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You need a plan, not predictions or platitudes

A surfer contemplates the turbulent seas, just as we must plan for turbulent markets.

When stock markets slump, people pay attention.

In some ways that’s a shame, because falling markets are as normal as rising markets.

Stock markets that go down faster than they went up are perfectly normal, too.

A stock market slump is therefore literally unremarkable.

But we’re human. We evolved to take an interest.

Our instincts run on fast-forward, even if our wiser slower brains try to press pause and ponder.

The price of admission

When markets fall, some panic and consider selling. That’s natural.

Others act brave, rub their hands, and boast about it being time to buy – to be greedy when others are fearful.

That sentiment is right, and they can sound like bold geniuses.

But how long were they sat in cash, waiting for the moment to get back in?

If you buy equities when they drop 10% but you missed the previous 50% rally, you’re not being greedy when others are fearful.

Not in the bigger picture.

You’re actually being timid when others are stoically betting on the long-term propensity of stock markets to rise over the long-term.

And you’re probably going to be left poorer compared to someone who is less cunning but more pragmatic.

The price they pay for their long-term gains is not feeling as smug as you when the market does swoon. They have to take their lumps.

Usually that’s a price worth paying.

Molehills and mountains

Investing is a marathon, not a sprint.

When markets fall you can feel like Indiana Jones, running down some corridor with the precious prize in your hand – but with a boulder thundering behind, threatening to squash you.

But that’s only one scene of the story.

A better movie metaphor might be The Lord of the Rings.

I’m thinking of that montage scene where three members of the Fellowship are shown galloping across at least three mountain ranges as part of their continent-spanning quest.

The heroes go up one peak, but right ahead of them is a march down the other side.

If the Fellowship had thrown in the towel at the bottom of one of those valleys then the ending would have been very different.1

Investing is likewise – at best – a long march through peaks and troughs.

Hopefully you’re heading higher overall. But it’ll be a long time before you know for sure, and you need to be careful not to end up in a hole when your time runs out.

Otherwise it’s two steps forward, one step back – and repeat.

You knew this was coming

Fresh comments appear on old Monevator posts when markets fall.

  • “I’m re-reading this post to remind me why I’m invested this way.”
  • “I thought I was ready for a hit but I have to admit it hurts.”
  • “This is my first real experience of falling off a cliff and to be honest…I feel alright really…”

It’s humbling to think we’ve built a site that people come to when they feel unnerved by investing.

It’s great too when another reader replies with some sensible words. That means we’ve built a community.

My co-blogger The Accumulator is always more alert to these sorts of emotional shifts than me.

He suggested I write a post reassuring readers about investing through tough times.

I suppose this is my attempt, but it might not be quite what he was expecting.

If you look around the Web you’ll find plenty of pundits saying this latest correction was overdue, or the slump is overblown, or that it’s a buying opportunity, or that in a year it’ll be forgotten.

Perhaps. Nobody knows. Not just in the short-term – we all understand such volatility around here – but also in the long-term.

We make our best guesses and we build diversified portfolios that can hopefully withstand those guesses being somewhat wrong.

But we never truly know.

All over in a flash

I’ve lived through a few of these stock market storms, and they can still surprise me.

Regular readers will know I’m an active investor for my sins, despite my believing in the gospel of passive investing (we can discus why I’m active some other day).

I’m used to choppy asset prices, and to an extent I seek it out.

Yet on what they’re already calling the Black Monday of August 2015, I was newly dumbfounded.

I had cash ready to deploy into certain US companies, if I could get them at the right price.

So I waited and watched the US markets open – only to be left open-mouthed as the prices of huge firms like Apple, Facebook and Visa fell 10% or more on the off.

It was almost what I’d been waiting for. Yet I did nothing.


Because it was almost but not quite what I expected.

The deep price cuts were too much, too mad, too crazy.

I was shocked.

I remembered the financial panics of 2008 and 2009 and I wondered if I’d misread the situation. Was it happening again?

This moment seemed to last for an age as I dithered over whether to buy.

Then suddenly prices reversed and began speedily climbing (which seemed equally strange) and a company that I might have bought at 5%-off now seemed expensive at 7% lower – because 30 seconds ago it had been 15% down!

This craziness lasted barely five minutes in total, and by the end I’d bought … nothing.

So much for the bold old investor!

Cliff notes

That’s what markets do. They surprise you and unsettle you.

In response to the reader’s comment about falling off a cliff, another Monevator regular said: “This isn’t a cliff.”

And he’s right, according to the history books. Markets have fallen much further than 10%.

But perhaps for that reader, it was a cliff – even if statistically a 10% fall is nothing to write home about.

You’ll know when it’s a cliff for you when you feel it in your stomach.

Prepare yourself for a normal 10% correction and you’ll not be prepared when markets fall 20% or 30%.

Prepare for that and you’ll still feel sick from a 50% plummet like we saw a few years ago.

Been there, done that?

Perhaps they’ll fall 80% in our lifetime.

Who knows?

This uncertainty is paradoxically why equities can be expected to return more than cash over the long-term.

People hate this uncertainty, they hate the random plunges and swoons, and they hate the long periods where you feel like you’re banging your head against a brick wall for getting into shares instead of saving into cash, buy-to-let property or premium adult phone lines.

As a consequence, people under-invest in shares, and they over-invest instead in cash, bonds, and property.

And so most of the time those of us who do bite the bullet and buy shares get rewarded with superior gains over the long term.

Most of the time – but not always.

Expect the unexpected

If the volatility of equities was truly predictable – if a 10% correction did come along every 10 months, or whatever the statistics imply – then nobody would be too concerned by it.

Perhaps you’d book your holiday to coincide with the falls, and avoid all the fuss entirely.

But that’s not how markets work.

