WAVE ACTION

Thank you for your charts as this now tells us all when we should have bought and sold over a given period.....

My experience suggests that past performance leads Investors in closer to the top and out close to the bottom so maybe some benefit from understanding what's going on ...

We see clearly the majority getting it wrong and maybe we should turn the charts upside down...do you have a view on this...

Clearly we have seen the Woodford effect by looking at past performance and charts as they get dragged in by greed but cause major losses as they panic out.

Thanks to everyone for their contributions. It's been a really good read.

Asset allocation is always interesting. More often than not, the ideal portfolio is only known through hindsight. It’s retrospective view on what we should have done. It cannot with any degree of confidence predict what will happen. Just look at all the predictions from the fund houses and banks for 2025. Some common themes but lots of variance. Logic and investing don’t tend to be common bedfellows.

So what to do?

One option (back to the beginning) is to choose a diverse multi-asset fund (two or three if provider risk is a concern) and simply let time do it’s thing. But none are the same. You need to choose between hedged / unhedged bonds or inclusion of home bias, property, junk bonds, linkers, gold, and so on.

Another option is to choose your own individual asset allocations based on Swenson, Hale, Harry Browne, Jack Bogle, or similar portfolios. Takes a little more effort. Interestingly, the Slow and Steady portfolio created by Monevator in 2011 has performed exactly the same as a LifeStrategy '70'. I think it started out as 80% equity but dropped to 60% equity. All that work (and fun) to end up somewhere in the middle.



Other options include ITs with a long track record, discounted opportunities, thematics, valuations, buy and hold, assets that cover all bases, 100% equity, you name it.

What I do feel each private investor must do is think about maximum portfolio loss that would be tolerable. One line of thinking is to limit an equity allocation to twice that figure (based on a 50% market drop). So if you can only stomach a 20% loss then it’s a 40% equity allocation. Great theory, but when bonds started their reset to normality in 2022, I wonder how many PIs thought they could possibly 'lose' 20% from their bond allocation?

There is no right or wrong. It is clearly possible to outperform the market. But I wonder how PIs fail to do so and end up underperforming. A multi-asset fund might just stop that unnecessary 'self-destruct' button.

Why use 50% even? Would you use it in 2010 when market valuations were depressed?

Feels way too simplistic and arbitrary to me. The problem is not so much the number being used. It is using this approach in the first place. When you get into the territory of stress testing in this way, you are automatically assuming you know something about valuations.

Would it not be better to allocate defensives (cash, low duration bonds) for money you need within say 10-15 years, and then invest the rest in equities? Do an annual review to see if you need to top up the defensives etc.

Yes this way assume you know something about market returns expectations, but IMO far better than assuming x% draw down, which feels too short termist and prone to misallocation for no reason other than for arbitrary reasons and "what feels right".

Yes maybe . Say AUM £1000000 withdrawing £40K
Then defensives £400k to £600K its still a 60/40 or 40/60 . Just depends on what you need or want, and how big a hit you can stomach, when the inevitable happens.

I'm very similar.

It's one thing looking at a spreadsheet and thinking "I can lose 25% off that I'd be fine".

It's quite another in the middle of "it" whatever "it" is thinking "I'm £100K down here that's a quarter of my life savings wiped out" and doing nothing.

Life isn't a spreadsheet.

I'm late 40's so I'm walking a line between trying to accumulate in the hopes work soon becomes even more optional than it is now whilst also not wanting risk that optionality too much.