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Investments review / cash allocation
Rocky_W
Posted: 12 June 2018 18:11:10(UTC)
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Hi all, I'm reviewing my investments. Should I have a cash pot ready to invest? I think being 100% stocks maybe too risky.

I'm currently 39. Plan to retire or slow work down significantly at 55. Have cash aside for a rainy day but don't want to use this cash to buy more stocks if a crash comes - I need this as a rainy day fund. No mortgage on final family house. I add 1k a month to my SIPP and I'll try add 20k per year to my ISA from now on.

My SIPP value is £150k and ISA value is 90k. Both split the same into funds as below.

40% Fundsmith Equity
35% Lindsell Train Global Equity
10% Rathbone Global Opportunities
10 % Fundsmith Feet
5% Scottish Mortgage IT

I'm thinking of creating a 25% cash pot in both the SIPP and isa to create a re-investable cash pot ready for a crash/buying opportunity. What do you think?

To do this I'd cash-in 100% Rathbone Global and Scottish Mortgage. And some of the Fundsmith Equity.

Also I'm not 100% sold on the Rathbone fund. If I stay 100% invested and zero cash I'll probably sell and re-invest into the Fundsmith Equity and Lindsell Train Global.

Any comments and advice welcome.
Cheers, Rocky
Rocky_W
Posted: 13 June 2018 19:23:35(UTC)
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Bump... any views?
mark spurrier
Posted: 13 June 2018 19:37:30(UTC)
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Why hold cash?

It is an asset with a negative return.

If you want a rainy day fund I would suggest a short duration bond fund or ETF - at least that returns something.

i hold cash in case something exciting turns up or a holding dips for no real reason. EAT trust is one such example in the last few days. I have sold the same value and been left with a few hundred shares in EAT that have added to my existing holding - I like to hold c 5% but it rarely is that as something is always around to invest in :)

As the cash yields so little why hold it in a tax wrapper anyway?

Rocky_W
Posted: 13 June 2018 19:50:38(UTC)
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Was thinking as an 'option' to buy went stocks go down at some point. Having no cash means no possibility of buying a decent chunk when/if a big fall occurs.
Keith Cobby
Posted: 13 June 2018 20:04:44(UTC)
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Posters have been predicting a correction/crash on here for years and, holding cash, have missed out on the upside.
mark spurrier
Posted: 13 June 2018 20:21:47(UTC)
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If you are invested in strong companies with a good market position, decent management and high ROCE and strong free cash flow yield you will always be alright

If you play around with poor stocks or fashionable investments you will get a hiding. You always need to be watchful as fortunes, management, competition etc will change over time.

I had a nasty little spat with a self proclaimed master investor who invests for yield. He doesn't seem to notice that the yield on his stocks keeps rising (arithmetically) because he keeps taking capital loses.

Total return is all that matters
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Keith Cobby on 14/06/2018(UTC)
Tyrion Lannister
Posted: 13 June 2018 22:13:07(UTC)
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mark spurrier;63848 wrote:
Why hold cash?

It is an asset with a negative return.

If you want a rainy day fund I would suggest a short duration bond fund or ETF - at least that returns something.




Are short duration bonds really as safe as cash and fully liquid?

I'm currently sitting on over 10% cash in my SIPP which I'm sure is the right thing to do but it irks me that I'm getting a negative return on it.
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dlp6666 on 15/06/2018(UTC)
King Lodos
Posted: 14 June 2018 00:55:07(UTC)
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Short duration government bonds should be safer than cash – the government should be a safer bet than a bank .. I use NS&I bonds at the moment for my cash. (bond funds I'm less keen on – even though long-term things should work out the same)

I think you want at least 10% in cash .. When you run long-term backtests, it really isn't much of a drag – and the amount it protects you during drawdowns can easily put you ahead of 100% stocks over 20-30 year periods.

Main thing is if you've seen charts like this:

http://carlsonwm.com/wp-content/uploads/2015/06/Impact-of-loss1.png

The return required to make back a loss.

You can see losses up to 30% are fairly easily recoverable – but it gets exponentially worse.

Some people think markets don't work in percentages .. Well, very short term they possibly don't – money leaves fast; gets back in fast – especially if fundamentals haven't changed much.

But an 80% loss over 20 years (like Japan's experienced) is going to be a very slow recovery .. You wouldn't expect a rapid 400% return now .. The old market highs are long behind us.

Some also say such a loss in stocks would make money your least concern (there'd be riots for tinned food) .. Well, not necessarily .. Stocks only pay you more than government bonds because the risk of capital loss *is* real .. So even a 10% cash holding is very significantly protective as you get into worse worst case scenarios, and not significantly impactful on returns
4 users thanked King Lodos for this post.
Rocky_W on 14/06/2018(UTC), Peter59 on 14/06/2018(UTC), Tyrion Lannister on 14/06/2018(UTC), dlp6666 on 15/06/2018(UTC)
Rocky_W
Posted: 14 June 2018 07:18:35(UTC)
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Thanks. Think I'll sell the Rathbone Global Opportunities to create a 10% cash pot.

I probably keep the smaller SMT and FEET allocations
Mr Helpful
Posted: 14 June 2018 18:08:22(UTC)
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Seems to be at least three fears, probably more, suffered by investors :-

+ Fear of not being fully invested should Stocks surge
+ Fear of not having 'dry powder' should Stocks slump
+ And that fear named 'Rhinophobia' "an investors' disease meaning 'the dread of ever having cash.'"

Your (final) decision leans towards a balanced approach.
There may be naysayers, but each investor has to find a way to their own comfort zone, to then ride the market cycles with equanimity.
4 users thanked Mr Helpful for this post.
Slacker on 14/06/2018(UTC), Sara G on 15/06/2018(UTC), antigricer on 15/06/2018(UTC), dlp6666 on 15/06/2018(UTC)
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