Finance/Investment tips?

DefaultM

ArchtopDave said:

DefaultM said:

That's funny I opened one of those last night. I don't understand though, it says bonus interest is paid monthly, but then you look at the chart further down and it says if you put in £1000 you'll have £1030 after a year. How, if the interest is paid monthly? Why isn't it compounding? Or have they just not been arsed to add the pennies from the compounding?

The 3% is the AER ...... you should have read "Definitions" under "Additional Information", where it explains that the 3% AER is what you get when the interest is compounded.

Haha is that a way of them being able to give you a lower interest rate but advertise it as being higher? When I opened my first ISA I got 10%, now they won't give you anything.

ToneControl

RandallFlagg said:

ToneControl said:

RaymondLin said:

ToneControl said:

RaymondLin said:

Not specific investment tips but the current school of thought are

1 - do it regularly and often
2 - dollar cost average
3 - never time the market
4 - don't put all your eggs in 1 basket
5 - don't invest in stocks of companies you don't understand
6 - Index funds out performs trying to pick best stocks in the long run

In the short term, high interest accounts, plenty now give over 2% with immediate access, Chase, Santander etc.

I'd say 
3 - never time the market
- unless you know what you are buying. plenty of people do this successfully 

6 - Index funds out performs trying to pick best stocks in the long run
-on average perhaps, but not for everyone.
Do you mean index funds usually outperform managed funds?

3 and 6 are essentially the same thing.

Even if you think what you are doing, as Warren Buffet has proven, index funds out performs trying to pick stocks to buy and sell.  You probably know the $1 mil bet that i am referring to.

Considering that OP has no idea....would you encourage him to pick stocks himself? That just doesn't make sense.  For every person who day trade to be a millionaire, there are many more who loses everything.  The shorter and the more specific way you trade, the more risk you are exposing yourself to.

As for using a fund manager.  WB has proved that also isn't the best idea.

I mean use a fund manager if you want, everything about investment has it's risk but for someone who doesn't know, the best thing for a layman to do is just use an index fund.  You could also apply the 60/40 rule (stocks/bond). If you want but putting every penny on Tesla is hell risky, vs say buying index fund on the NASDAQ. 

I don't think 3 + 6 are the same thing

You could have bought a US index tracker in April 2020, in the belief that the market had bottomed out. That would be "timing the market", but would not be "trying to pick the best stocks"

Certainly I would not advise OP to being with stocks, but I do challenge the idea that investing equal chunks over a long period is always the best thing to do. We've had discussions about this before, and there are plenty of times when it would be a bad idea. Also for the matter - staying invested (i.e. not in cash) all the time is also not always a great idea

Research into this suggests dollar cost averaging and staying invested works extremely well from peak through crash vs market timing and holding cash even if you start investing at the worst possible time. Only perfect market timing beats it, but barely.

https://seekingalpha.com/article/4471728-getting-in-at-the-worst-time

Conclusion:

"Based on history, it pays (quite literally) to begin investing ASAP, and to keep investing in the market as often as possible... even in the worst case scenario where the market crashes right after you start to invest. History shows that by investing early, you do ~10.3% better on average than you'd do if you saved your money and only started to invest from the lowest month of the past three bear markets. On the other hand, flawless market timing (Scenario 3 in my example) only earns ~3.1% more money than the investor who starts investing right before the crash. Although investors may be wary because markets are at all-time highs, history has shown that investing early and often is generally the best approach - even if you start right in front of a bear market."

Do you have some empirical evidence to show that market timing and dipping in and out the market to cash can outperform remaining invested?

Also, fees are a big consideration, some mutual funds have fees many factors higher than low cost index funds, which will eat into gains enormously over the long run. Trading and marking timing can also incur fees the impact of which the long term effect may not be apparent.

you're making the same mistake as AI modelling: that the future will be a re-run of the past
Lots of factors are at play in the market now that didn't exist before: LDI in pensions, crypto, Robin Hood investors, QE, over a decade of crazy share buybacks in the USA, a tech sector with stupid valuations (OK that's not the first time). As mentioned in a previous discussion, look at the Japanese stock market, you could have spent decades waiting for it to recover. 
If we have stagflation now, it won't be pretty.

