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Preservation of capital
King Lodos
Posted: 24 May 2017 19:59:37(UTC)
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Stephen B.;47161 wrote:
You still aren't addressing the fact that your historical comparisons had much higher interest rates. Looking at your figures, you have a CAGR of 3% for the equities which is obviously rather poor as it includes two very bad periods - but still it could be that equities will do badly again. However, with interest rates at close to zero I find it very hard to believe that your 50% cash portfolio would only reduce the overall return by such a tiny amount - cash was yielding more than 3% for quite a lot of that period, so it's hardly surprising that it wasn't a drag. Looking by eye, if you reset the graph at the market peak in 2011 (where rates were much lower) portfolio 2 would still be significantly worse overall even given the impending market crash.


But that's only nominal returns.

Today's cash rates of near-0% are actually in line with historical averages in real terms because inflation's so low .. There have been times you'd get >5% on cash, but inflation might have been 7%.

So it's all relative .. Think of cash as a near 0% real return whatever rates are .. But when stocks drop 50%, cash suddenly buys you a lot more stocks than it used to.
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Guest on 27/05/2017(UTC)
Stephen B.
Posted: 24 May 2017 20:10:56(UTC)
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It's you that quoted nominal returns! It's true that part of the longer-term story is a reduction in inflation, but that was in the 1990s, inflation has been relatively low for the whole of the period in your graph (2% since 1997 to a surprisingly high accuracy). As I said, 30-year gilts were yielding 4.5%, so 2% inflation plus 2.5% real interest, and before the financial crisis you could get something like 5% on cash. If that were still true then having a significant cash weighting could well make sense, it would be above the general dividend yield on shares, but that isn't the situation now.
Tyrion Lannister
Posted: 24 May 2017 22:04:54(UTC)
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Mr Helpful;46968 wrote:
Colin Deakins;46958 wrote:
[i]One message from Morningstar's seminar this week was that IFA clients are now prioritising the preservation of capital after a long period of capital growth in both bonds and equities. That sounds sensible to me.

Quotation from Micawber's post

I have a portfolio of equity funds which since 2008 have done reasonably well for funds. After considering the quotation from Micawber's post, I ask myself how do I go about preserving the capital I've accumulated.
2008/9 I sat back and hoped for the best, I don't think that strategy(?) will work over the next 10 years!
........
........ but I am at a stage in life when I may not see the gains if the Stockmarket does go down so any guidance on strategies for the preservation of capital will be most appreciated




'IF'
the investor can live within the income provided by the 'natural yield' of their portfolio at all times, then capital fluctuations could be ignored !!!

In such a scenario Stock Price fluctuations could be welcomed as opportunities to buy lower and reduce higher, thereby reducing the book cost(s) of position(s) and increase the overall size of the portfolio.

This is a big 'IF' !!!
For many investors fluctuations in value can be gut wrenching.

The question would then change to how to preserve the income?

N.B. Investors in 1929 on, found their Stock Income collapsing.
Then only Gov't Bond Income held up.


One solution to the specific question asked, about "preservation of capital", is to have an Investment Plan that compares Asset Classs valuations and adjusts allocations based on those valuations (in a well diversified portfolio).
So when an Asset Class (e.g. Stocks) is deemed good value we load up, when deemed expensive we hold less.
This is termed a 'Variable Ratio Investment Formula Plan' versus the more often advocated 'Constant Ratio Investment Formula Plan'.


Capital fluctuations can never be eliminated, but may hopefully be reduced to sensible proportions by planning in advance.

A timely question.
Thank you for bringing to our attention.


The problem is, what to do when all asset classes are expensive? That's pretty much we're we are now.
King Lodos
Posted: 24 May 2017 23:56:44(UTC)
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Stephen B.;47164 wrote:
It's you that quoted nominal returns! It's true that part of the longer-term story is a reduction in inflation, but that was in the 1990s, inflation has been relatively low for the whole of the period in your graph (2% since 1997 to a surprisingly high accuracy). As I said, 30-year gilts were yielding 4.5%, so 2% inflation plus 2.5% real interest, and before the financial crisis you could get something like 5% on cash. If that were still true then having a significant cash weighting could well make sense, it would be above the general dividend yield on shares, but that isn't the situation now.


