Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!

Notification

Icon
Error

Time to cash in my chips?
Laurie George
Posted: 10 January 2018 12:47:16(UTC)
#1

Joined: 10/07/2016(UTC)
Posts: 21

Thanks: 38 times
Was thanked: 14 time(s) in 11 post(s)
With so many pundits and experts saying that markets are due an imminent correction, I wonder what the view is from other members as to the best course of action.

I know the general view is that one can't time markets and that it's time in the market that is important, so one option is to stay put, thereby suffering any correction, but at least being there to enjoy the subsequent bounce back.

But with so many red lights flashing (to quote Neil Woodford, who admittedly hasn't had the best of years) would it be wise to seek defensive investments and if so, what would these be?

Or, is now the time to cash in my chips and ride out the storm?

Incidentally, I'm 60 and don't plan to take any income from my investments for at least 4-5 years.

It would be interesting to hear other's views...
2 users thanked Laurie George for this post.
gillyann on 10/01/2018(UTC), Danny Burns on 11/01/2018(UTC)
King Lodos
Posted: 10 January 2018 13:18:10(UTC)
#2

Joined: 05/01/2016(UTC)
Posts: 2,077

Thanks: 388 times
Was thanked: 2966 time(s) in 1176 post(s)
Two points I'd make:

– Never sell just because things have gone up and pundits are talking up a correction

They were doing this a lot in 2014, a lot in the early-90s (which went on to be a long bull market) .. It's called "climbing the wall of worry" because this for markets to trend in any direction there has to be doubt – there has to be a dichotomy between market psychology and reality – otherwise pricing would be much more instant. (Rebalancing to a set asset allocation as things go up can be a good idea.)


– As you get older, you should probably be derisking anyway

I say it's best to consider the risk of a 60% correction a constant .. Like flipping a coin: no matter how many heads you get in a row, the probability never changes .. So always plan for a bear market, and always be defensively positioned enough that it wouldn't matter.

Another way to think of it is that markets basically price in all the information we've got .. And if a bear market were more likely now, prices would already be lower to reflect that (this is the real essence of why it's hard to time markets) .. So it will be something we don't see coming .. I think Woodford's problems are really more about the sector he's in
10 users thanked King Lodos for this post.
Laurie George on 10/01/2018(UTC), Catch The Pigeon on 10/01/2018(UTC), Jim S on 10/01/2018(UTC), cliff aner on 10/01/2018(UTC), gillyann on 10/01/2018(UTC), Guest on 10/01/2018(UTC), what me, worry? on 11/01/2018(UTC), Guest on 14/01/2018(UTC), kWIKSAVE on 15/01/2018(UTC), derek millington on 15/01/2018(UTC)
Sara G
Posted: 10 January 2018 13:29:22(UTC)
#3

Joined: 07/05/2015(UTC)
Posts: 514

Thanks: 813 times
Was thanked: 879 time(s) in 338 post(s)
A correction could happen at any time or could take years to materialise, so selling now means you would miss out on any 'melt-up' (which may well have started already).

My approach is as follows:

I have roughly 40% in cash, defensive funds and precious metals so I'm not selling anything for now, but I'm not buying much at the moment either and have switched most of my regular monthly contributions to go to cash.

As it isn't clear whether current valuations are (as most think) ridiculously high, or quite reasonable given the other options and future prospects, I'll be dripfeeding small amounts into Fundsmith for the foreseeable future, where valuation is less of an issue (Quality and growth prospects being key). This has the benefit of satisfying the need to keep investing with minimal downside.

If there is a substantial melt-up I would be looking to top-slice some of the stellar performers such as EWI, but will be hanging on to BRWM, as I think there is still room for further gains in the sector.

As regards defensive holdings, mine are Personal Assets / Troy Trojan and Jupiter Absolute Return. If gold dips, I will top that up. If there is carnage in the bond markets as Bill Gross seems to suggest, or the Crypto bubble bursts, gold may be the place to be.

