Investments still declining

[Livvyliv18]

Are anyones investments showing signs of recovery yet ?My pension has lost a significant amount in the last 3 months and still seems to be going down.
This happened in first lockdown but then started to do really well so I know it can improve.
Im just starting to panic and unsure if I need to see a financial advisor to look at it.
Im not 55 for another 5 years so maybe I don’t need to panic just yet
Any advice /reassurance greatly appreciated

I need to sort out a new platform soon because Hargreaves charges a lot etc.

I'm with HL but there's definitely some cheaper options. One thing I'll say in HL's defence is that some of their negotiated fund annual management fees are lower.

AJ Bell are cheaper in terms of a percentage platform fee. Interactive investor charges a flat fee of £10 per month which is a good option if you have a higher value portfolio.

Alternatively, if you don't want to pay platform fees, have a look at Trading212 and Freetrade. They don't offer as extensive a range of investments but still have a decent offering of ETFs and investment trusts. I had to research them for work recently and I was impressed by their response times.

Fees can make a surprising dent in your portfolio over time. Some of the sites have a fee calculator where you put in your portfolio value, split and average monthly trades and it shows the fees by platform.

researchportal.bath.ac.uk/en/publications/new-evidence-on-mutual-fund-performance-a-comparison-of-alternati

worth a read. Driven by the data, not by dreams.

@RockandRollsuicide I still have some way to go, I don't quite understand asset classes?

The very basics on asset classes, in case you are not familiar:

equities (or ‘stocks and shares’) = you are a part owner of a company or several companies.

bonds = you lend money (usually to a mix of companies including especially banks, also sometimes governments)

’cash’ = bank deposits and very short term loans

equities and bonds are usually most of any portfolio for individual investors.

Other asset classes you might have include

commodities = you own something whose value generally moves together with some combination of gold, oil, food crops, etc.

Alternatives = something else, usually with high fees

There is a lot more that you could know about asset classes, and books have even been written on this topic, but if you have this basic knowledge it is a good start.

I think the reason most have not done badly is the weakness in Sterling.

most of the funds are USD based, so there is around +15% benefit from currency.

in local currency, S&P 500 is down 25%, but in Sterling terms it’s down 5%.

US pensions are a lot worse off than us.

Bumping this thread - do investors just ride out storms like this and hold our nerve? It’s alarming to see investments decline so quickly!

Ride it out , 3 out of my 10 funds down 23% and 2 are in pension so quite lucky, it's time to invest more

But I'm paying more off mortage as fix term ends next year

Historically, it has usually been best to ride out the storm, provided you can keep the money invested for several years. There have been a few exceptions, but even though it always feels like this time is exceptional when the market is down a lot, usually it is not exceptional and there is a rebound within 1-3 years.

I need to put 6k into my pension before the end of this tax year. Am I correct in saying that theoretically I want to do this when the market is very low (e.g. at the point when the market get their next big fright) to maximise the number of units it buys me? I'm early forties.

Same with my S&S ISA (another long term investment for me) - historically I've done regular monthly standing order but thinking that perhaps I'd be better adding ad hoc when it's at a low point.

@Baystard yes, if the market does not go down any further by year-end then now would be the best time to put it all in. And if it does not go down between now and March, then now would be the time to max out your contribution to the S&S ISA.

Challenge is, nobody knows what the market will do next. But there is nothing wrong with taking a point of view from time to time. If it were me, I would either do exactly as you suggest with the pension, or maybe split it in two and do half now, half in a month or so. And I would probably bring forward some, but not all of the next 6 months contributions to the S&S ISA.

But the most important thing, which you are doing right, is that whether or not you accelerate the investments or stay on the regular schedule, you keep making them at this moment when the news is very negative.

@YankeeDad thanks for the reply. What do you class as ‘several years’? I’m 55 and would like to start cutting down on work commitments at 60 and possibly start to dip into some investments at that point. I’m too scared to even check my investment at the moment it’s gone down so quickly!

Same with my S&S ISA (another long term investment for me) - historically I've done regular monthly standing order but thinking that perhaps I'd be better adding ad hoc when it's at a low point.

I work in this sector and, despite being confident enough in equities to have an interest-only mortgage with S&S ISAs to pay them off, I am very nervous about investing at the moment.

It's extremely difficult to buy 'on the dip'. US equities have fallen but the FTSE 100 has been more resilient, and until the last week or so, almost flat in 2022. There's good reasons for this difference but, equally, it may start to fall like the US.

There's a lot of uncertainty at the moment, both in terms of Ukraine but also how high interest rates will need to rise before inflation is under control. Then there's the cost of living squeeze which will impact consumer spending (Netflix's share price has already taken a hit from this). I'd say there's more downside risk than upside potential at the moment.

However, you can put your annual contributions in your SIPP and S&S ISA but leave it uninvested as cash. Not many ISA providers pay interest on this but it lets you lock in your annual allowances and leave it until there's more visibility.

@Rafting2022 for an investment in equities I would want a 5-7 year time horizon or more.

