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Stay in cash or invest now?

Including Financial Independence and Retiring Early (FIRE)
Seasidesenior
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Stay in cash or invest now?

#514284

Postby Seasidesenior » July 14th, 2022, 2:10 pm

I'm not a novice investor, but I'm really struggling at the moment as to what to do and would appreciate advice from you good folk out there. In March, I moved a 400k pension from St James Place to an Interactive Investor SIPP. The transfer was in cash and it is still sitting there in cash. I'm aware that with the rate of inflation so high, this will erode its value. On the other hand, I'm reluctant to invest given the current volatility in the markets and a potential recession around the corner. I'm worried about being out of the markets for too long. I have exposure to growth stocks and emerging markets through an ISA. I'm 62 and don't need to draw an income from my pension for some years yet, as I still work now and then, dip into my ISA several times a year and have a fairly simple lifestyle.
Would you sit tight a while longer or invest now and if so, in what?

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Re: Stay in cash or invest now?

#514297

Postby JohnB » July 14th, 2022, 3:25 pm

If you believe in efficient markets, all your worries are shared by others and priced in, so there is no reason to delay. If you will be more upset if you buy and the market falls than if you didn't and it rises, then invest £100k tranches every 3 months. Statistically this will likely to make yoy worse off, but you might feel better

Seasidesenior
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Re: Stay in cash or invest now?

#514307

Postby Seasidesenior » July 14th, 2022, 3:46 pm

Now that you've mentioned it, on reflection, i'm more worried about losing value/wealth preservation than I am about missing out on the growth, so it makes sense to stagger the investments. Thank you.

Dod101
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Re: Stay in cash or invest now?

#514309

Postby Dod101 » July 14th, 2022, 3:50 pm

Seasidesenior wrote:Now that you've mentioned it, on reflection, i'm more worried about losing value/wealth preservation than I am about missing out on the growth, so it makes sense to stagger the investments. Thank you.


And for wealth preservation take a look at the two or three wealth preserver ITs, Personal Assets, Ruffer and Capital Gearing.

Dod

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Re: Stay in cash or invest now?

#514460

Postby JohnW » July 15th, 2022, 12:50 am

Anything might happen to investable asset prices in the near future, up or down, so is there any point agonising over that given the alternative? The alternative is to decide if you’re a long term investor or not; you might live another 20 years, and have a 15-20 year investing horizon, so you could reasonably say you’re a long term person.
The better investment returns for long term investors are likely from stocks and bonds, not cash.
Does it help to make it more complicated than that?

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Re: Stay in cash or invest now?

#514564

Postby airbus330 » July 15th, 2022, 11:53 am

There isn't any answer anyone can really give as your issue is more in the head than in the investment account. As someone who Fire'd in late 1999 and has endured first the rapid Covid fall, followed by recovery and now followed by what could be a more protracted Bear market, I feel your pain. For me, staying about 70% invested thru these events has felt reasonably comfortable, I am keeping 3-5 years cash reserve and riding the bumps with the rest. During the last 3 yr I have learned that about 50% of any decisions I make trying to sell or buy have been some sort of 'wrong' and doing nothing has a lot to be said for it. This year I correctly moved away from Bonds, but the areas I have moved into have not (so far) proved much more comfortable. If you stay un-invested Inflation will have its pound of flesh, invested you at least have the chance of upside sometime in the future.

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Re: Stay in cash or invest now?

#514582

Postby JohnW » July 15th, 2022, 12:45 pm

Your personal observation rings true with the Dalbar research year after year: fund investors’ returns on average are less than the returns of the funds they invest in, because they can’t hold their nerve in the bad times, pile in during market exuberance, or just guess wrong more than right.

xxd09
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Re: Stay in cash or invest now?

#514717

Postby xxd09 » July 15th, 2022, 10:44 pm

You built this £400000 pot by investing in funds with StJames Place
Why would you not replicate these same funds with cheaper equivalents in your Interactive Investor SIPP?
You seem to have been successful so reinvest the money and as the market is down you should come out ahead in time
Is this a reasonable point of view?
xxd09

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Re: Stay in cash or invest now?