Markets do things like go up when the news is relentlessly terrible for years – and then plummet on a blue sky day.

Or you’ll have heard that shares “climb a wall of worry” and so you’re happy because everyone seems scared – and then the market crashes anyway, right in the face of that fear.

Or shares fall hard like in 2000-2003, and so people talk about a once-in-a-generation cratering – and then they crater again just a few years later.

That’s only once in a generation if you’re a gerbil with great grand kids.

The truth is you don’t know what shares are going to do. You just don’t.

You might think you do – that you’re girded for the long-term returns and for short-term volatility – but then, say, the whole world turns Japanese for three decades and even after dividends you barely break even.

Do I expect that to happen?


But it might.

Known and unknown unknowns

  • Nobody expected interest rates to be held near-0% for six long years.
  • Few expected super-safe 10-year government bond yields to wallow below 2% – or to turn momentarily negative in Germany.
  • Newlywed home buyers in Tokyo in 1989 did not expect to be underwater 30 years later.
  • No gold bug expected the metal’s price to fall under $1,200 back in 2011 when gold was hitting new all-time highs above $1,800.

The subsequent fate of these surprising outcomes is misleading.

After a few weeks, months or years, they lose their power to shock and we come to accept what happened as just another data point.

They seem less scary then, and we return to believing we know what’s going on.

But do we?

Something else we don’t expect is already waiting in the wings.

Back yourself

You don’t need predictions from a talking head about where the market is going to go in the next six months.

Nobody really knows is the fact of the matter.

Deep studies have proven that rules of thumb for forecasting the market don’t work.

In general, some people are just better at talking like they know what’s going on than others – especially if they also happen to have been lucky recently.

Equally, you don’t need me to tell you to stick to your volatile equity allocation because the stock market will come good in the long term.

You need to be able to find that voice for yourself.

I love it when a plan comes together

The reality is you cannot be certain that even a well-diversified All-Weather portfolio will eventually deliver the returns you expect it to.

If you’ve done your planning properly then the chances are it will.

But it might not.

You have to understand that investing is the ultimate example of our brain’s capacity to anticipate the future and contemplate uncertainty (as opposed to living on your monkey brain’s fight-or-flight wits) but also that to prepare for the future is not to claim to predict it.

You need to create a financial plan that reflects this reality. Take your time.

Your plan should be:

Beyond that, it’s your plan, and it needs to be specific to you.

Whatever it becomes, you need to be able to stick to your plan when times get rough.

Not because things might not be rough for a reason – who knows, the boat might well be sinking – but because it was your best, most rationale, most well-considered plan that you devised on a calm day when you were thinking straight.

The chances are that if things now seem rough enough to give you second thoughts then you’re also being emotional.

That will play havoc with your perceptions and decision making abilities.

Better to act dumb.

What have you signed up for?

Lash yourself to your plan like Odysseus had his men tie him to his ship’s mast.

That way you should avoid throwing yourself into the sea.

Why not stuff your ears with metaphorical wax if you’re a passive investor, too?

Odysseus had his men do that, so they avoided the sirens’ song altogether2.

Treat your investing like you buy your house – just get on with it, month in, month out, and don’t panic at every headline.

When I asked my co-blogger how he was doing during the last wobble, he told me that he was feeling fine, but that it might be because he hadn’t actually looked at his portfolio for several months.


Is that wise? It’s at least worth thinking about.

His investing runs automatically. It will go on like a robot slave, shunting money from his bank account to his diversified passive funds regardless of his opinion about the front page of the Financial Times.

It will throw money into the abyss if it comes to it.

Some will say that’s madness. Others will say it’s the height of passive investing wisdom.

I say it’s a plan. It’s his plan, and that’s why he can stick to it.

What’s your plan?

  1. Assuming Gandalf didn’t turn up again with those elephant-sized EasyJet eagles to airlift them to their next destination. []
  2. A precaution Odysseus skipped over himself, presumably for the sake of a good story []

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{ 62 comments… add one }
  • 1 theRhino August 26, 2015, 11:13 am

    perfectly timed post – very soothing

    i like to think of the rebalancing of lifestrategy funds automatically exploiting these situations while i do nothing

    regardless of whether it is or not – definitely makes me feel better

  • 2 John B August 26, 2015, 11:20 am

    A big problem with trying to time markets as a private investor is you don’t have the tools the big boys have. You have delayed figures unless you pay for them, you can only get spot prices with ETFs and individual shares, with the latter having a burden of tedious annual reports and piddly holdings. The easier to use funds have daily valuations and the uncertainty of when in the day you can place a deal to get the next price. And you are paying dealing fees corporates don’t.

    Put your money in when you’ve got it, take it out when you need it, don’t fret inbetween.

    A falling market still makes me sad though

  • 3 MyRichFuture August 26, 2015, 11:37 am

    I’m somewhere in the middle between TA and TI. I do keep an eye on the markets but only to take advantage of any drops by increasing my regular investments. Panic selling is totally irrational when you’re in the accumulation phase.

    Liked the mythology reference by the way, especially the plot hole!

  • 4 magneto August 26, 2015, 12:00 pm

    You are asking us US !”What’s our plan?”!!!
    We look to Monevator for inspiration!

    Our plan : To make haste slowly, very slowly!
    To keep in mind the valuations for developed markets e.g. S&P :-
    Hope link works!

    Monday our valuation based IPS plan was suggesting shifting a max of 12% of portfolio into stocks in gradual increments; had previously been suggesting a 5% shift into stocks.
    But as believers in gradualism and not approaching any target in a rush; and believing also that markets were nowhere near any bottom in valuation terms especially for developed markets, activity was directed at shifting about 0.4% of portfolio into Asia Pacific and Emerging Markets (some overlap) our holdings that had were suffered the most.