12 users thanked Sara G for this post.
Laurie George on 10/01/2018(UTC), jvl on 10/01/2018(UTC), dlp6666 on 10/01/2018(UTC), Jim S on 10/01/2018(UTC), Raj K on 10/01/2018(UTC), gillyann on 10/01/2018(UTC), Alex Peard on 10/01/2018(UTC), martin hargan on 11/01/2018(UTC), what me, worry? on 11/01/2018(UTC), Mr Helpful on 11/01/2018(UTC), Mike L on 14/01/2018(UTC), derek millington on 15/01/2018(UTC)
Keith Cobby
Posted: 10 January 2018 14:25:34(UTC)
#4

Joined: 07/03/2012(UTC)
Posts: 430

Thanks: 233 times
Was thanked: 645 time(s) in 261 post(s)
Ignore the noise and do what's right for you. If you want to stay in the markets drip money in monthly (or sell and drip the money back in monthly).

Compared to bonds equities are good value. My largest holdings are motoring along nicely, and like my car, I don't fiddle with it!
13 users thanked Keith Cobby for this post.
Laurie George on 10/01/2018(UTC), Mickey on 10/01/2018(UTC), Luca Brasi on 10/01/2018(UTC), Captain Slugwash on 10/01/2018(UTC), dlp6666 on 10/01/2018(UTC), Jim S on 10/01/2018(UTC), John Grant on 10/01/2018(UTC), Guest on 10/01/2018(UTC), martin hargan on 11/01/2018(UTC), what me, worry? on 11/01/2018(UTC), Guest on 11/01/2018(UTC), kWIKSAVE on 15/01/2018(UTC), derek millington on 15/01/2018(UTC)
Laurie George
Posted: 10 January 2018 14:26:58(UTC)
#5

Joined: 10/07/2016(UTC)
Posts: 21

Thanks: 38 times
Was thanked: 14 time(s) in 11 post(s)
Many thanks to King Lodos, Keith and Sara for their helpful feedback.
Having built up a somewhat fragmented portfolio of some 20 funds/trusts (which I appreciate I need to whittle down), my top ten holdings are as follows: -
Cash 29%
SMT 12%
Fundsmith 7%
Old Mutual UK Smaller Cos Foc 6%
FGT 5%
FCPT 5%
RCP 5%
FRCL 5%
Veritas Asian 3%
Axa Fram UK Smaller Cos 3%
Misc. Europe and US 20%

So, bearing in mind my original post, I would welcome suggestions as to how I could best move to a more defensive position/better asset allocation. The cash arrived recently and I’ve been reluctant to buy anything right now, but suggestions also welcome here.
2 users thanked Laurie George for this post.
King Lodos on 10/01/2018(UTC), what me, worry? on 11/01/2018(UTC)
Law Man
Posted: 10 January 2018 15:15:43(UTC)
#6

Joined: 29/04/2014(UTC)
Posts: 221

Thanks: 69 times
Was thanked: 393 time(s) in 160 post(s)
Laurie: previous posts make good points.

Ignoring the concept of a 'bear market' with only 5 years to 'retirement' you should beware holding 100% equities; but conversely 29% cash is high.

Consider the middle path: wealth preservation funds, infrastructure, etc.

Rather than 0% yield cash, look at short duration bonds e.g. the IS15 ETF earns c. 2.3%. On £20,000 of your cash that is £2,300 over the next 5 years.
6 users thanked Law Man for this post.
Laurie George on 10/01/2018(UTC), Tim D on 10/01/2018(UTC), what me, worry? on 11/01/2018(UTC), Guest on 11/01/2018(UTC), Mr Helpful on 11/01/2018(UTC), Mike L on 14/01/2018(UTC)
Keith Cobby
Posted: 10 January 2018 15:41:46(UTC)
#7

Joined: 07/03/2012(UTC)
Posts: 430

Thanks: 233 times
Was thanked: 645 time(s) in 261 post(s)
Laurie, you have chosen some good funds. I would drip cash in monthly to your existing funds.
1 user thanked Keith Cobby for this post.
what me, worry? on 11/01/2018(UTC)
martin b.
Posted: 10 January 2018 15:56:17(UTC)
#8

Joined: 03/03/2014(UTC)
Posts: 12

Thanks: 7 times
Was thanked: 21 time(s) in 7 post(s)
I'm a similar age and have had similar thoughts. One thing I did was to look at how my investments survived the '08 correction; what their Trustnet risk factor was and how UK biased they were (Brexit fears).