#514759

Postby Urbandreamer » July 16th, 2022, 10:12 am

xxd09 wrote:You built this £400000 pot by investing in funds with StJames Place
Why would you not replicate these same funds with cheaper equivalents in your Interactive Investor SIPP?
You seem to have been successful so reinvest the money and as the market is down you should come out ahead in time
Is this a reasonable point of view?
xxd09


There is an obvious problem with this suggestion.

Let us ignore the name or reputation, good or ill, of StJames Place.
Instead let us ask what they promise.

I understand that promise as to MANAGE your investments. They initially invest your funds in a way to attempt to meet your risk profile.
However, here is the thing, the world changes. As it does they change what you are invested in.

Clearly it is not possible to copy their past investments to achieve the same aims in the future. The world has changed.

I SERIOUSLY doubt that what StJames place had them invested in 12 months ago (before the war in the Ukraine) will be a good choice in the next five years. We were not predicting the war, but it is happening. Hence needs considering when making investments now. Any wealth management company would take the events on board and reposition what funds are invested in.

The OP has moved, no doubt for good reasons, to a SIPP. The initials stand for Self Invested personal pension. They now need to make their own decisions as to what to invest in to achieve their risk/reward target.

My last SIPP investment was in Aviva, but I have no idea if it's an appropriate investment for the OP. It's been going through a bad patch for years, I'm buying it as a value play. I also own some Ruffer, one of the funds Dod suggested looking at.

Seasidesenior
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Re: Stay in cash or invest now?

#514937

Postby Seasidesenior » July 16th, 2022, 10:45 pm

Thank you for all of the advice.
As urbandreamer said, I can't replicate the funds that St James Place used. You choose one of five risk profiles and they invest in their own funds accordingly.
I'm following Johnb's suggestion and made my first 100k of purchases yesterday:
F&C IT
RIT Capital Partners
Law Debenture
Personal Assets Trust
Bankers IT
Capital Gearing
Royal London Global Equity
Aegon Diversified Monthly Income
Harbourvest Global Private Equity
Vanguard Lifestrategy 80%

Ruffer Total Return (dod101) is on my list, but I'll wait until that plummet in its share price levels out a bit. Interestingly, in their latest report it says;

'In an episode of surprising and persistently high inflation, no allocation to risk escapes repricing.
This has become clear to public market investors this year and will become clear to private market
investors when their asset managers deign to reprice their private assets accurately (our bet: 2025). An
allocation to cash is an underrated decision in such an environment because it offers the certainty of a
slow loss
. We have talked previously about putting the portfolio into a 'crouched' position - we are now
unequivocally flat on the ground as bullets whizz overhead.'

Thank you again folks.

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Re: Stay in cash or invest now?

#515242

Postby CrackAddick » July 18th, 2022, 10:43 am

Something I hadn't seen mentioned yet, is linked to the fact that your SIPP is with Interactive Investor (II). One of the good things about II is that aside from letting you make commission free regular investments each month, they also don't require you to have a direct debit in place to fund those monthly investments. Which is ideal when you have a lump sum to play with.

So now you have opened positions in your preferred investments, you could continue building them up each month using the free Regular investment functionality, while hopefully the investment horizon becomes clearer.

Hariseldon58
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Re: Stay in cash or invest now?

#515357

Postby Hariseldon58 » July 18th, 2022, 4:19 pm

The suggestion to use the wealth preserver trusts is very sensible.

I really like the philosophy of Capital Gearing Trust and whilst I don’t hold CGT I do have a sub portfolio that is not dissimilar….

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Re: Stay in cash or invest now?

#515363

Postby BullDog » July 18th, 2022, 4:31 pm

Seasidesenior wrote:Thank you for all of the advice.
As urbandreamer said, I can't replicate the funds that St James Place used. You choose one of five risk profiles and they invest in their own funds accordingly.
I'm following Johnb's suggestion and made my first 100k of purchases yesterday:
F&C IT
RIT Capital Partners
Law Debenture
Personal Assets Trust
Bankers IT
Capital Gearing
Royal London Global Equity
Aegon Diversified Monthly Income
Harbourvest Global Private Equity
Vanguard Lifestrategy 80%

Ruffer Total Return (dod101) is on my list, but I'll wait until that plummet in its share price levels out a bit. Interestingly, in their latest report it says;

'In an episode of surprising and persistently high inflation, no allocation to risk escapes repricing.
This has become clear to public market investors this year and will become clear to private market
investors when their asset managers deign to reprice their private assets accurately (our bet: 2025). An
allocation to cash is an underrated decision in such an environment because it offers the certainty of a
slow loss
. We have talked previously about putting the portfolio into a 'crouched' position - we are now
unequivocally flat on the ground as bullets whizz overhead.'