History shows that by investing early, you do ~10.3% better on average than you'd do if you saved your money and only started to invest from the lowest month of the past three bear markets.

No, let me fix that:

History shows that by investing early, you would have done ~10.3% better on average than you would have done if you saved your money and only started to invest from the lowest month of the past three bear markets.

It's a mistake to imagine that nothing new happens in stock markets

My mate has lived for 25 years whilst ignoring the rules you are advocating, and he has never had to work or dip into his capital since the 1990s. He often has zero cash invested, he makes £100k+ every year, often a lot more than that, lives in a beach front apartment, and has a lovely quality of life. What is he doing wrong?

Yes, those rules you follow work better than some approaches, but they are not the only way. Did Warren Buffet follow those rules?

ToneControl

ArchtopDave said:

d8m said:

Another easy one that I've just bee shown:

https://www.hsbc.co.uk/savings/products/online-bonus-saver/

Interest capped at 3% up to 10K on months with no withdrawals, nice to run alongside the Barclays rainy day saver.

Unfortunately, as I pointed out in my first post above, whilst some savings income is better than no income, that savings accounts like this do not protect the value of your cash against inflation ..... currently you'd need a return of 10.1% in order to maintain the value of your money versus inflation.

yes, but if you get 4.5% a year for 3 years, and the 10% inflation drops off after a year, your savings are fine. We can't be certain that inflation will stay at the same level for years

RaymondLin

"Your mate"....a sample of 1 is not evidence.  It's purely anecdotal.  I can't believe you said "your mate", you lose all credibility with that argument, seriously.  You could even go larger with ALL your mates, that is still not large enough a sample size, vs the numbers for the stock market over its life time.

Almost 100 years of the stock market is a much better case to base on.  No one can predict the future, but do you trust your mate or do you trust historical data?

What does logic tell you?  

ToneControl

RaymondLin said:

"Your mate"....a sample of 1 is not evidence.  It's purely anecdotal.  I can't believe you said "your mate", you lose all credibility with that argument, seriously.  You could even go larger with ALL your mates, that is still not large enough a sample size, vs the numbers for the stock market over its life time.

Almost 100 years of the stock market is a much better case to base on.  No one can predict the future, but do you trust your mate or do you trust historical data?

What does logic tell you?  

it is evidence, it's a real tangible thing, his family have lived on the proceeds for 25 years. Do you seriously believe that no one ever made a living from consistently making a net profit from investments?

another mate put his £1m pension pot into index trackers last year after retiring, against my advice
He lost £200-£300k, and has now gone back to work

Logic tells me that the stock market expects things that happened before. Black swans did not happen before, best to expect the unexpected, and guard your capital. Are you familiar with options and the tactics available, there's a lot of stuff out there largely invisible to punters, and I regret leaving it so long to learn about it, e.g. https://uk.finance.yahoo.com/news/universa-investments-march-performance-164113528.html

historical data tells me a lot more than "shares go up in value consistently, with a few dips, forever"
Look at the Japanese index, and tell me what that tells you

RandallFlagg

ToneControl said:

you're making the same mistake as AI modelling: that the future will be a re-run of the past
Lots of factors are at play in the market now that didn't exist before: LDI in pensions, crypto, Robin Hood investors, QE, over a decade of crazy share buybacks in the USA, a tech sector with stupid valuations (OK that's not the first time). As mentioned in a previous discussion, look at the Japanese stock market, you could have spent decades waiting for it to recover. 
If we have stagflation now, it won't be pretty.

History shows that by investing early, you do ~10.3% better on average than you'd do if you saved your money and only started to invest from the lowest month of the past three bear markets.

No, let me fix that:

History shows that by investing early, you would have done ~10.3% better on average than you would have done if you saved your money and only started to invest from the lowest month of the past three bear markets.