I then decided to sell off some ITs that took a long time to recover and those that seemed very dependant on the UK market.

Two I did sell were IIT as it took until october 2012 to really recover and is 89% uk invested. I'll probably regret selling it, however I was sitting on 70% profit.

The other sell was RCPT. It also took until october 2012 to get going and is I think 100% UK based. I felt other property trusts might be safer

I note you have 3 ITs which I also have:

SMT this took 3.5 yrs to recover. Its risk factor is 134 and only 6% in the UK. I have this as well - I think it would be a brave person who would sell it!

FGT took 5 years to recover. Risk factor = 108 (so just a bit more volatile than the FTSE100) and 84% UK - I wondered about selling but decided to keep it as I have confidence in the management.

RCP took just under 2.5 years to recover. Risk factor 92. UK 9% - This is recognised as a defensive stock. I intend to keep it


I also have 3in, BTEM, PNL and WTAN all recovered from the last crash within 2.5 yrs are defensive and have less than 50% invested in UK

I appreciate that the next correction will probably be for totally different reasons and therefore is likely to affect trusts differently and I am very much a novice so I'll be interested if people think my logic is up the spout.



12 users thanked martin b. for this post.
Laurie George on 10/01/2018(UTC), dlp6666 on 10/01/2018(UTC), chubby bunny on 10/01/2018(UTC), Jim S on 10/01/2018(UTC), john brace on 10/01/2018(UTC), Tim D on 10/01/2018(UTC), gillyann on 10/01/2018(UTC), Alex Peard on 10/01/2018(UTC), Guest on 10/01/2018(UTC), what me, worry? on 11/01/2018(UTC), Jim Thompson on 11/01/2018(UTC), Guest on 11/01/2018(UTC)
King Lodos
Posted: 10 January 2018 17:14:27(UTC)
#9

Joined: 05/01/2016(UTC)
Posts: 2,077

Thanks: 388 times
Was thanked: 2966 time(s) in 1176 post(s)
You can put up to £1m cash into NS&I 5yr Guaranteed Income Bonds yielding 2.17% at the moment .. Not terrible, assuming inflation stays reasonably low. (and basically a savings account)

This is Warren Buffett's Berkshire Hathaway asset allocation over time:

https://i.imgur.com/326yL0h.png

I use this as a bit of a benchmark – he's obviously selling off bonds and raising cash, but also raising equities a little .. Buffett's a value investor, so he only deploys cash where he sees value .. Then again, his equity allocation is nearly as high as it's been in 20 years, and he's said if he was a smaller investor, he'd probably be much more invested.

The big risk at the moment is, if we had a repeat of the financial crisis with yields where they are, it might be very difficult for the Fed to stimulate the economy .. The financial crisis was stopped in its tracks with stimulus – but we'd seen Japan's stock market lose 80% over 20 years, and bad declines can wipe out a generation of returns.

The optimist's view is that stocks are a win-win: either growth continues and they climb higher, or they fall and we stimulate even more aggressively.

Personally I like the Fundsmith and Lindsell Train approach as a neurotic .. Historically, great companies have never been bad investments .. 90% of the rest of the market (including a lot of SMT) make me nervous, because historically there have always been hot sectors, and they've not always been good investments.


