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Asset allocation

Investment discussion for beginners. Why you should invest your money, get help getting started
fca2019
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Asset allocation

#324754

Postby fca2019 » July 9th, 2020, 8:30 am

My present asset allocation is 80% stocks, 16% bonds, 3% gold, 1% cash. Thinking of upping bond allocation as getting nervous with global markets recovering to Jan 20. What do you do? Are you thinking of upping gold, silver or bonds in your AA or sit tight? Cheers

stevensfo
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Re: Asset allocation

#324792

Postby stevensfo » July 9th, 2020, 10:19 am

fca2019 wrote:My present asset allocation is 80% stocks, 16% bonds, 3% gold, 1% cash. Thinking of upping bond allocation as getting nervous with global markets recovering to Jan 20. What do you do? Are you thinking of upping gold, silver or bonds in your AA or sit tight? Cheers



Since I seemed to survive the Financial crisis by not really realising what was going on, I'm just sitting tight. The only small change I've made is to divert more each month to fixed term savings accounts and less to top-ups, simply because I want to see how things develop during the winter. I'm approx the same as you wrt stocks and bonds, though since the crisis, I pay a lot more attention to diversification of sectors, global allocation and providers.

Steve

Bubblesofearth
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Re: Asset allocation

#324823

Postby Bubblesofearth » July 9th, 2020, 12:01 pm

fca2019 wrote:My present asset allocation is 80% stocks, 16% bonds, 3% gold, 1% cash. Thinking of upping bond allocation as getting nervous with global markets recovering to Jan 20. What do you do? Are you thinking of upping gold, silver or bonds in your AA or sit tight? Cheers


What is the expected return on the bonds you are considering?

BoE

tjh290633
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Re: Asset allocation

#324856

Postby tjh290633 » July 9th, 2020, 2:23 pm

I'm doing what I did in every other market upset in the last 50 years, staying fully invested in equities.

TJH

jackdaww
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Re: Asset allocation

#324858

Postby jackdaww » July 9th, 2020, 2:36 pm

equities 90%

cash 10% in case of another turndown .

:)

fca2019
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Re: Asset allocation

#324911

Postby fca2019 » July 9th, 2020, 6:08 pm

tjh290633 wrote:I'm doing what I did in every other market upset in the last 50 years, staying fully invested in equities.


I'm not sure I could do this yet as only been investing last two years. For experienced investors like yourself a 30% hit would still leave you in profit, but for recent investors turn profit into loss (short term).

bluedonkey
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Re: Asset allocation

#324913

Postby bluedonkey » July 9th, 2020, 6:18 pm

On another thread there was talk of Talmud investing. I recall that this was something like 1/3rd in each of:

-Shares
-Property
-Cash/Bonds

This was intended as a long term approach to weather all circumstances. Others may know more about it than me, I only heard of it recently because of that thread.

tjh290633
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Re: Asset allocation

#324996

Postby tjh290633 » July 9th, 2020, 10:55 pm

fca2019 wrote:
tjh290633 wrote:I'm doing what I did in every other market upset in the last 50 years, staying fully invested in equities.


I'm not sure I could do this yet as only been investing last two years. For experienced investors like yourself a 30% hit would still leave you in profit, but for recent investors turn profit into loss (short term).

My experience has been that the market has always recovered, perhaps taking time, but eventually it will. It took a long time to return to its 1999 peak, 15 years in fact, but only 5 years for the shares which I held. By the time the market had got back to its 1999 level, my own income unit price had almost doubled.

It is always disheartening when the market turns down just after you have invested, but you will recover.

TJH

LooseCannon101
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Re: Asset allocation

#325266

Postby LooseCannon101 » July 10th, 2020, 7:12 pm

fca2019 wrote:
tjh290633 wrote:I'm doing what I did in every other market upset in the last 50 years, staying fully invested in equities.


I'm not sure I could do this yet as only been investing last two years. For experienced investors like yourself a 30% hit would still leave you in profit, but for recent investors turn profit into loss (short term).


There is only one type of investing - long term for 10+ years. I thoroughly agree with the comment of 'tjh290633'. Moving one's assets around due to market fluctuations usually ends in tears.

My portfolio is 98% highly-diverse world equity fund and 2% cash, with only trading action being dividend re-investment.

1nvest
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Re: Asset allocation

#325307

Postby 1nvest » July 10th, 2020, 10:18 pm

bluedonkey wrote:On another thread there was talk of Talmud investing. I recall that this was something like 1/3rd in each of:

-Shares
-Property
-Cash/Bonds

This was intended as a long term approach to weather all circumstances. Others may know more about it than me, I only heard of it recently because of that thread.

UK home, US stocks, Gold .... £/primary reserve/global currency diversification, land/stock/commodity asset diversification. Combine some UK tangible asset stocks are part of the 'home' value for liquidity.

Another form is old-money style ... land, gold, art - that in some families has seen generational wealth span back 800+ years.

Interesting to see how a bunch of (art) assets transitioned over time to having heavy capital weighting in relatively few ... similar to a untweaked HYP

https://academic.oup.com/raps/article/d ... 01/5716334
the ten most valuable items make up as much as 88% of the total value, with two works accounting for nearly half of the value of the entire collection.