It makes little difference. Cash rates basically track inflation – so cash's return is always essentially 0:

http://i.imgur.com/JhN1jfL.png

When comparing 100% Stocks to 50:50 Stocks and Cash, you'll get the same result either way – it's just generally simpler to look at nominal returns .. The reason cash works here is principally because it doesn't go down when stocks do.
Jon Snow
Posted: 25 May 2017 00:06:25(UTC)
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I can't be bothered with this forum after recent abuse yet I'll post this for your consideration.

https://seekingalpha.com/article/4075667-idiot

4 users thanked Jon Snow for this post.
King Lodos on 25/05/2017(UTC), dyfed on 25/05/2017(UTC), Vince. on 25/05/2017(UTC), Dian on 26/05/2017(UTC)
banjofred
Posted: 25 May 2017 05:01:15(UTC)
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I recall taking IFA advise some years ago. Put a fair bit in commercial property fund (malls,lonodn property etc).

Got the fund frozen for a fair bit, lost £12000, IFA cost around £4000

Got rid of IFA, made my own choices, got my twelve grand back (on gold at the time mainly).

The moral of this story?

When the occasional plunge happens and you are older you lose a lot of your money.

Tread with care.

Dont trust commercial property as a save haven in my view. I wont touch it again. Rather buy tulip futures.

There seem to be no safe havens.

My overall pool at all time high. It dropped two grand a few weeks ago on the uSD mainly, and has gradually recovered and moved on. I had 15% in cash. Having past my current target i have moved 40% into cash now, and quite a bit in stuff like Troy trojan.

A lot at risk in fund smith but its making me £100-£200 a day (dropped £500 last month then came back). I think this is mainly due to the £/dollar. I have eased off a bit but keep a chunk with this marvellous man. Other USD risk in various global funds or usa based like l and g into index

Try Tulip bulbs. A fool and his money are soon parted
3 users thanked banjofred for this post.
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dyfed
Posted: 25 May 2017 09:15:27(UTC)
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Jon Snow;47172 wrote:
....... I'll post this for your consideration.

https://seekingalpha.com/article/4075667-idiot




" A giant Ponzi scheme" is spot on. Will the central banks ever stop printing money in this way? Where there are individuals personally accountable for making the decision e.g. BoE I think they will have to once the excuses (Brexit etc) run out. Question is, what will the stock markets do then? There may not be a big correction as there is so much cash washing around. But certainly makes me keep my eye on QE decisions....

Keep posting please Jon Snow
3 users thanked dyfed for this post.
gillyann on 26/05/2017(UTC), Sara G on 26/05/2017(UTC), Dian on 26/05/2017(UTC)
King Lodos
Posted: 25 May 2017 19:02:57(UTC)
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banjofred;47173 wrote:
I recall taking IFA advise some years ago. Put a fair bit in commercial property fund (malls,lonodn property etc).

Got the fund frozen for a fair bit, lost £12000, IFA cost around £4000

Got rid of IFA, made my own choices, got my twelve grand back (on gold at the time mainly).

The moral of this story?

When the occasional plunge happens and you are older you lose a lot of your money.

Tread with care.

Dont trust commercial property as a save haven in my view. I wont touch it again. Rather buy tulip futures.

There seem to be no safe havens.

My overall pool at all time high. It dropped two grand a few weeks ago on the uSD mainly, and has gradually recovered and moved on. I had 15% in cash. Having past my current target i have moved 40% into cash now, and quite a bit in stuff like Troy trojan.

A lot at risk in fund smith but its making me £100-£200 a day (dropped £500 last month then came back). I think this is mainly due to the £/dollar. I have eased off a bit but keep a chunk with this marvellous man. Other USD risk in various global funds or usa based like l and g into index

Try Tulip bulbs. A fool and his money are soon parted


Well I think the lesson is that there are four basic environments your investments find themselves in:

- Rising Growth, Rising Inflation;
- Rising Growth, Deflation;
- Negative Growth, Rising Inflation;
- Negative Growth, Deflation.