    Week by week we will be executing a similar exercise.
    Downside? We rack up dealing charges more than most, but the benefits seem by far to outweigh the charges.
    Note : When markets are trading sideways we see very little buying or selling.

    Opinion (always dangerous) : This could just be the start of a long drawn out process, the long overdue bear market.
    Plan : Keep to plan regardless, ignore own and others’ opinions.

  • 5 Sam August 26, 2015, 12:04 pm

    Fantastic writing Monevator!

    I noticed a lot guru’s love announcing when their predictions comes true. Yet only a fractional amount of the total predictions they do make do ever occur and since over a long enough timescale most cyclical markets will have boom/busts if they keep predicating ‘a stock market crash’ long enough the day it does occur (regardless of their economic skill) they still come across as a modern day prophet!

  • 6 The Investor August 26, 2015, 12:06 pm

    Follow the links in the article for numerous sources of inspiration! 🙂

  • 7 Edmund Blackadder August 26, 2015, 12:25 pm

    Quoted and briefly discussed on Monevator…I feel like I’ve arrived…

    I’m still trying to understand my emotions around this, because quite frankly, I was expecting to be sick to the stomach with watching all those months and months of steady growth wiped out in a week. Maybe it’s because i’m a superannuated public sector worker who can – ultimately – afford to lose that ‘spare’ wealth?

    I do think it’s more to do with the constant hammering of blogs such as this though.

    I still read the financial pages and google the past tips and ‘sure bets’ of various commentators to show myself – again – they’re doing little more than guess. Badly.

    Cheers all.

  • 8 Mathmo August 26, 2015, 12:43 pm

    The markets are down? I hadn’t even noticed.

  • 9 Fremantle August 26, 2015, 1:05 pm

    I took control of my wife & I’s SIPPs just under a year ago and whilst our returns have been in the negative, the only thing I regret is making some boneheaded decisions from not understanding the trading charges. Mind your platform and trading charges people!

    By happy coincidence, I managed to capture a fair whack of the price dip in emerging markets through regular investment rebalancing. No market timing required.

  • 10 Lee August 26, 2015, 1:08 pm

    I’m actually quite grateful for this little drop – things have been getting out of hand recently. OK, I’m totally underwater on pretty much everything now, but it’s a good opportunity for things to cool down a bit.

    I have another 10-20 years of investing ahead of me.

  • 11 Neverland August 26, 2015, 1:47 pm

    I think its a good idea to save a lot of money in a broad range of low charge investments over decades to be sure

    But is a plan just a bunch of platitudes in Excel instead of Word?

    The real world has a habit of smacking a financial plan in the mouth and taking all its pocket money

    When I read many blogs or articles about saving the urge to save is hard wired into the writer from childhood

    The “plan” is the product of the urge but the urge is not the product of the plan

  • 12 Moongrazer August 26, 2015, 2:57 pm

    Will make for an interesting Slow & Steady update for end of September, I suspect! (Of course, markets being markets, it could just as well swing up 10% by then.)

  • 13 Dave August 26, 2015, 3:24 pm

    Thanks for this! I was waiting all day for a bit of Monevation.

    I was also tempted to take advantage and do some purchases, but after a chat with the good doctor ‘er indoors, we both figured that we don’t have that much cash lying around right now, so also did nothing! And actually felt good just sticking to the plan – is it the right plan? I’ll let you know in 20 years!

    Great post.

  • 14 Dawn August 26, 2015, 3:28 pm

    I was eagerly waiting to see The Invester’s response to the recent volitilty.
    True, what he says , we really don’t know what will happen ,we,ve only got history saying that markets will go up again. You have to make the best investment decisions to do what you think is right and best at the time , that’s all you can do. If all our investing goes belly up in the future then we wont be alone, there will be a lot of people in the mess aswell!

  • 15 rhinestone August 26, 2015, 4:05 pm

    Great post!

    The hard part here can be pushing back against perceived opportunity.

    My plan is to get to a retirement income derived from govt pension plus (small) final salary plus defined pension contribution pots plus a mixture of ISA equity and asset allocation contributions.

    Walking away from the temptation to plough back in to equities seems hard (!) given that perception that the market is cheap but the final part of my plan now has to be to up the amount of hard cash I have – the hard part of accumulating sufficient funds in pots and ISAs for an income is done – I just need to build up more cash backfall such I don’t have to forcibly sell funds once in retirement (or drawdown at too high a level).

    Therefore my plan has to be pay down remaining debts (mortgage – well on course) and build a bigger cash buffer – a conservative draw down approach on top of guaranteed pension should then provide a good income with a fairly high degree of certainty.

    Having a longer term plan amid the market noise and disruption helps maintain equilibirum in such times and guide decision making.

    How much income you need and how much certainty can you achieve on that income post-retirement are key questions in my planning process.

  • 16 The Accumulator August 26, 2015, 7:45 pm

    @ Neverland – Not so! I’m a born again saver. Faith born from plans that gave the sacrifice a purpose.

    @ All – Great to see so many stoic comments on here. My monkey brain is currently shackled by the weight of good advice picked up over the years. No need to panic when you know this is perfectly normal.

  • 17 Tyro August 26, 2015, 8:10 pm

    I’m pretty relaxed about it. Let’s face it, prices are only back where they were a year or two ago, and I didn’t feel the need to hyperventilate about them then.

  • 18 Marco August 26, 2015, 9:17 pm

    This is my plan. Accumulation phase.

    My equity portfolio is down an eyewatering amount.

    I am cashing out my full premium bond holding after the prize draw and putting it all into VWRL. Hopefully the markets don’t bounce up too quickly.