Thank you again folks.

Well done escaping from SJP. I wish many more people would do the same. Personally, I think you’re doing exactly the right thing. But reading down the list of investments you made, I'd have stopped at number 5 and not bothered with any of the others. Myself, I think the top 5 in the list is already highly diversified and I don't think adding the others adds anything at all to the portfolio. Good luck.

Urbandreamer
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Re: Stay in cash or invest now?

#515448

Postby Urbandreamer » July 18th, 2022, 8:43 pm

BullDog wrote:Well done escaping from SJP. I wish many more people would do the same. Personally, I think you’re doing exactly the right thing. But reading down the list of investments you made, I'd have stopped at number 5 and not bothered with any of the others. Myself, I think the top 5 in the list is already highly diversified and I don't think adding the others adds anything at all to the portfolio. Good luck.


I'm not going to get into a debate about SJP, though I do happen to think that they have a place. Both my wife and I have some funds with them.

Instead I think that I'll point out that any portfolio seeks to achieve more than one thing by trading the virtues of one part for the virtues of another.
For example the famous 60-40 portfolio is intended to sacrifice large long term returns to reduce volatility.

Did you notice that by limiting choice to the top 5 you may be accepting low levels of income?
I suspect that it is yield that lead to the inclusion of Aegon Diversified Monthly Income.
Did you notice that, assuming equal investments (a poor assumption), then 40% of the reduced portfolio would be in wealth preservation funds?

The truth is that we don't know if the OP has spent 90% of the first £100k in Harbourvest Global Private Equity rather than FCIT. I would hope not, but we have no idea other than the list has 10 things in it.

If I look at my portfolio, my list is 29 long. The largest component is almost 15%, the smallest 0.07% and the next smallest 1.89%.

Why do I have a holding that's only 1.89%? Who doesn't hold some cash? Isn't this thread questioning the idea of staying in cash? Despite the OP starting the thread, they didn't mention cash in the list and neither did you. Does that mean you intend to hold 0% cash, or that you won't think about an appropriate amount to hold? They are still at least 75% cash.

Doesn't 29 holdings take a lot of work? Well not really. I don't need to spend a lot of time thinking about the index tracker's I hold, or indeed the bulk of my portfolio. I doubt that the OP will spend a lot thinking about the Vanguard part of their portfolio. Once a year would be enough.

Investing is both a hobby and a requirement for me. Hence I may have small holdings for their entertainment rather than secure returns. I would however agree that you need to limit the number of investments that you think about on a regular basis to 5. I use HYPTUSS to help reduce the mental effort, though I often ignore it's recommendations as my portfolio doesn't follow HYP rules.

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Re: Stay in cash or invest now?

#521087

Postby 1nvest » August 9th, 2022, 4:37 pm

Seasidesenior wrote:I'm not a novice investor, but I'm really struggling at the moment as to what to do and would appreciate advice from you good folk out there. In March, I moved a 400k pension from St James Place to an Interactive Investor SIPP. The transfer was in cash and it is still sitting there in cash. I'm aware that with the rate of inflation so high, this will erode its value. On the other hand, I'm reluctant to invest given the current volatility in the markets and a potential recession around the corner. I'm worried about being out of the markets for too long. I have exposure to growth stocks and emerging markets through an ISA. I'm 62 and don't need to draw an income from my pension for some years yet, as I still work now and then, dip into my ISA several times a year and have a fairly simple lifestyle.
Would you sit tight a while longer or invest now and if so, in what?

Shift a third into US$, a third into gold, a third in stocks.