It's a mistake to imagine that nothing new happens in stock markets

My mate has lived for 25 years whilst ignoring the rules you are advocating, and he has never had to work or dip into his capital since the 1990s. He often has zero cash invested, he makes £100k+ every year, often a lot more than that, lives in a beach front apartment, and has a lovely quality of life. What is he doing wrong?

Yes, those rules you follow work better than some approaches, but they are not the only way. Did Warren Buffet follow those rules?

“My mate” LOL, empirical data backed evidence is it? How can we take you seriously? You've been banging on about your Jedi trader “mate” for years, when are we going to hear about the market beating returns you are making from everything he has taught you? and how about a go forward strategy for long term retirement wealth building?

Of course there will some that can make money trading but it would be interesting to compare performance of his trading vs putting his starting sum in a low cost index fund and holding it.

Regarding Warren Buffet, he is a lifelong professional investor, and his performance is an outlier that no-one can realistically expect to emulate. Even Warren Buffet may not emulate his lifetime performance if he was starting again today. The majority of us are not professional investors and don't aspire to be. I want things to be simple and low effort, my wife and I hold 3 index funds and some cash, that's it. and have enjoyed 15% investment growth on average over the last 3 years by doing nothing, literally nothing except allow salary sacrifice to be paid in monthly. We will continue this through retirement and I have no doubts that we will see further market crashes, market highs and market lows but will be able to draw a comfortable income regardless. 

Regard markets and conditions changing, of course, but are you suggesting that past data is of no value? The study quoted above uses data from the crash of 2020, all of those factors you quote existed then and it was practically yesterday. Market volatility is often driven by human emotions and behaviour. Fear, panic selling and exuberance remain evident traits from decade to decade from Tulips to Bitcoins.

Buy and hold equity index fund investing requires the ability to emotionally tolerate market down swings, sometimes quite violently, without capitulation to fear and selling out when markets are down. Some people don't have the stomach for that so a blend of holding cash and equities can help calm the nerves but to make long term money invest and take risk you must.

RaymondLin

ToneControl said:

RaymondLin said:

"Your mate"....a sample of 1 is not evidence.  It's purely anecdotal.  I can't believe you said "your mate", you lose all credibility with that argument, seriously.  You could even go larger with ALL your mates, that is still not large enough a sample size, vs the numbers for the stock market over its life time.

Almost 100 years of the stock market is a much better case to base on.  No one can predict the future, but do you trust your mate or do you trust historical data?

What does logic tell you?  

it is evidence, it's a real tangible thing, his family have lived on the proceeds for 25 years. Do you seriously believe that no one ever made a living from consistently making a net profit from investments?

another mate put his £1m pension pot into index trackers last year after retiring, against my advice
He lost £200-£300k, and has now gone back to work

Logic tells me that the stock market expects things that happened before. Black swans did not happen before, best to expect the unexpected, and guard your capital. Are you familiar with options and the tactics available, there's a lot of stuff out there largely invisible to punters, and I regret leaving it so long to learn about it, e.g. https://uk.finance.yahoo.com/news/universa-investments-march-performance-164113528.html

historical data tells me a lot more than "shares go up in value consistently, with a few dips, forever"
Look at the Japanese index, and tell me what that tells you

There is evidence that you can skydive without a parachute, and live.

https://en.wikipedia.org/wiki/Vesna_Vulović

This is how you sound. 

1 person is not evidence, not even 2, or 3...(I can list a few more whose parachutes didn't open and live), but is it really evidence that you can skydive without a parachute?

RandallFlagg

ToneControl said:

another mate put his £1m pension pot into index trackers last year after retiring, against my advice
He lost £200-£300k, and has now gone back to work

He hadn't lost anything unless he cashed out and crystallised the losses. Which UK based Index fund has dropped 20/30%?

Vanguards VUSA S&P500 is down 7% YTD and VWRL All World ETF is down 9% YTD

it doesn't sound like he had a very well planned retirement or drawdown plan if he panicked, sold and went back to work after a 20% drop. A well set up long term plan will handle such expected and routine drops with ease.

