Marky72 wrote:
Any thoughts much appreciated.
I think this is perhaps one of those 'very personal things' related to long-term investment that we need to find a solution for that suits our own '
investment personality', rather than trying to find an alternative, perhaps even 'popular', solution that might not
particularly align with our own, sometimes broader requirements...
For me, I definitely wanted to find a solution that,
first and foremost, meant that I didn't either
need to, or even
feel the need to, sell down holdings in a falling market. This was and still is a high priority for me, and was where I started from when looking into this particular issue, with a view that any solution needed to
primarily satisfy that initial requirement if it was going to suit me personally...
So, with that in mind, I then considered how I'd deal with the strong emotional urge to '
be doing something' during these inevitable periods of market turbulence. I know myself well enough now to understand how difficult such periods have been in the past for me personally, and I needed to come up with a strategy to
cope with that, so given that #Rule-1 was that I didn't want to be
selling anything, I thought that the obvious strategy for me that
could deal with both #Rule-1 (not sell anything) and also 'the urge to
do something' would actually be to '
BUY something' during any particularly large downturns in the general markets...
The issue then was clearly to ask myself where, if I wasn't going to
sell anything to raise funds for buying, any capital might actually come from that might then be used to do that, and it became quite clear at that point that if I was in a position where I knew my 'investment personality' well enough to know that I needed to satisfy both of the above requirements, then I clearly now needed to make sure there were relatively fluid funds likely to be available when such downturns occurred, and so it was at that point that I decided to try to always 'carry' a modest amount of cash or near-cash-equivalents that would satisfy that particular need...
The above then morphed into a fairly simple and robust strategy that I've found has suited me tremendously-well over many years now, which I've incorporated into my overall investment strategy whilst still working and building my portfolio -
1. Carry a cash or near-cash float of around 2-3% of overall portfolio size, to be used for purchasing 'cheaper' investments during large market downturns.
2. Once the above float is achieved in cash or near-cash terms, then any new portfolio-related income or fresh investment capital from wages can be used for more regular investments during 'normal' markets
3. If the above 'market downturn' funds get used, then new portfolio income or fresh investment capital from wages is directed towards topping up that cash float again, before more 'regular' investments resume. The above approach suits me in a number of areas, and after being 'lucky' enough to have used it through both the 2007 financial crisis and also the 2020 COVID-induced market rout, I know that it delivers on
my primary goal, which is for that strategy to act as a well rehearsed 'Fire Drill' that enables me to act sensibly during a crisis in a way that ruffles my own feathers in as little a way as possible...
Of course it's absolutely clear that maintaining cash or near-cash floats will carry both inflation and 'opportunity' costs by doing so, and I'm not kidding myself at all that this isn't the case, but this is one of those personal-investment areas where I've decided that any particular 'benefits' that suit me
personally and highly likely to have
some sort of costs one way or another anyway, and I think it's just important to
make sure that where any such costs
are borne in such a way, that any benefits coming
from those costs are useful to us
personally, and I know well that in this case they really are...
A caveat with the above approach is that I've only really proved to myself that I'm very happy with it whilst I'm still working, and I know in the back of my mind that there will be further 'stress-tests' of this approach if and when I'm lucky enough to retire, that may introduce slightly different personal responses than I've known during an investment lifetime where up to now I've always had that 'backstop' of a working wage to cushion some of the inevitable emotional blows that we endure when markets sneeze in a big way, and I'm quite open to the possibility that things might need to be tweaked again slightly once a future 'retirement-phase' might kick in, but I'm very happy to cross that bridge when I get to it, and I'll continue to take the above approach that I know suits me very well personally at the moment, even if there's clearly an 'opportunity-cost' in taking it....
A second caveat with the above approach is that this 'market-rout' capital is completely separate from what I consider to be my 'emergency fall-back' cash funds, such as a pot of capital available to fund a two or three-year 'emergency wages' period, but whilst I would never countenance using those 'emergency wages' funds for such 'market-rout' purchases, I do consider that the separate 'market-rout' funds
might well come in useful
the other way under some 'sky falling in' circumstances, so that also provides me with some contentment regarding any inflation or 'opportunity costs' related to such 'market-rout' funds as well...
Cheers,
Itsallaguess