And each environment favours different asset classes .. In the 70s we had low growth and inflation (stagflation), and Stocks and Bonds both produced negative returns over the decade .. In that environment, you'd have wanted Commodities, Gold and perhaps Commercial Property.

I wouldn't say commercial property's any riskier than stocks – but it is less liquid .. I've always bought and held commercial property, and it's always recovered, and always provided a decent income .. Really the safest path in investing is diversification, and what property does do is take some of your eggs and put them in a different basket.


Alan Selwood
Posted: 25 May 2017 21:55:45(UTC)
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Jon Snow;47172 wrote:
I can't be bothered with this forum after recent abuse yet I'll post this for your consideration.

https://seekingalpha.com/article/4075667-idiot



Jon

I haven't spotted any abuse in this thread myself.

Evergone gets het up at times, but it doesn't normally mean it's a personal attack.

Jjst ignore the more exhuberant posts, and keep looking out for the useful and interesting ones. We'd be sorry to see you go.
9 users thanked Alan Selwood for this post.
gillyann on 26/05/2017(UTC), S Dobbo on 26/05/2017(UTC), Mickey on 26/05/2017(UTC), geoffrey Walton on 26/05/2017(UTC), Dian on 26/05/2017(UTC), Martina on 26/05/2017(UTC), Jenki on 27/05/2017(UTC), Guest on 27/05/2017(UTC), keng on 28/05/2017(UTC)
Mr Helpful
Posted: 26 May 2017 08:04:21(UTC)
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Have found this forum refreshingly free of abuse, apart from only a couple of heated minor aberrations.

Abuse, of which there is plenty on some other financial sites, tends to reveal far more about the abuser than the abused.

So my vote also; please keep with us Jon.
5 users thanked Mr Helpful for this post.
Mickey on 26/05/2017(UTC), Alan Selwood on 26/05/2017(UTC), Dian on 26/05/2017(UTC), Martina on 26/05/2017(UTC), keng on 28/05/2017(UTC)
Jon Snow
Posted: 26 May 2017 11:21:29(UTC)
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Well folks, thank you all for your kind words of support.

It was posted on a different thread on the Citywire forum about 6 weeks ago and was subsequently removed. I was surprised at the uninformed vitriol of the post, particularly as they had to that point seemed quite reasonable and posted some useful information.

Just goes to show you never know who/what you’re dealing with on social media.

It was unfortunate, as I know most of the posters on here are helpful, informative, instructive and amusing. I’ve learned a lot, which is one of the main purposes of the forums.

I'll dip my toe in the water again.
16 users thanked Jon Snow for this post.
J Thomas on 26/05/2017(UTC), Vince. on 26/05/2017(UTC), Micawber on 26/05/2017(UTC), Mr Helpful on 26/05/2017(UTC), King Lodos on 26/05/2017(UTC), Keith Cobby on 26/05/2017(UTC), Martina on 26/05/2017(UTC), Colin Deakins on 26/05/2017(UTC), Money Spider on 26/05/2017(UTC), Alan Selwood on 26/05/2017(UTC), Lemanie on 27/05/2017(UTC), sandid3 on 27/05/2017(UTC), Jenki on 27/05/2017(UTC), Tony Peterson on 27/05/2017(UTC), Guest on 27/05/2017(UTC), keng on 28/05/2017(UTC)
srg751
Posted: 26 May 2017 16:22:25(UTC)
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I Didn't have you down as an attention seeker JON SNOW ?? Anyway, cut out the childish/acidic comments and I won't have to put you in your place again. ( if that's what you are referring to by 'abuse')
Dian
Posted: 27 May 2017 06:12:08(UTC)
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It may be time re-balance portfolio to stay on Track. One of the best options would be building a capital preservation portfolio. If I were you I would rotate overvalued stocks to under valued quality stocks.
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Lemanie on 27/05/2017(UTC)
Tony Peterson
Posted: 27 May 2017 13:46:54(UTC)
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Jon

I know exactly how you feel. We have been prospering at an unbelievable rate lately, but I have become unwilling to share.
Mr Helpful
Posted: 27 May 2017 15:38:42(UTC)
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Tony Peterson;47217 wrote:

We have been prospering at an unbelievable rate lately


Yes it seems that most, maybe all, investors have acquired the Midas Touch.
Everything is going up and then up some more !!!