Broadly US$ will tend to decline in real terms, eroded by inflation, stocks tend to yield real returns - that offset the decline in the third of US$ holdings purchase power. Gold tends to long term offset inflation, but with considerable inter-period volatility (may massively out-run inflation, or considerably lag inflation). That is a better form of 'cash' than just £££'s alone. And has great optionality. If stocks drop 33% and gold rises 33%, then selling gold to buy stock shares results in you holding three times as many shares as before, and where you 'cost-averaged' into those shares at a decent discount that is inclined to see subsequent good/great gains. Starting with 33 stock, ending with 67 stock, averages 50 stock, a broad 50/50 average portfolio where the stocks were bought at below-average price will tend to broadly do pretty well, perhaps reflective of a more general average 75/25 stock/bond portfolio, that can broadly average total returns not too dissimilar to general/average 100% stock.

With ii you can convert to US$ once and then just leave those as-is, buy assets in US$, sell back to US$, and no FX currency conversion costs involved. Just make sure you select the correct currency to pay from/into when you place trades. You may be able to link a US$ based bank account into your ii account, so you might even be able to directly credit/debit your account using US$ and do actual £/$ conversions elsewhere, possibly at lower cost.

Another choice is to hold actual US$ bills and physical gold in-hand, just use ii for the third stock exposure. More a custodial banking style rather than the common depository present day system - where money you deposit into banks then becomes the banks money, free to do whatever they like with (within regulations).

Present factors are that the US$ may be relatively high, global fears tend to result in a flow into US$, that tends to reverse when fear subsides and greed returns (investors see 'better value' elsewhere). But if the US$ does drop, so gold priced in US$ tends to rise.

Optionality - such as the capacity to double/treble the number of shares you hold as/when stock prices pull back, in a high prices/low interest rate era can be a distinct advantage/benefit.

Even held as-is, thirds stocks, third hard US$, third gold ... might be considered as a form of inflation bond. Capable of sustaining 3.33% SWR for 30 years, but likely leaving little residual capital value at the end of those 30 years. If the US$ were instead invested in T-Bills, then the inclination is to end 30 years of 3.33% SWR with still a similar amount of inflation adjusted capital as at the start, but with some volatility, maybe half as much, maybe 1.5 times as much. Combined with shifting away from that asset allocation into a more stock heavier portfolio at some point during the 30 years when stock valuations had dropped, and the longer term prospects are further enhanced.

In contrast, all in hard £ is a lousy choice. Even if deposited to earn interest in a era of 10% inflation, 2% interest payments that's still a lousy choice. The least best choices.

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Re: Stay in cash or invest now?

#522240

Postby SoBo65 » August 14th, 2022, 7:50 am

With Interactive Investor you can set up to buy chosen investment trusts etc on a monthly basis with no fee, I am doing this using cash in my portfolio at present for Scottish Mortgage and Blue Whale Growth Fund.

Otherwise, I know people say you should not try and time the markets, but if I am looking to invest some cash, I do my research, choose what I am interested in and on a day the market is down go ahead and invest, sometimes in one hit or perhaps over a few days. So far no disasters.

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Re: Stay in cash or invest now?

#522251

Postby DrFfybes » August 14th, 2022, 9:02 am

Seasidesenior wrote: On the other hand, I'm reluctant to invest given the current volatility in the markets and a potential recession around the corner. I'm worried about being out of the markets for too long.


This is the difficulty with investing, this was 14 July.

Since then (eg) VEVE global developed tracker is up 9% and Berkshire Hathaway nearly 10%. If you were asking the question today, would you feel more confindent investing after a month of gains?

Personally I wouldn't, I'm cashing inthe PIT I bought a few weeks back and sitting tight for a while. As my income is from 'accumulation and selling down' rather than from divis, this gain is enough to top up MrsF's pension for a few months and I can see what happens elsewhere.

Paul

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Re: Stay in cash or invest now?

#523054

Postby vand » August 17th, 2022, 11:09 am

My answer to this has always been: if you are unwilling to invest any lump sum amount then you need to look at your asset allocation.

That OP was getting freak out by the market back in July is a clear indication that he was considering taking on too much volatility (risk).

Instead of asking what should I do with a lump sium? I always flip the question: what asset allocation would you be happy lump-summing any amount into? That is probably the AA that you should be building your long term strategy around.


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