  • 19 Mathmo August 26, 2015, 9:51 pm

    Lovely post, TI. I’ve got over my Andie MacDowell moment and the markets are most definitely interesting at the moment.

    I find it fascinating that you were prepared and ready for the drop: waiting behind its door with club in hand, so to speak, but when it burst in you were still surprised into inaction by it. For me this harks back to some of the discussion we’ve had previously about timing market peaks/troughs — how ludicrous it is to pick a date like Dec 31 1999 when reviewing performance (or Mar if you are a NASDAQ-phile) and talk about how long it takes the market to recover.

    Will we in 6 months be talking about how the FTSE100 has risen x% from its August nadir, picking some elusive point on Monday afternoon that even our cheerleader-in-chief couldn’t nobble as our benchmark? That will be as equally deceptive as the headlines of the market not moving for 15 years (even ignoring protestations about dividends).

    Odysseus didn’t block his ears because that master of cunning had taken the advice of the tricksy goddess Circe (who was only just outwitted from lopping his little Ulysses off) — who had come up with a way for him to live and also to listen to the sweetest singing that was ever sung… He fancied enjoying it, presumably while his index-trackers were gaining in value back on Ithaca.

    I’ve taken the opportunity to tidy things up a little, unwind an embarrassing position I was sitting on and take a long look at whether I am both happy for the market to go up another 10%, or to take the next leap down the cliff…

  • 20 magneto August 26, 2015, 10:52 pm

    Update : noticed US heading up this pm while FTSE down, so addded to one of our old friends highlighted recently for retiree income by the Greybeard, the UK Investment Trust CTY. Just moving back a little after previous higher sale.

    Brett Arrends of MarketWatch, which is generally full of suspect articles, had this to say today :-

    “Always buy in a panic.
    If you’re worried things will get worse, just buy little and often. That worked even in the infamous crash of 1929-32. So long as you kept buying all the way through, you ended up making out like a bandit.
    Good quality overseas markets like Hong Kong HSI, -1.52% and Singapore STI, -0.46% and little old New Zealand NZ50GR, -0.63% — an incredibly successful and stable country with some of the world’s best public finances — have just erased years’ worth of price gains.
    And many of them look pretty cheap on long-term valuation grounds. As a general rule, in these sorts of situations one should be buying, not selling.
    I’ve been buying global stocks, including in emerging markets, not just U.S. I’ve also been buying global resource stocks and real estate stocks. And I must confess I still have plenty of money that isn’t in stocks.
    Will stocks get even cheaper? Maybe. But as Jeremy Grantham brilliantly put it at the bottom of the 2008-9 crash, if you see stocks that you believe are cheap and you don’t buy them, you don’t just look like an idiot — you are an idiot.”

    For once in full agreement with a MarketWatch view, esp “have plenty of money that isn’t in stocks”.

    See US finished up about 4% tonight. Now that’s volatility!

    Good luck to us all in these trying times.
    All Best
    Magneto (aka Magento)

  • 21 L August 27, 2015, 7:32 am

    Ashamed to say that I blinked!

    Had one of those panicked moments where my best laid plans seemed to be gang awry at a rate of knots and sold a chunk of various trackers for low £££££ (a £500 loss).

    The money was needed for a house purchase and shouldn’t have been withdrawn at all, but doom is more tangible when it’s veneered over a pressing real life event (i.e. buying a new home).

    This has taught me two things. 1) Have a bigger cash fund (real life gets in the way) and 2) be more realistic with house prices

    Will get back into the saddle as soon as we make an offer on somewhere, somewhat abashed 🙁

  • 22 London Rob August 27, 2015, 8:30 am

    Great article and very good timing! Its also nice to see all the other comments around here and see that I am not alone! I am in the accumulation phase right now, so I have tucked in a little to some more. Otherwise, I will just keep checking at the end of each month when my income goes into my ISA what is a suitable purchase for my portfolio and keep adding – I have at least another 10 years so now is the time to buy cheap. Yes it hurts seeing a number of my holdings in the red, but I take comfort from the fact that I am not the only one out there, but I am holding firm!


  • 23 Andy@Tacomob August 27, 2015, 4:13 pm

    As long as the vast majority of the 7.3 billion (or so) co-inhabitants of this wonderful planet do wake up in the morning and want to built a better life for themselves the economies will grow, and when the economies grow businesses grow and their stock prices will follow.

    Be aware though stock markets can lead or lag the economy for years.

    Whoever held shares for minimum 15 years, would have never made losses. And this goes back to 1870.

    And while waiting we could focus our attention on managing our emotions and learning more about our cognitive biases that make us do dumb things with our money.

  • 24 TheGreybeard August 27, 2015, 4:42 pm

    @The Investor: I did not blink, but bought another decent-sized dollop of Aberdeen Asian Income. (AAIF) That said, I didn’t invest all that I could have done. I still have cash left, and I’m trying to persuade myself that we’ve not seen the end of it yet.

    @ Everyone else: Even if you held back, or sold, this has been a useful reminder/ learning experience. Three of my favourite quotes from Morgan Housel:

    1. Saying “I’ll be greedy when others are fearful” is much easier than actually doing it.

    2. Markets go through at least one big pullback every year, and one massive one every decade. Get used to it. It’s just what they do.

    3. There is virtually no accountability in the financial pundit arena. People who have been wrong about everything for years still draw crowds.

  • 25 The Investor August 27, 2015, 5:16 pm

    Great points Greybeard, and thanks to all those who’ve added their thoughts — especially those who’ve admitted to blinking.

    It’s always hard to admit these things.

    To be clear I have committed fresh capital to equities, although the balance of the new money won’t finally hit the relevant account until tomorrow, sadly. Also my active trading means I do a lot of ‘blink and you’ll miss it’ switching (e.g. swapping an illiquid small cap for a liquid yet riskier higher beta large cap) and other such nefarious stuff.