RandallFlagg

ToneControl said:

Logic tells me that the stock market expects things that happened before. Black swans did not happen before, best to expect the unexpected, and guard your capital. Are you familiar with options and the tactics available, there's a lot of stuff out there largely invisible to punters, and I regret leaving it so long to learn about it, e.g. https://uk.finance.yahoo.com/news/universa-investments-march-performance-164113528.html

historical data tells me a lot more than "shares go up in value consistently, with a few dips, forever"
Look at the Japanese index, and tell me what that tells you

History is littered with “black swan” events, the recent pandemic was one. Staying invested is again proven to have been a solid strategy.

What does the chart below suggest to you?

While the US and Japan have some challenges in common such as ageing demographic and international competition, I wager there will be continued dominant US economic growth for decades to come at the very least, if not the next century

https://www.cnbc.com/2022/10/21/us-budget-deficit-cut-in-half-for-biggest-decrease-ever-amid-covid-spending-declines.html

pedalo

What are you all talking about?

Out of interest, can anyone tell me in simple terms why PCP is bad for getting a car? I’ve got a company car at the mo but might end up getting something else soon and loads of people say to do PCP/HP or whatever these days but I don’t know. 

ToneControl

RandallFlagg said:

ToneControl said:

Logic tells me that the stock market expects things that happened before. Black swans did not happen before, best to expect the unexpected, and guard your capital. Are you familiar with options and the tactics available, there's a lot of stuff out there largely invisible to punters, and I regret leaving it so long to learn about it, e.g. https://uk.finance.yahoo.com/news/universa-investments-march-performance-164113528.html

historical data tells me a lot more than "shares go up in value consistently, with a few dips, forever"
Look at the Japanese index, and tell me what that tells you

History is littered with “black swan” events, the recent pandemic was one. Staying invested is again proven to have been a solid strategy.

What does the chart below suggest to you?

While the US and Japan have some challenges in common such as ageing demographic and international competition, I wager there will be continued dominant US economic growth for decades to come at the very least, if not the next century

https://www.cnbc.com/2022/10/21/us-budget-deficit-cut-in-half-for-biggest-decrease-ever-amid-covid-spending-declines.html

AFAIK that index is more than 50% USA shares

My point is that there is no guarantee any market will continue to rise

See Japan:
https://yhoo.it/3eOavHj

ToneControl

RandallFlagg said:

ToneControl said:

another mate put his £1m pension pot into index trackers last year after retiring, against my advice
He lost £200-£300k, and has now gone back to work

He hadn't lost anything unless he cashed out and crystallised the losses. Which UK based Index fund has dropped 20/30%?

Vanguards VUSA S&P500 is down 7% YTD and VWRL All World ETF is down 9% YTD

it doesn't sound like he had a very well planned retirement or drawdown plan if he panicked, sold and went back to work after a 20% drop. A well set up long term plan will handle such expected and routine drops with ease.

Last week, the S&P500 had gone down 27% since the start of 2022, it's recovered a little, now only 22% down



I think he likes working, and it was a good excuse to return to work

Personally, I think someone like him, with an excellent scientific brain and a £1m pension pot would be better off learning how to actively invest: learning how to read company annual reports, understanding how options and futures work, and investing carefully. Basically investing in a Buffet style

I understand that for most people with average abilities in maths, a passive index-fund approach is a good option, I'd back that up with BTL investments too. However, for someone like him with a STEM degree from a top Uni, I think a hands-on investment style is viable, and could reduce risk

ToneControl

Here's what economists were worrying about 2 years ago:

ToneControl

This is very interesting:

it shows how US shares (S&P500) went up 10 times in 30 years - mostly down to QE by the look of it
How many here understand the role of QE?

