Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

New investor

Index tracking funds and ETFs
mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: New investor

#318155

Postby mc2fool » June 13th, 2020, 12:10 pm

Fluke wrote:
Mememe wrote: That’s fine as long as ‘low risk’ means being willing to accept 50% falls in market crashes. I’m not sure that your bog standard guy on the street would regard that as low risk

Unlikely though for any of the funds suggested here, take for example VWRL mentioned in a few posts, from its high point in Dec-19 to it's low point in March it fell just under 22% before recovering sharply, it's now down just over 9% from its December high. And that following one of the biggest crashes in a long time.

https://www.vanguardinvestor.co.uk/inve ... stributing

Vanguard's Price analysis chart for VWRL shows the peak as $95.83 on 12-Feb-20 and a low of $63.53 on 22-Mar-20, a drop of 33.7%. Of course that's the US$ NAV, with the GBP price it did better with only a 25% drop, due to the drop in the GBP:USD exchange rate.

However, in regards to "one of the biggest crashes in a long time", methinks your idea of "long" is too short. VWRL itself has only been in existence for 8 years but the index it tracks, the FTSE All World, suffered a 48% drop in the 2000-2003 "dot com" crash and a 54% drop in the 2007-2009 crisis. https://markets.businessinsider.com/index/ftse-aworld

Mememe
Posts: 47
Joined: March 14th, 2020, 10:40 pm
Has thanked: 7 times
Been thanked: 28 times

Re: New investor

#318186

Postby Mememe » June 13th, 2020, 3:25 pm

Fluke wrote:
Mememe wrote:Depends what their idea of ‘low risk’ actually means. What most people on here are suggesting are purely equity based investments.

Not all, the Life Strategy funds for example are a mixture of equities and bonds which you can adjust according to your risk profile - 80/20, 60/40 etc

Mememe wrote: That’s fine as long as ‘low risk’ means being willing to accept 50% falls in market crashes. I’m not sure that your bog standard guy on the street would regard that as low risk

Unlikely though for any of the funds suggested here, take for example VWRL mentioned in a few posts, from its high point in Dec-19 to it's low point in March it fell just under 22% before recovering sharply, it's now down just over 9% from its December high. And that following one of the biggest crashes in a long time.

https://www.vanguardinvestor.co.uk/inve ... stributing

Granted it didn't set the world on fire for the 5 years shown in the graph but it protected your money and grew a bit which is what you want out of an index fund isn't it. Seems pretty low risk to me.


I take your point on the lifestrat funds I assumed people were talking 100% n(my bad) but yes the 20/80, 40/60 and at a push maybe the 60/40 could be regarded as low risk. People might argue the point regarding bonds at the minute though.

I'd check your figures on the drop on VWRL, I've looked at the price high and price low from 2020 and it dropped more than that. Lets be honest it's only because of unprecedented monetary policy (a US election incoming) that prices have recovered so quickly. However putting that aside, when it's your money fine. When it's someone who finds choosing an investment overwhelming then they might have a different outlook. It's not has it happened, it's could it happen, and a fall of 50% in equity markets is more than possible. Or as Geoff noted 75% in the 70's.

Risk is subjective, but an all world tracker does not protect your money. It just follows the market. Stimulus has totally distorted the market this time round, but at some point reality has to set in. If you could have sat in front of the investor you're talking about, in the middle of march, when they were 30/35% down, with markets falling 10% in one day on some days and they would have been fine about it then an all world tracker is the place (which incidentally I'm very much in favour of for those willing to take on that risk), if they wouldn't have been then I would not be investing in purely equity markets. In which case then the lower risk lifestrat funds (which did hold up pretty well because of daily rebalancing) or something similar (like the L&G Multi-index funds which throw in infrastructure, commodities, property in a passive format on top of bonds and equities) would probably be the place to be.

Just throwing in a different outlook on risk, not a dig at you, because although there's lot of clued up people on these forums, I think it's easy to be blase about market falls when you're used to them. For a newbie, risk is something that they eventually learn to accept or sends them running for the hills as soon as there's a 10% drop never to be seen in the markets again. I would just ask them how they would feel if the money invested dropped by 50% (even if it then eventually recovers) and if they aren't up for that, then an all world 100% equity tracker is not for them. Not at the start anyway.

SalvorHardin
Lemon Quarter
Posts: 2049
Joined: November 4th, 2016, 10:32 am
Has thanked: 5297 times
Been thanked: 2465 times

Re: New investor

#318192

Postby SalvorHardin » June 13th, 2020, 4:29 pm

Mememe wrote:Just throwing in a different outlook on risk, not a dig at you, because although there's lot of clued up people on these forums, I think it's easy to be blase about market falls when you're used to them. For a newbie, risk is something that they eventually learn to accept or sends them running for the hills as soon as there's a 10% drop never to be seen in the markets again. I would just ask them how they would feel if the money invested dropped by 50% (even if it then eventually recovers) and if they aren't up for that, then an all world 100% equity tracker is not for them. Not at the start anyway.