    But I really wanted to admit in this piece how someone who is mildly obsessed with the stock market and who finds the whole thing great fun (I don’t mean that glibly — as I’ve explained before, it’s partly of my motivation for being active) — how someone like that can still be utterly paralyzed in the face of volatility, and miss, as @Mathmo says, some really grand bragging rights for what their worth… as well as more importantly some very speedy gains.

    It’s a great idea to keep an investment diary and to write you’re reasoning down, if you’re anything other than an ‘ignore the noise’ passive investor (and there’s nothing wrong with being that, of course — quite the opposite). It keeps you honest, when you start seeing everything through the spectacles of hindsight.

  • 26 Gregory August 27, 2015, 6:03 pm
  • 27 Jocelyne August 27, 2015, 6:24 pm

    Ha! I chose this week to decide to set up an online investment account for the first time after considering it for ages! Analysis paralysis has not improved this week. Now I am totally confusticated!
    As I have no stocks or shares at the moment and was considering an index tracker fund – maybe through an isa- I suppose I am in no worse position but I wonder now if I should or shouldn’t be looking at Asia to invest in or not? Anyone have a simple opinion on that?

  • 28 Richard August 27, 2015, 8:28 pm

    As someone who’s fairly newish to this investing malarky – about three years? – I haven’t been panicky about this little dip. I plan to keep adding monthly to Vanguard Lifestrategy 80% for about 30 years. I can be afford to be a bit supine.
    Also, something of a relevant article?

  • 29 Minikins August 27, 2015, 9:19 pm

    Thanks for another great humbling dose of financial agnosticism. I’m sure everyone needed some of this.
    @Edmund Blackadder -yay! In the Monevator annals at last! (that sounded wrong :|)

  • 30 The Investor August 27, 2015, 9:32 pm

    @Jocelyne — Have you considered the advantages of a global tracker fund? There’s always some part of the world that looks in trouble, some part too expensive, some part that looks temptingly cheap but you only find out why later. If you’re not going to muck around trying to be cleverer than the market (a very wise decision, given that most people — professional and amateur — fail at it) then by using a global tracker you get away from all these worries and just go with the global flow.

    See these two articles:



    Not personal advice, I can’t give that, but some food for thought and further reading. 🙂

  • 31 John B August 27, 2015, 10:03 pm

    @Jocelyne If starting from scratch the simplest option is a UK tracker, as it removes the uncertainty of currency changes, which could be in your favour, or could not. It would allow you to see what happens with the FTSE reports in the finance headlines rather than burrowing into more detail. There is always merit in coupling your investment to your own country, as thats where you will be spending it, later on you might want to diversify to other countries to spread risk. Asia is complicated, and not where I’d start.

    The tax position doesn’t give ISAs any advantage for small sums, but its worth using your allowance each year to build up a pot.

    You will need to look at how you buy your fund. Some brokers charge flat fees, some percentages, the latter is better for small sums. High street banks have arms that sell funds, they also own semi-independent brokers, and there are completely indepemdent ones. Picking the one with the best interface and best charges for your situation is worth spending time over

  • 32 magneto August 27, 2015, 10:56 pm

    “I suppose I am in no worse position but I wonder now if I should or shouldn’t be looking at Asia to invest in or not? Anyone have a simple opinion on that?”

    Would second the advice given by The Investor to start with a global tracker.
    My comments above relating to Asia apply only to a small part of our portfolio. Our core fund is VWRL a global exchange traded fund, onto which are bolted smaller satellite holdings to cover world regions and commodities (income). The Accumulator uses a slightly different approach with The Slow & Steady Portfolio which is definitely worth studying and if starting out today I might well adopt.
    If starting with just a single fund then maybe first a Global Tracker and perhaps add later a UK tracker as suggested by John B. But be aware there seems very little consensus here or elsewhere as to the best ratio between Global and UK (which overlap for many funds).
    The currency issue is interesting.
    Trust this clarifies.

  • 33 Jocelyne August 28, 2015, 8:57 am

    Thank you all for your comments, it helped a lot.
    As I am investing in a small way with a monthy amount my thought was that I would start with a tracker/s and move it into an isa when it got to an amount worth worrying about. Is that naive of me? I am re building my world after bankruptcy 5 years ago so I have no taxable investments or meaningful amounts as yet.

  • 34 SemiPassive August 28, 2015, 9:01 am

    Thanks for a refreshingly honest piece. Events like the this week – combined with the week before – serve as a useful stress test for portfolios and your personal psychology.

    I reacted by doing nothing, as I had no dry powder going spare. My cash largely being tied up in 2 year fixed rate ISAs, and I did consider rotating a tiny amout in a strategic bond fund (which was completly unaffected by the crash) into equities but as I was below my target allocation in it anyway, decided it was not the right thing to due.

    The key thing is I didn’t sell anything. This is the most money I’ve had invested in shares, way beyond 2008/2009. I’ll be honest, I didn’t feel entirely comfortable and having a fair chunk in Cash ISAs helped. Although looking purely at your SIPP value is still a shocker.

    Holding bonds didn’t really help any more than cash, they climbed a tiny bit but nowhere near offsetting the loss in shares.
    So that kind of vindicated my decision to use cash and an active strat bond fund over gilt tracker ETFs.

    But over the next few years I will gradually introduce them, especially if they start yielding 3%+ again.And some inflation linked bonds. And some gold, and maybe even a property fund. Why? Because as you say, anything could happen.

  • 35 Topman August 28, 2015, 9:19 am

    @Jocelyne – “….. move it into an isa when it got to an amount worth worrying about …..”

    Remember though that your annual ISA allowance is “use it or lose it” and it’s folly not to employ it, cash or s&s and partly or wholly, if you can. You can convert a cash ISA into an s&s ISA at any time.