However, even if you are going to start making withdrawals in ‘only’ 5 years, if your expectancy is in the 80s then most of the money in your pension pot has a time horizon until use of much more than 5-7 years! You probably don’t want to be 100 pct in stocks and shares but you probably do want a substantial proportion.

@red4321 I also worked in investments, with a focus on equities, am now retired.

You are right that is possible to make contributions to ISAs and pensions and leave them uninvested and in cash, and that is a very good idea for any person who does not want to take on any investment risk but has the spare cash and wants to lock in the tax benefits.

Regarding why the FTSE100 has not fallen YTD while the US market has, the biggest reason by far is the nearly 20 percent decline in pound/dollar exchange rate.
FTSE100 is mainly big, global companies, and if we put both markets into the same currency, UK and US are down about the same year to date.

Regarding when is the best time to buy, nobody knows for sure in advance, but historically it’s almost always been better to buy when things feel terrible rather than when they feel great. We do know for sure that it’s better to buy the overall market now compared to January 2022 because the same companies are 25-35 pct cheaper in USD terms (and the US is 70pct of the global indices).

Risk can be mitigated by making incremental moves rather than dramatic ones, but if I were still a net accumulator of wealth I definitely would not stop making new invested contributions right now. And even as a retired person entirely dependent on investments, right now I am a net buyer of riskier assets. I do not invest in the FTSE 100 because although its constituents are listed in GBP, their underlying sales and earnings are in various currencies with only a small share in GBP so the currency risk is really just the same. And the FTSE has an industry mix that I don’t much like (banks, oil, pharma heavy). So I tend to prefer global indices.

Agreed.

Though I'd also add a swing in investor appetite from the high growth US tech stocks that are more dominant in indices such as the Nasdaq to the more defensive, dividend-paying U.K. FTSE 100 stocks.

One of our external commentators described them as plodders which is a fairly apt description. They also produced some interesting stats on 'mini rallies' in the global financial crisis stock market crash which proved to be short-lived as the stock markets fell further.

Dividend yields on the larger UK companies have also looked attractive given the inflation rate. I think one of the FTSE 100 mining companies was trading on 12x last time I looked.

I advise some family on their investments and I'm finding it really difficult at the moment. I've made some profit on commodity related investments this year but also volatile and not something I'd suggest for now.

Unfortunately I don't think it's the bottom of the market. As you say, needs to be a 5 year plus horizon, possibly even 10 to be safe. I attended a webinar on defensive investing with a couple of fund managers last week and it was depressing hearing them talk about the outlook. One of their key points was the 15% fall in bonds this year as supposedly safe assets.

Sorry it's a long one. I enjoy reading other people's post about investing.

So what questions should I be putting to my financial advisor at the moment?

@red4321 I also enjoy interacting with people who are "in the market", since I am now retired and no longer have daily conversations with colleagues.

On what happened to bonds, it was really an accident waiting to happen: there was no way to make money with such absolute low yields to maturity. Losing money, at least in real terms, was almost guaranteed, with yields below inflation; it was always just a question of whether holders would lose money quickly or slowly. I did not own any bonds at all for the last 10+ years, except during the most recent few months.

This does not mean that bonds can never again be a safe asset: it all depends on the starting yields! With starting yields at 4%+ now, it means that a 10-year bond purchased now and held to maturity will deliver a cumulative 40 percent nominal return with positive cash flows along the way, and provided inflation is below 4 percent on average (which is a big if), the real return will also be positive, at least pre tax.

Granted, holding bonds to maturity is not really the done thing anymore: people tend to buy funds, which means you can end up forced to crystallise losses when the fund sells things. And I do not actually think that 10 year bonds look attractive yet. But we are getting there. And 1-3 year gilts are much more attractive than savings accounts at the moment, even net of fees; it has not been that way for several years.

I haven't held bonds for ages either but, as you say, the yields are tempting.

I have an event with selected fund managers this week, one of which is a bond fund, so I'm looking forward to hearing their take on recent events and the outlook.

I spoke to a couple of bond fund managers a fortnight or so ago (which seems like an age ago in terms of market developments...) and their view was that bonds look decent longer-term investments but may suffer from some more volatility in the shorter term. Of course they have self-interest but I think they're probably right.

Interesting the comments you can put uninvested cash into a pension because I didn't know that was possible. DH self employed and retiring in 18 months but currently in 40% tax bracket so we put a lump sum in March to get the tax relief before end of last financial year but with the FA commission and drop in value in the last 6 months we have lost money. We were going to do the same this financial year but as he is so close to retirement didn't want to risk it but if we can put it in without investing the tax relief itself makes it worthwhile.

@orangetree99, actually with the markets having come down it may be better to invest at lease a portion of the lump sum going in this tax year. That might not be such a good idea if he plans to take out a lump sum or annuitise the balance upon retirement, because then the time horizon really is too short, but if most of the money will remain invested throughout the retirement years in a SIPP or similar, then the time horizon is a function of his entire life expectancy, so if he is retiring at 60 or 65 (or even younger) and is in relatively good health then the time horizon is definitely long enough to have a good proportion of equities.

Thank you, good advice.

Thoughts and prayers with Swifty at this difficult time.

🤣🤣