker. It’s minimally taxing on the brain, and leaves lots and lots of room for me to…… get a life.
@DH… what is it you’re actually trying to prove here ? At the risk of encouraging that &*#^% Gr*mm%rly ad that follows me around Youtube like a turd stuck to my shoe…., I mean, at least leave a space line about every half a dozen lines to make things half way readable.
Try uBlock Origin Lite @Trufflehunt #28
(www.snipca.com/54003) to get rid of that Grammarly ad following you around Youtube 🙂 Took spacing out to try and reduce length, but preference noted. 😉 There’s a limit on how much detail a comment box can convey.