  • 36 Tim G August 28, 2015, 9:41 am

    Lots of bargain hunters out there, apparently!

    I’m not in shopping mode myself, but following the news gives me an opportunity to test how I feel about my plan. I have a pretty bog-standard passive 60/40 portfolio: diverse equities (FTSE, Dev. World and emerging market funds), a REIT fund, a UK gilt ETF and a chunk of what should have been gilts in a cash ISA instead.

    My conclusions so far:

    Confirmation that I can take a bit of a hit without having a meltdown or selling all my shares. I hope I will be as sanguine if/when markets fall by 50%!

    A useful reminder of why I hold bonds and cash. What would have been a >15% loss on a 100% equities portfolio is <10% on my 60/40 portfolio.

    Confirmation that my diverse equities are not behaving in a very diverse manner! Not sure what, if anything, to do about this. Not convinced by assets that don’t seem to offer returns (gold, commodities), or investments disguised as savings products (yes, P2P, I mean you!).

    Two questions for the future.

    Will I feel happy holding more volatile emerging market equity as I approach retirement? Probably not. Happy to keep it for now and rebalance into it when due, but may taper it down as retirement approaches. Lifestyling is not just about the balance between equities and bonds.

    Would I be happy to have to sell equity in a falling market in order to fund retirement income? It’s easier to get a feel for this when the market is actually falling, and I don’t think I have the nerves of steel that would take. So I will keep reading Greybeard’s deaccumulation posts.

    And finally… I suspect this isn’t over yet.

  • 37 NearlyThere August 28, 2015, 10:07 am

    @Jocelyne: If you put it in an ISA, you should not have to fill out any tax forms. Ever. Neither income or capital gains. Well, until a government fiddles with the rules. Although current income may not push you over an income tax threshold, what of the future? Although you may currently not expect a notifiable gain (or useful loss), what of the future? The tax benefits of ISAs aren’t limited to the money, but extend to the bureaucracy, and currently last a lifetime. Weigh up any additional (recurring) platform fees against against your desire to do future paperwork consolidating information from each and every transaction done outside a tax wrapper (eg ISA, SIPP).

  • 38 John B August 28, 2015, 10:20 am

    When retirement was 10 years and you bought an annuity to cover it, reducing risk up to R-day was a good idea. With retirement likely to be 25-30 years, I think you should be more aggressive early on, and expect to sell in a falling market, as you need to stay in it to fund the latter (and more expensive, with nursing care) part.

    I suspect the classic 100-age % in equities rule should be revised up as we live longer.

  • 39 Fremantle August 28, 2015, 10:30 am

    @Jocelyn Have you read Tim Hale’s Smarter Investor? Or even Lars Kroijer’s Investing Demystified? Both are good introductions, but I edge towards Hale.

    As per NearlyThere, and as TI’s post http://monevator.com/get-an-isa-life/, get yourself an ISA.

  • 40 @algernond August 28, 2015, 12:57 pm

    Not sure why John B is advocating selling in a falling market. Doesn’t this go against all that we have learned from Monevator?

  • 41 John B August 28, 2015, 2:33 pm

    @algernond you buy when you have spare cash, sell when you need it. Market timing is very hard for a private investor, and quite stressful, it always feels a bit like gambling to me, and personally I don’t gamble because my annoyance at losses outweighs my pleasure at wins.

    So if you don’t need the money, ride it out, rather than crystalise a loss when the market falls, and hope to buy in again after further falls. You are more likely to miss the turnaround and only catch things when they’ve gone up past your selling point.

  • 42 krismarett August 28, 2015, 3:01 pm

    Much like @Edmund Blackadder I have been surprisingly calm during this blip…and its my first since I started investing about 18 months ago. It does make it easier when you have 20 years + horizon in front of you. If I had been about to retire I may have blinked for sure!
    As it is I see the logic in the article about if you have spare cash trying to time the market. My monthly fund purchases automatically happen on 24th of each month, and due to the fact I had a spare couple of hundred left over this month (for reasons I wont bore you all with) I did top up my monthly payment. It was weirdly satisfying to see the price I paid well below the ‘average price’ shown on my platform.

  • 43 The Investor August 28, 2015, 3:10 pm

    @krismarett — Good stuff. Just to add, you write:

    It does make it easier when you have 20 years + horizon in front of you. If I had been about to retire I may have blinked for sure!

    Just a reminder to everybody that this is why you will probably* want to reduce your equity exposure and increase your bond/cash exposure as you approach retirement. The concrete worry is Sequence of Returns risk, but there’s also the psychological factor that you don’t want to put yourself in a position where you’re tempted/forced to sell to stop the damage because your time horizon to retirement is very short.

    See these articles for starters:




    *Yes, dear contrary reader out there, your situation might be different if you’ve a £1m retirement pot and no need to draw from it or you’re going to inherit a mansion at 65 or you have the risk tolerance of a Kamikaze pilot and you’re happy to live on dog food in a worst case scenario or you strongly believe you’ll work until 80 and live until 110. As always, these are guidelines and rules of thumb. 🙂

  • 44 The Investor August 28, 2015, 3:17 pm

    @Jocelyne — An ISA is just a wrapper. You can (and we all do! 🙂 ) invest in tracker funds within an ISA. I would strongly suggest anybody use ISAs at all times.

    Except for a few outlying cases that I wouldn’t let sway me (e.g. ultra cheap new brokers who may not stick around but who anyway don’t offer ISAs) there is basically little to no extra cost to investing in an ISA versus a plain dealing account.

    So as others have kindly chipped in, an ISA is really a no brainer.