9 users thanked King Lodos for this post.
Jim S on 10/01/2018(UTC), Tim D on 10/01/2018(UTC), Laurie George on 10/01/2018(UTC), gillyann on 10/01/2018(UTC), Alex Peard on 10/01/2018(UTC), Guest on 10/01/2018(UTC), martin hargan on 11/01/2018(UTC), Danny Burns on 11/01/2018(UTC), derek millington on 15/01/2018(UTC)
anglo29
Posted: 10 January 2018 19:26:16(UTC)
#10

Joined: 04/12/2015(UTC)
Posts: 13

Thanks: 1 times
Was thanked: 20 time(s) in 10 post(s)
I find there are increasingly contradictory messages coming out in the media, on the state of the economy. Today apparently, the news is that our manufacturing sector is "booming".....only a month or so ago, we were being told manufacturing output was down and in the doldrums. Who do you believe?

I find I'm taking rather less notice of media "experts", and trusting more to my own instinct, I've not suffered any disastrous "corrections" so far. There is a lot to be said for a diverse portfolio, resisting the temptation to be too greedy, and not "following the crowd"
4 users thanked anglo29 for this post.
John Grant on 10/01/2018(UTC), Laurie George on 10/01/2018(UTC), AJW on 11/01/2018(UTC), Mr Helpful on 11/01/2018(UTC)
Pensioner
Posted: 10 January 2018 23:26:41(UTC)
#11

Joined: 13/12/2010(UTC)
Posts: 39

Thanks: 10 times
Was thanked: 67 time(s) in 28 post(s)
I note you hold 10 investments with 29% cash. The cash holding is quite high, but cash is King
and if market drops as it may do you will have a nice comfort blanket. I note your Fundsmith and FRCL holding is % wise rather low. I hold both these as a major part of my portfolio as a defensive move in the event of another down turn in the stock market, and take risks elsewhere. You could sell or switch some of your other investments into Fundsmith or FRCL, but do so in small amounts (DRIP FEED), watch the markets, as both are a record high just now.
I seldom have more than 10 investments. I act as my own fund manager and feel more in control. Many people on the forum hold much more. You can diversify too much. I read Ian Cowie in the Times and on Citywire and you are quite free to look at his portfolio. The last time I looked he had about 50 investments. Individual shares,IT's,Unit Trusts and OEIC's, too many in my opinion, even if he boasts a 7 figure valuation for his retirement. But he is a Financial Journalist so I suppose that says a lot. He even holds WPCT? Lindsell Train is another good safe hold for UK equities, and for Global equities. Anyway as some people have said don't drop out of equity investment. Cash earns minimal interest and inflation quickly erodes any value. Hope that helps.

Good Luck
5 users thanked Pensioner for this post.
Keith Cobby on 11/01/2018(UTC), Mickey on 11/01/2018(UTC), James Wood on 11/01/2018(UTC), Laurie George on 11/01/2018(UTC), Mike L on 14/01/2018(UTC)
Mickey
Posted: 11 January 2018 09:32:50(UTC)
#12

Joined: 21/06/2010(UTC)
Posts: 417

Thanks: 1171 times
Was thanked: 395 time(s) in 196 post(s)
Pensioner;55255 wrote:
I note you hold 10 investments with 29% cash. The cash holding is quite high...

Is 29% Cash too much?

We hold 25% Cash in one portfolio and 55% Cash in another. However, for "portfolio" we include savings and investments which I think gives us a better perspective on the level of risk that we take with the investments. I am wondering if perhaps the OP is including their rainy day and other cash savings or is it 29% of their investment portfolio? We tend to stay fully invested with the portfolio holdings.
1 user thanked Mickey for this post.
Laurie George on 11/01/2018(UTC)
Danny Burns
Posted: 11 January 2018 11:31:22(UTC)
#13

Joined: 10/01/2018(UTC)
Posts: 2

Thanks: 4 times
I thought I’d add to this discussion because seeing the world’s markets all reaching record highs has got me a little jittery too and finally I’m taking a closer look at my portfolio (and trying to learn from the wisdom on this board).

It’s a little imprecise, but looking at Morningstar X-rays from the two platforms I use it seems that the overall price/earnings is 19.4, price/book 2.6 and price/cash flow is 11.8.