Is this 'As Good as it Gets'?

Which makes the title of this thread an ever more pressing issue.

Good Luck to us All.
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dyfed on 27/05/2017(UTC)
King Lodos
Posted: 27 May 2017 16:10:56(UTC)
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Feels almost like a melt-up – but like Dalio said, this may be the sweet spot for stocks.

Rotated out of the Trump trade into Henderson European Smaller Companies and Marlborough Micro-Cap a little while back.

The Henderson fund's as good as it gets by my measures – of course it might do horribly from now, but PEG ratios around 0.5 and momentum looking great over every useful period .. It would be unusual for funds to post consecutive 50% years, but when valuations are that low it's not impossible.
dyfed
Posted: 27 May 2017 16:13:31(UTC)
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Agreed: both my SIPPs at all time highs, and that's after a disaster with ALM. My floating rate bond funds have also fallen a bit, which should tell us something?
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Mr Helpful on 28/05/2017(UTC)
srg751
Posted: 27 May 2017 16:44:13(UTC)
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Tony Peterson;47217 wrote:
Jon

I know exactly how you feel. We have been prospering at an unbelievable rate lately, but I have become unwilling to share.




I'm not so sure that you do know how he feels Tony. What you experienced from Lodo was indeed a sustained, unprovoked attack. Abuse which I'm surprised wasn't stopped by Citywire. What Jon Snow experienced was quite different and was brought on by himself.
He posted silly condescending 'put downs' in reply to a post that I made to someone else entirely. My reply to him, which I felt was justified, was "is your middle name Dick ?
He went on to suggest that he was joking, so I gave him the benefit of the doubt and 'I' subsequently deleted my post. He reciprocated by deleting the posts that offended me.
As I say, he initiated it by posting comments that offended me, much different to the abuse that you were subjected to by Lodo.
I empathise with your decision to refrain from posting, I too rarely bother now.
Anyway, nice to hear from you, and you'll be pleased to know that my income PF is going great guns. Remind me, who was it that said dividends are an illusion ? Ha !
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Tony Peterson on 27/05/2017(UTC)
King Lodos
Posted: 27 May 2017 17:11:46(UTC)
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@srg

I've never directed an abusive word towards Tony – what a strange assertion .. I respect him far too much as an investor, and as a Bridge parter.

It sounds like you did say something rather offensive, however .. To quote Huxley:

“Chronic remorse, as all the moralists are agreed, is a most undesirable sentiment. If you have behaved badly, repent, make what amends you can and address yourself to the task of behaving better next time. On no account brood over your wrongdoing. Rolling in the muck is not the best way of getting clean.”

And dividends are an illusion .. They're just earnings a company can't find anything better to do with .. You'll never get the return from dividend stocks I get from high growth Small-Caps.
Jeff Liddiard
Posted: 27 May 2017 17:17:04(UTC)
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King Lodos;47219 wrote:
Feels almost like a melt-up – but like Dalio said, this may be the sweet spot for stocks.

Rotated out of the Trump trade into Henderson European Smaller Companies and Marlborough Micro-Cap a little while back.

The Henderson fund's as good as it gets by my measures – of course it might do horribly from now, but PEG ratios around 0.5 and momentum looking great over every useful period .. It would be unusual for funds to post consecutive 50% years, but when valuations are that low it's not impossible.


Why Henderson European Smaller Companies OEIC as opposed to TR European Growth Growth Trust PLC?
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dyfed on 27/05/2017(UTC)
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