    The other key is to get started. 🙂 One can finesse later. I always think new investors shouldn’t be shy about keeping lots of cash back until they get their confidence up, although people usually argue with me about this as it’s not optimal if you’re saving for the long-term. However it’s not all about maths, there’s also emotions to think about. Cash is very psychologically reassuring, and having cash on hand that you save and don’t spend is a good discipline to learn.

    See: http://monevator.com/what-should-a-new-investor-do/

    Good luck. Beware that investing and growing your wealth can get addictive!

  • 45 Mathmo August 28, 2015, 4:29 pm

    A quick confession on the “shove it all into equities” / “this isn’t a cliff” / “oh god that’s further than I thought it would go” / “yikes it’s back up and looks expensive” conundrum.

    It strikes me that the answer — predictably (TI – pass me the songsheet, if you would, dear chap — I’d like to sing from it for a bit)– is to have a plan in advance.

    I recently switched my rebalancing strategy to one which triggers a trade when an allocation moves more than 5% absolute or 25% relative to it’s own target weight. This means when the market drops there’s a clear point where one of the allocations turns red on the spreadsheet and you place a trade. Regardless of whether the market has further to fall, or whether it has hit the bottom, you get the green light to trade it back into line.

    If the market then really does go off a cliff, you’ll get the green light again later, no need to worry about whether it’s the bottom or not. No trigger shyness. You don’t get the best price, of course. But you do get a price. The goal is “good enough”, not “perfect”. So I think that’s why it’s perfectly rational to buy in a falling market: you’re banking some gains and you might bank a few more later. You don’t go “all in” — just enough to bring it back into line.

    Of course it wouldn’t be a confession if it ended there. I tilted my allocation when it went down further and bought some more. But I have made myself a promise for when I’ll tilt back. *hands back songsheet, walks off to sit on naughty step*.

  • 46 Pete August 28, 2015, 4:37 pm

    Just seen the European closing bell for main markets and the Indices for FTSE, DAX & CAC are more or less the same as a week ago!

    What correction?

    Shows validity for ‘Don’t panic’ directive.

  • 47 The Investor August 28, 2015, 5:19 pm

    @Tim G — Sorry, I meant to say I really like what you’re doing there. Not panicking or taking actions you wouldn’t normally take, no, but still saying “What am I learning from this experience?”

    I think that’s really good behaviour — as I said, make some notes and think about. If in six months someone decides that actually they can’t take as much risk as they thought, and so reduces their equities a little — or perhaps directs more new savings towards cash/bonds — then that’s a valuable takeaway from a bumpy period, and a sensible re-calibration. 🙂

    @Pete — True, but let’s all remember markets do go down. A good rule of thumb is one-in-three years the market will be negative. That’s quite often, so while you’re quite right to point out this period has (for now) ended flattish, the lesson certainly shouldn’t be “put up with volatility for a week and you’ll be fine.”

    (I know you weren’t saying that, just a reminder to all reading. 🙂 )

  • 48 david August 28, 2015, 5:28 pm

    @Andy@Tacomob “Whoever held shares for minimum 15 years, would have never made losses. And this goes back to 1870.”

    Past performance is not a guide to the future. What do you mean by “shares”? Which shares? So anyone who “bought shares” in any nation and held these shares for 15 years never made any losses, ever? And you’ve proven this for every 15 year space of time since 1870 in every nation? Show your work.

    Your statement is easy to disprove – I think 1954-1974 saw negative stock returns in the UK for example, 20 years of negative returns. Japan and Germany went to zero from 1945-48 due to war damage and hyperinflation, they had no stock returns from 1900-1950 (fifty years I believe). China went to zero in 1949, zero stock returns from whenever the stock markets started in Shanghai to 1990 before Shanghai reopened.

    Your statement is rather odd without context. I think you MIGHT mean a theoretical total USA index going back to 1870, something that never really existed for the public until the 1990s when Vanguard’s Total Stock Market Index fund arrived.

    Theoretical stock returns since 1870 ignores the huge fees that used to exist in the broker industry and fund industry before the 1980s. No one could get the index return before the Total Stock Market fund arrived. Returns would have been better in the 1800s maybe when hardly anyone was in the stock markets, leading to better dividend yields for the few who were in the markets, plus population growth was much better especially for USA, and faster population growth helps stock markets.

    “when the economies grow businesses grow and their stock prices will follow.”

    not necessarily true at all, it’s possible for economies to grow for decades with negative stock returns. a certain east-asian nation for the last 30 years for example. japanese businesses continue to grow regardless of the vagaries of the Nikkei 225 (a lot of businesses are PRIVATE with no share price as such, share prices are irrelevant to most business owners).

    If you’re going to advertise your site in comments it might be wise to have some CONTEXT to your statements instead of repeating what seems to be a USA-biased line that ignores how even Americans never got the index return until recently.

    OK, searching your site gets this little gem:

    “Could it be that you/they are neglecting prior base rates and focusing too much on recent media hyped news about stock market corrections, which are actually insignificant in the long run?

    And by that ignoring the long term upwards trajectory of all stock markets?”

    ALL STOCK MARKETS??!?!?!? Your statement is beyond ludicrous and goes into the realm of incredibly misleading nonsense.

  • 49 david August 28, 2015, 5:35 pm

    “I think 1954-1974 saw negative stock returns in the UK for example, 20 years of negative returns.”

    by this i mean the 73-74 crash was so huge that it wiped out 20 years of previous gains. after broker fees i doubt many british share-holders made money from 54-74.

  • 50 Jocelyne August 28, 2015, 5:46 pm

    @topman @nearly there @Fremantle @ Investor
    Thank you so much. 🙂
    I have been wondering about the ISA and feel much clearer now – a big help and great advice for me to look into. Thanks again.