Over the years I've seen a few newcomers to the markets run for the hills as a result of falls about which us old-timers would be indifferent. I was very nearly one of them when my first share purchase, made in 1981, fell by almost 10% shortly after I made it (I didn't panic and about a year later sold out for a 30% gain).

Their problem for new investors is however well they may have mentally prepared themselves for falling prices, they don't know how they would react when it's actual money that they're losing. They quickly find out that the mantra "it's only a loss if you sell" isn't really true.

It's the psychological effect called "loss aversion", whereby losses have a greater psychological effect than the benefits of a gain of the same amount. The behavioural economists have shown that the psychological effects of losses are at least twice as powerful than those of gains.

https://en.wikipedia.org/wiki/Loss_aversion

Back in 1985, several work colleagues decided to buy shares in the same company as their first ever stock market investment. A few weeks afterwards the shares were down by almost 5% and they all sold, having become quite miserable about their investments. Before buying everyone was confident that they could cope with losses, but after they bought the slow deterioration of their positions weighed heavily upon them. A few months later the company was taken over at a premium of roughly 50% over what they paid - this too weighed heavily upon them (mentally it was treated as an additional loss).

Mememe
Posts: 47
Joined: March 14th, 2020, 10:40 pm
Has thanked: 7 times
Been thanked: 28 times

Re: New investor

#318199

Postby Mememe » June 13th, 2020, 4:56 pm

https://www.hl.co.uk/funds/fund-discoun ... y-features

this is a low/medium risk version of the L&G multi-asset passive portfolios. May be of interest for you Fluke. They didn't hold up as well as the Vanguard lifestrat funds on the recent downside but they are more diversified

Fluke
Lemon Slice
Posts: 608
Joined: November 4th, 2016, 8:51 pm
Has thanked: 61 times
Been thanked: 137 times

Re: New investor

#318276

Postby Fluke » June 14th, 2020, 9:32 am

Mememe wrote:
I'd check your figures on the drop on VWRL, I've looked at the price high and price low from 2020 and it dropped more than that.

Thanks Mememe. I just took it from the performance chart at this link, it tracks a $10k lump sum for the 5 years from May-15, at the high point in Dec-19 it had grown to 14,221.12 before dropping to 11,173.51 in March, I calculated that to be 21.43%. It has since risen to 12,909.75. Am I wrong?

https://www.vanguardinvestor.co.uk/inve ... stributing

Agree with everything you say btw and we did indeed have the conversation that had my relative done this a few months ago she would now be under water.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: New investor

#318282

Postby mc2fool » June 14th, 2020, 9:55 am

Fluke wrote:
Mememe wrote:
I'd check your figures on the drop on VWRL, I've looked at the price high and price low from 2020 and it dropped more than that.

Thanks Mememe. I just took it from the performance chart at this link, it tracks a $10k lump sum for the 5 years from May-15, at the high point in Dec-19 it had grown to 14,221.12 before dropping to 11,173.51 in March, I calculated that to be 21.43%. It has since risen to 12,909.75. Am I wrong?

Yes. The Past performance based on a lump sum investment you are looking at is based on just month-end values.

I've already shown that if you look at the Price analysis chart at the top of the same page to get daily figures the recent high-to-low drop is much more, and further to the core point, the 50% drop that you say is "unlikely" has, in fact, happened to the index VWRL tracks twice this century already. viewtopic.php?p=318276#p318276

Fluke
Lemon Slice
Posts: 608
Joined: November 4th, 2016, 8:51 pm
Has thanked: 61 times
Been thanked: 137 times

Re: New investor

#318296

Postby Fluke » June 14th, 2020, 10:46 am

mc2fool wrote:
Vanguard's Price analysis chart for VWRL shows the peak as $95.83 on 12-Feb-20 and a low of $63.53 on 22-Mar-20, a drop of 33.7%. Of course that's the US$ NAV, with the GBP price it did better with only a 25% drop, due to the drop in the GBP:USD exchange rate.

However, in regards to "one of the biggest crashes in a long time", methinks your idea of "long" is too short. VWRL itself has only been in existence for 8 years but the index it tracks, the FTSE All World, suffered a 48% drop in the 2000-2003 "dot com" crash and a 54% drop in the 2007-2009 crisis. https://markets.businessinsider.com/index/ftse-aworld


Thanks for these links McFool and no I hadn't realised that VWRL had only been going for 8 years. The Markets Insider chart makes particularly interesting reading. If you set the timeline to "max" you can see what the FTSE All-World index has done since 1993, if you'd invested your 10k or whatever in Oct 2007 and then did nothing else you did not see it in tact again until August 2014. Sobering thought.


Return to “Passive Investing”

Who is online

Users browsing this forum: No registered users and 17 guests