Compare the SP500 with other indices: France and UK didn't improve much in 20 years

https://www.visualcapitalist.com/worlds-major-stock-markets-same-scale-1990-2019/

ToneControl

https://www.investopedia.com/ask/answers/021015/how-does-quantitative-easing-us-affect-stock-market.asp

 The QE Effect

Quantitative easing pushes interest rates down. This lowers the returns investors and savers can get on the safest investments such as money market accounts, certificates of deposit (CDs), Treasuries, and corporate bonds.

Investors are forced into relatively riskier investments to find stronger returns. Many of these investors weight their portfolios towards stocks, pushing up stock market prices. 

 When the Flow Stops

At some point, a QE policy ends. It is uncertain what happens to the stock market for good or ill when the flow of easy money from central bank policy stops.

The Federal Reserve added more than $4 trillion to its balance sheet in the half-decade between 2009 and 2014. Those are huge liabilities for the Fed, and they represent an important value for debt issuers everywhere.

If the Fed lets the bonds mature and does not replace them, it is equally unclear what impact this could have on the bond market.

Companies that stretch their capital into future operations may discover there is not sufficient demand to buy their goods. Some believe the low-interest rate policy of the Federal Reserve after the dot-com crash in the late 1990s helped to inflate the early 21st-century housing bubble in exactly this manner.

It is theoretically possible stock market prices could crash like those housing prices in 2008-09 if the same phenomenon results from QE. 

ToneControl

https://www.investopedia.com/articles/stocks/10/share-buybacks.asp



https://www.investopedia.com/articles/financial-advisors/121415/stock-buybacks-good-thing-or-not.asp

ToneControl

what people worry about is companies taking on debt to finance buybacks, 
obviously when interest rates increase, this can be very damaging to companies, and many SP500 companies have been doing this.
This is one of the reasons I don't trust the SP500 to continue to rise. Many people think a large drop is due

https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for-the-economy

RaymondLin

Why are you only looking at the last 30 years?  I said historic, like going back to 100 years. Going back to the start.

Don't pick and choose your statistic, don't cherry pick to suit your argument, include ALL of it.  If you pick just the numbers in the 50's, that's quite flat too.  This is why I can't take you seriously.  You pick examples just to suit your argument, whereas I am looking at the whole picture.

This is akin to debate with a flat earther, that their evidence of the earth is flat is because what they see with their eyes everything is flat.  They refuse to look at the bigger picture. 

Stop doing that.

(Well you could if you want, I will continue can't take you seriously because your argument is skewed) 

RandallFlagg

ToneControl said:

https://www.investopedia.com/ask/answers/021015/how-does-quantitative-easing-us-affect-stock-market.asp

 When the Flow Stops

At some point, a QE policy ends. It is uncertain what happens to the stock market for good or ill when the flow of easy money from central bank policy stops.

The Federal Reserve added more than $4 trillion to its balance sheet in the half-decade between 2009 and 2014. Those are huge liabilities for the Fed, and they represent an important value for debt issuers everywhere.

If the Fed lets the bonds mature and does not replace them, it is equally unclear what impact this could have on the bond market.

Companies that stretch their capital into future operations may discover there is not sufficient demand to buy their goods. Some believe the low-interest rate policy of the Federal Reserve after the dot-com crash in the late 1990s helped to inflate the early 21st-century housing bubble in exactly this manner.

It is theoretically possible stock market prices could crash like those housing prices in 2008-09 if the same phenomenon results from QE. 

"uncertain" "if" "unclear" "may" "some believe" "theoretically possible" "could"

Sounds like FUD to me.

RandallFlagg

ToneControl said:

https://www.investopedia.com/ask/answers/021015/how-does-quantitative-easing-us-affect-stock-market.asp

 The QE Effect

Quantitative easing pushes interest rates down. This lowers the returns investors and savers can get on the safest investments such as money market accounts, certificates of deposit (CDs), Treasuries, and corporate bonds.

Investors are forced into relatively riskier investments to find stronger returns. Many of these investors weight their portfolios towards stocks, pushing up stock market prices. 

QE didn't have that effect for Japan did it?