These don’t seem outrageous to me. PE is above the Shiller mean of 16.8, but not unreasonable compared to, say, the S&P over the last 30 years.

My equities are split 30% North America, 20% UK, 18% Europe, 12% Asia (mainly China and India) and 19% unclassified (which I take to mean global companies?). They’re biased towards large profitable companies that pay dividends in tech, insurance, healthcare, but there are also industrials, consumer defensive etc. They're held in about 15 funds, 5 trackers and 45 individual companies, which is probably too complicated.

With broadly promising economic news globally I don’t feel the need to sell everything yet, even if the bull run has gone on a long time, stimulus is flagging and it feels like we’re melting up…From reading various things I’ll take a much closer look in the summer or if the S&P gets to 3400.

On the cash question, overall I’m 31% cash, 13% bonds and 56% equities. That includes everything. Despite Warren B (thanks King Lodos!) I feel the cash is high but I’m afraid to buy at the top. The drip suggestions are interesting. Another thing to consider is currency. Mine is all in sterling and I’m inclined to keep some in euros or dollars long term (but the double hit of costs into and out of currency act as a deterrent since I only spend sterling).

Pensioner
Posted: 11 January 2018 14:12:37(UTC)
#14

Joined: 13/12/2010(UTC)
Posts: 39

Thanks: 10 times
Was thanked: 67 time(s) in 28 post(s)
Mickey. I have just checked the portfolio which covers myself and wife. We hold 14.55% in cash between us. We have separate current accounts and individual savings accounts for any emergencies for ourselves or family within that %. However, as I said in my previous comment FRCL and FUNDSMITH is our ANCHOR, within our portfolio which is never more than 8 other
investments often less. Although we discuss our investments. My wife with limited interest, leaves decision making to myself. We hold FRCL and FUNDSMITH direct in ISA's, to avoid income tax and capital gain.
I also act as IFA for my son and daughters family and grandchildren, and they have all invested in both these funds. Both funds a are very liquid and FRCL has been sold from time to time with a cheque within about a week. As an even better cash return if needed I hold FUNDSMITH with my broker. As long as I sell before midday usually for me about 09.00hrs. The money is direct to my account the next day - nocharge.
Unlike years ago I had a MARKETMASTER share account with Barclays (long closed), If I sold a share or IT I had to wait 3 days for the money to appear in my current account with no charge which I always did. If I wanted the money next day it was a £25 charge!
2 users thanked Pensioner for this post.
Mickey on 11/01/2018(UTC), Jeff Liddiard on 11/01/2018(UTC)
Mickey
Posted: 11 January 2018 15:06:40(UTC)
#15

Joined: 21/06/2010(UTC)
Posts: 417

Thanks: 1171 times
Was thanked: 395 time(s) in 196 post(s)
Thanks Pensioner,
We also hold FRCL though have moved from the F&C direct holding to now managing it with HL. My wife is very cautious so it has worked well for her to hold 50% cash and 50% higher risk in IT's. I have moved to 25% cash since I left work and have a few years before collecting the state pension if it is still available.
1 user thanked Mickey for this post.
Pensioner on 11/01/2018(UTC)
Mr Helpful
Posted: 11 January 2018 15:44:28(UTC)
#16

Joined: 04/11/2016(UTC)
Posts: 408

Thanks: 456 times
Was thanked: 469 time(s) in 233 post(s)
For comparative puposes only, the portfolio of an unabashed 'market timer' (although prefer the moniker 'Adaptive Value Investor'), in mid/late retirement.

25% Risk=Stocks (would lift as high as 70% should valuations permit)
28% Defensives
47% Cash (incl heavy dollop of NS&I IL Certs, not currently on sale)

Defensives include :-
Short-Term Bonds and other Debt Instruments (see also ref above to IS15)
Real Estate
Renewable Energy
Infrastructure
Commodities Income (which presently have on the Risk-Side).

How defensive the 'Defensives' are is debatable.
The main theme is that history indicates they have the potential to behave differently to Stocks.