  • 51 Topman August 28, 2015, 6:37 pm

    Are we not back on the discussion we had recently about the vagaries of the Chinese stock market; its very high proportion of retail investors and their propensity to panic, herd-like? Perhaps, other markets will progressively “work the Chinese market out”.

  • 52 The Investor August 28, 2015, 7:08 pm

    @david — It’s fine to discuss different points of view here but can you dial down what’s IMHO the aggressive tone please?

    It doesn’t make for pleasant reading, distracts from your argument, and is not conducive to encouraging comments from others.


  • 53 Jaygti August 28, 2015, 7:31 pm

    I’m not really sure what happened to me over the past week or so. I was either timid or greedy.

    I’ve had a fair sized lump sum sitting in my sipp since march, but I’ve never really seen a good home for any of it, as every thing seemed a bit pricey.

    I invested a very small amount during the Greek crisis, but this was the moment I’d been waiting for.

    On Monday I invested about 10% of the lump sum in various trackers just in case, and waited for the stock markets to fall further before I invested some more……

    So I’m still left with most of it just sitting there doing nothing.

    As I write this I actually think it was timidity that stopped me as I would have been disappointed to have lost a lot on something that I had only just put money into.

    Happily this problem shouldn’t happen anymore as this tax year onward I’ll put enough in my sipp each month in the correct allocation so I won’t have to dump a lump sum in to get out of the 40% tax bracket every march.

    By the way great site,and comments everyone.

  • 54 Andy@Tacomob August 29, 2015, 4:11 am

    @ David
    Hi David, thank you for taking the time to critically analyse my apparently too brief and misleading line. My bad.
    I should have mentioned it as follows:

    “Whoever held shares for minimum 15 years in the US stock market, would have never made losses (adjusted for inflation by the consumer price index and dividends re-invested). And this goes theoretically back to 1870 (using the methodology of the S&P 500; in 1870 there were only 10 stocks in the index).”

    You are also correct that Japan is an outlier. For me that rapidly ageing country with zero population growth in the last 15 years classifies as the exception to the rule.

    That post of mine you quoted from begins with: “Warning: Don’t read on when you are 40 years and above!” So that “long term upwards trajectory” is over 25+ years.

    We can’t predict the future and we definitely cannot simply extrapolate the past. Nevertheless to calm our emotions we can learn a lot from history. We just can’t take it too far.

    I strongly believe that investing is more about patience and discipline than timing and hectic moves (of course always being prepared for the occasional Black Swan Event by keeping some Put Options).

    Thanks again, David, highly appreciate your comment.

  • 55 PC August 29, 2015, 11:28 am

    My plan, if you can call it that, is to look at some very long term charts on a log scale, for a bit of context

  • 56 The Accumulator August 29, 2015, 7:56 pm

    @ Tim G – too right about so-called diverse equities. When there’s trouble oop markets, correlations tend towards 1 and equities tend to be highly correlated most of the time anyway. It’s only really your bonds that tend to rock when equities roll. Gold generally uncorrelated but like you I don’t have anything to do with it nor commodities – no evidence of long term return and plenty of problems with available products when it comes to commodities.

    @ Jocelyne – One way to look at emerging markets is: if you thought they were a good deal before then they are even better value now. But another way to look at is: they are highly volatile – even more so than developed world equities – so perhaps not ideal for an investor’s first dip into the market. Take a look at the Vanguard LifeStrategy funds – they do include a small slug of emerging markets for diversification but not much.

  • 57 The Accumulator August 29, 2015, 7:57 pm

    Btw, love this thread – so good to read about everyone’s experiences and am enjoying the mutual support vibe.

  • 58 Investing Tortoise August 29, 2015, 11:18 pm

    @The Accumulator, yes, I am really enjoying this thread too.

    I like the idea that you don’t check your portfolio for several months at a time. I am not quite that good. I value mine once a month when deciding what to do any spare money from my salary, after my bills have been paid. (I am still in the accumulation phase.)

    For many months now I have been directing my saving into risk free assets. This month when I do a valuation over the long bank holiday weekend, I think it will be going into equities (via a cheap tracker of course), as my equities will probably be below weight. This allows me to re-balance on the go each month.

    Having just look at the markets over the last month I doubt I will need to do more than that to re-balance towards my chosen allocation.

    I definitely agree with having a plan and sticking to it and don’t worry about the bumps in the road, it is sage advice.

  • 59 John B August 29, 2015, 11:55 pm

    Am I right in thinking that any plan needs to include keeping all transaction details? For dividends the income tax return preservation period is short, but for capital gains I guess the period could be infinite. HMRC guidance is not clear for CGT.

    I try and keep things for the lat 7 years, and even though I do quite few transactions a year this becomes quite onerous.. Do they require printed contract notes/tax credit statements, or would they ask the companies involved if you gave an outline? How do active traders cope?

  • 60 Topman August 30, 2015, 11:01 am

    @John B

    As a retired finance professional, experience shouts at me, “keep or weep!” 🙂

  • 61 The Accumulator August 30, 2015, 11:17 am

    @ Investing Tortoise – sounds like you have a good system that works for you. Have discovered that the less I look the happier I am. It had to be a conscious decision though. I had to train myself to feel like I was letting myself down if I look. Equally I reward myself by internally praising my the ‘strength of my willpower’ if I resist a peek. I’ve gamified not looking I guess.

    @ John B – I keep all contract notes, download statements every 6 months and note transactions in a spreadsheet. Agree that it is painful – I inevitably seem to end up doing it with bloodshot eyes late at night or on a blissfully hot Sunday afternoon when I should be out playing 😉

  • 62 The Accumulator August 30, 2015, 11:19 am

    @ Tim G – good piece on equity correlations going to one: http://awealthofcommonsense.com/when-correlations-go-to-one/

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