Some say sell losers, let winners run, other say reduce winners to steer back towards equal weightings. Both seem to yield similar broad reward but where not tweaking tends to endure higher volatility along the way. For old-money, the idea of selling losers is for tax reduction reasons (selling at below cost, no capital gains taxation involved), and leads to even heavier concentration - could end up holding just 4 assets, each that had achieved outstanding rewards. The other factor is low/zero yield - sell assets periodically to top up cash - at a time and in a location that is tax efficient.

johnhemming
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Re: Asset allocation

#325334

Postby johnhemming » July 11th, 2020, 6:08 am

1nvest wrote:Some say sell losers, let winners run, other say reduce winners to steer back towards equal weightings. Both seem to yield similar broad reward

Its the essential difficulty of stock picking. I have tended to do best on buying securities that are going down (potentially before they hit the bottom) and then holding them until they come up again and selling those. I like dividend payers even if the dividend is suspended because they are what I call real businesses which provide a good or service and make sufficient profits to pay a dividend.

I looked up talmudic investment because of this thread (land,business,reserves) and it is a diversification strategy which is obviously sensible as people cannot reliably predict the future.

The difficulty with the covid 19 issue from an investment perspective is that different stocks which ordinarily would be good stocks then are stocks in companies that have very little short term future in terms of income whilst maintaining short term costs.

We actually still have little to go on to value stocks like Carnival and IAG. I don't hold these, but I think the equity value could still be over stated.

This report
https://www.thetimes.co.uk/article/bank ... -q9xv0cpvp
with the headline:
Banks face $2.1 trillion of defaults over next two years, S&P warns

contains within the text.
Of the 200 banks S&P tracks, it said that the loan losses probably would wipe out 75 per cent of their profits this year and 40 per cent next year. In western Europe, including Britain, it said that banks would suffer $228 billion of credit losses over two years.


Which implies, of course, that the banks in aggregate will make a profit and implies the banks (some of which I hold) are currently undervalued.

Hence I don't think in the short to medium term that merely looking at the stock price is that helpful as a guide.

1nvest
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Re: Asset allocation

#325365

Postby 1nvest » July 11th, 2020, 11:44 am

If you start with initial equal capital weighting across say 100 holdings, if you later sell/reduce the ones that have performed relatively well then you're going against the 'Momentum' factor. A common mantra is to cut losers, let winners run.

If you retain those that had risen the most, sell/reduce others to perhaps throw-off periodic cash (income) then ultimately you might be holding just a number of holdings that overall had risen the most, perhaps the sector that had done the best (tech ... or whatever).

Equally however, Value investing can also work well. If a momentum investor is dumping the holding that for them have 'lost' - declined the most, then in being out of favour at that time the valuations of those relatively down holdings can sometimes turn around and rebound sharply.

The better choice as it seems to me is to middle road between those two. Not reduce those that had risen the most (sell down Momentum), and not reduce/eject those that had fallen the most, that others might buy up as being Value plays ... and instead sell/reduce the middle roaders.

Often across a set of initial equal weighted assets the tall right tail holdings - those that had risen considerably, uplift the average of the whole set to levels such that the majority of the individuals lag the broad average - most of the holdings under-perform the broader average. Perhaps the targets to be culled should be the ones in the middle region, that are neither Value nor Momentum.

Both Value and Momentum tend to have higher volatility - simply because their values have shifted by above average amounts. Some suggest that Value and Momentum are negatively correlated, and each have their own times with and against the wind, so incorporating both is a form of diversification.

Terry's (TJH) tweaked HYP has the tendency to reduce momentum to add to value, scales back those that had performed the best, to add to those that were relatively down. Maybe however another approach might be more appropriate where the middle roaders were instead reduced to add to the Value holdings, and the Momentum holdings left to run as-is. How might that be managed in practice? One way might be to separate out the best performers/highest value holdings and leave those to run as-is, and rebalance the remainder set as per normal methods. And if at times a holding within the rebalanced set rises to exceed the value of one in the buy and hold set, then swap around those holdings. In the context of a 16 stock HYP for instance, perhaps after a time and having 4 clear winners, shift those into a buy and hold Momentum pot. With those four separated out then rebalance the other 12 as per Terry's methods. But where if prior to a rebalance the value of the best holding in that pot had risen to be more than the value of one in the buy and hold pot, then clearly that buy and hold momentum pot holding had lost its relative momentum and appropriately should be replaced by the newer momentum holding. ???

tjh290633
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Re: Asset allocation

#325457

Postby tjh290633 » July 11th, 2020, 6:40 pm

That's an interesting point of view. The point which is not mentioned is that the high fliers are usually those with the lowest yields, while those chosen to be topped up have higher yields. In more normal imes the differential can be between 2 and 4 times greater. Consequently there is a ratcheting up of income by this process. The middle ranking shares may be on a lower differential and may be reliable providers of increasing dividends at a reasonable yield. My view is that trimming the middle ranking shares offers no advantage.

TJH

Joe45
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Re: Asset allocation

#325756

Postby Joe45 » July 13th, 2020, 9:40 am

Set an asset allocation with which you are comfortable, then re-balance annually. That's it. Investing is a long game; don't react to market moves.

I'm 67:33 equities:bonds (with a dash of cash). My portfolio dropped 25% in March, but has since recovered and is back to what it was in late 2019.

JohnW
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Re: Asset allocation

#327398

Postby JohnW » July 20th, 2020, 7:33 am

fca2019 wrote:My present asset allocation is 80% stocks, 16% bonds, 3% gold, 1% cash. Thinking of upping bond allocation as getting nervous with global markets recovering to Jan 20. What do you do? Are you thinking of upping gold, silver or bonds in your AA or sit tight? Cheers

We know what the future can bring, but we don't know what it will bring. So perhaps making changes based on the impossibility of guessing right every time is unwise. It would seem to lead to chopping and changing, feelings of uncertainty and insecurity, regrets as well as victories with no end point.
Maybe set a course, stick to it, and focus on the football.


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