Wouldn't fret too much about number of positions.
Seems fine.
2 users thanked Mr Helpful for this post.
Mickey on 11/01/2018(UTC), Laurie George on 12/01/2018(UTC)
Colb
Posted: 11 January 2018 16:17:20(UTC)
#17

Joined: 28/11/2014(UTC)
Posts: 4

Thanks: 3 times
Was thanked: 3 time(s) in 2 post(s)
Interesting read regarding 'defensive' funds. I also hold FRCL and have done for over a decade. Recent performance is good, but this may be because it has become a bit of a wolf in sheep's clothing. Although not highly committed in terms of portfolio %, the top holdings are:

Amazon.com
Microsoft Corporation
UnitedHealth Group Inc
Alphabet Inc A
Facebook Inc Class A
Anthem
Utilico Emerging Markets
Citigroup Inc
Apple Inc.

No bitcoin though!
1 user thanked Colb for this post.
Laurie George on 12/01/2018(UTC)
King Lodos
Posted: 11 January 2018 16:22:32(UTC)
#18

Joined: 05/01/2016(UTC)
Posts: 2,077

Thanks: 388 times
Was thanked: 2966 time(s) in 1176 post(s)
Utilico Emerging Mkts is something I've held for years .. I've always appreciated the income, and long-term performance is good.

Terribly high fee though .. I do wonder how justifiable it is
Danny Burns
Posted: 11 January 2018 21:14:24(UTC)
#19

Joined: 10/01/2018(UTC)
Posts: 2

Thanks: 4 times
I thought I’d add to this discussion because seeing the world’s markets all reaching record highs has got me a little jittery too. I finally got around to taking a closer look at my portfolio but I'm pretty much a novice and have been reading lots of the advice here.

For my portfolio, the overall price/earnings is 19.4, price/book 2.6 and price/cash flow is 11.8.

These don’t seem outrageous to me. PE is above the Shiller mean of 16.8, but doesn't look unreasonable compared to, say, the S&P over the last 30 years. How do others feel?

To judge I guess you need to know what kind of equities they are. They're 30% North America, 20% UK, 18% Europe, 12% Asia (mainly China and India) and 19% unclassified (which I take to mean global companies?). They’re biased towards large profitable dividend-paying companies in tech, insurance, healthcare, but there are also industrials, consumer defensive etc. There must be >100 companies included (I have 45 individual stocks, 10 funds, and a few trackers)

With broadly promising economic news globally I don’t feel the need to sell everything yet, even if the bull run has gone on a long time, stimulus is flagging and it feels like we’re melting up…From reading various things I’ll take a much closer look in the summer or if the S&P gets to 3400.

On the cash question, overall I’m 31% cash, 13% bonds and 56% equities. That includes everything. Despite Warren B (thanks for the chart King Lodos!) I feel the cash is high but I’m reluctant to buy at record highs. The drip suggestions are interesting and I may try to reduce to around 20% over the next few months.

Another thing to consider is which currency. My cash is all sterling and I’m inclined to keep some in euros or dollars long term (but the double hit of costs into and out of currency act as a deterrent since I only spend sterling).

Any comments on the relative priciness of the shares, or the asset mix are very welcome!
Laurie George
Posted: 12 January 2018 14:57:12(UTC)
#21

Joined: 10/07/2016(UTC)
Posts: 21

Thanks: 38 times
Was thanked: 14 time(s) in 11 post(s)
Again, my thanks to all the contributors on this thread...as always, very interesting to read other's views.
In fact, the cash holding was expressed as a % within the investment portfolio - ie ready to invest, but beyond that we have rainy day cash largely invested in fixed rate cash ISAs paying around 2.8% interest - for the time being at least.
But taken overall, we have around 45% of our savings/investments in cash, which I appreciate is too high.
But now feels a bad time to be entering the market, unless we start to drip feed as previously suggested...
1 user thanked Laurie George for this post.
Mickey on 12/01/2018(UTC)
2 Pages12Next page
+ Reply to discussion

Markets

Other markets