Capital Preservation

[xiox]

What are people doing to protect their house-buying (or other) funds and try to protect the capital in these uncertain times?

I'm almost all in cash at the moment. I'm occasionally tempted to move more into shares, but have rather cold feet about getting in now with the high levels of the US stock market (P/E). There's also the worry that these asset prices are being propped up with all funny money that's going around.

Perhaps if inflation picks up or there are large stock market falls, that would be the time to buy equities.

Opinions?

[ChewingGrass]

Just about live within my means so am effectively cash neutral with no debt other than the old death contract. Currently pouring 25% of gross into pension fund predominantly to get the tax relief, the sole reason why is that it provides a primary buffer against losses to a certain degree.

Other than that the returns are too low or too risky to do anything else at the moment.

[Wurzel Of Highbridge]

IMO if your going to buy a house with your funds, then you need to hold it in an investment that roughly tracks housing.

[Kalyayev]

I'm never getting a mortgage and would rather squat than get one (know enough like-minded people to be fine with this).

Hopefully buying/renting/squatting some land with others to make use of the seasonal worker's land use (can stay in one place for around 9 months a year) , which would mean a large part of the year with no rent and a lot of food grown for consumption.

Obviously have a bit of bitcoin and getting more whenever I feel like it.

Got a fair amount of savings (though nowhere near the amount some people here have) and use the normal channels. But would swap a large majority for food if I knew a monetary collapse was imminent.

After reading about other monetary collapses, shares (especially ones that pay dividends) would be a good choice once there is a monetary collapse but who knows. The government could easily confiscate that.

Is your life worth the money you save for it anyway? Give it all to a random person and hope they have a bit more imagination and fun in their meagre existence.

[acer]

I'm putting 16% of my gross into my pension. I'd put more in, but I want a lump sum on retirement (in 8-10 years) to buy my own house.

About 40 % of my net goes into a stocks and shares ISA. It's all invested in tracker funds, split 40 % equities, 9 % property and 35 % bonds/gilts. I also have a bit of cash in a fixed rate ISA, which makes up the last 16 %. I'm tapering off on the equities and property, and plan to move everything into bonds or cash a few years before I need the money. I haven't been able to do this for long, but the last few years have seen over 6 % annualised growth - it works out as 7.36 % compound annual growth, if I've got my sums right.

I'm sure that this doesn't protect me fully against a major event, but my cash is earning only 1.49 %. The equities are vulnerable, so I worry about a big drop taking out a lot of value at a point where there is not enough time to recover. The other worry I have is whether the bonds investments will act as a suitable diversifier, as I have read some opinion to the effect that bonds are now beginning to correlate positively with equities.

Is anyone holding gilts directly with the intention of holding until maturity? I'd like the idea of knowing exactly what I'm going to get back, and when. I've looked into buying direct from the DMO by auction, but the problem is that you don't know what you are going to pay for them until you have bought them. Looking at yields, I can't see how you can match inflation at its current levels.

[acer]

IMO if your going to buy a house with your funds, then you need to hold it in an investment that roughly tracks housing.

It's a good point. It's also worth finding out what housing is doing in the local area, assuming you know where you will be buying. In parts of the Midlands and North, for example, house prices have not even kept up with inflation over the last 5 years, so makes life easier for those of us who want to buy there.

Edited April 29, 2016 by acer

[ManVsRecession]

Im about 50% cash, 15% gold, and 35% in various trading positions. Trading small, going for high probability trades and taking profits early.

Going into referendum day, I'll aim be be as neutral directionally as possible in most things, and short some volatility ( via short options positions ), to capitalise on the end of the period of uncertainty.

Cash and trading / investments are in Interactive Brokers "universal" account, basically one place where I can trade just about any kind of instrument in any market. Doing a lot of learning and active trading, getting to understand all the possibilities. I've traded options for a while, but I'm figuring out futures, money markets, pairs trading and all about proper risk management.

I don't know how a Brixit or a Bremain vote will affect things, other than there's likely to be lots of fear / volatility, so I want be able to move quickly and capitalise on anything that might happen.

[ManVsRecession]

The other worry I have is whether the bonds investments will act as a suitable diversifier, as I have read some opinion to the effect that bonds are now beginning to correlate positively with equities.

Is anyone holding gilts directly with the intention of holding until maturity? I'd like the idea of knowing exactly what I'm going to get back, and when. I've looked into buying direct from the DMO by auction, but the problem is that you don't know what you are going to pay for them until you have bought them. Looking at yields, I can't see how you can match inflation at its current levels.

Bonds don't look great at the mo. With such low rates, there's not much upside and plenty of downside.

It's all very well knowing you'll get the principle back on maturity, but you'd have to hold through that time, accepting a measly rate when market rates may be much higher and your bonds are worth less than what you paid. Assuming higher interest rates come with higher inflation, you may still not beat inflation.

I'm learning a lot about the tools available these days, and there's various ways you can generate low risk income if you're prepared to go for modest targets ( inflation plus a couple of percent.).

Edited April 30, 2016 by ManVsRecession

[Orsino]

37% of my savings go into my pension. The remaining 63% goes into a series of UK, US, Euro and Japan trackers all held within ISAs. I'm just going to keep steadily putting the maximum allowance in there and am not bothered about medium-term market fluctuations, although I'm under-weight on the UK FTSE 250 so a larger share is currently going into this fund.

I'm not adding to my cash pile which represents 25% of all my savings (pensions, shares and cash) but I'm looking to diversify further this tax year. I'm considering some bonds but only because I want a more balanced spread of investments. I'll begin to diversify into property funds when they increase the ISA limit next year.

I agree that capital preservation is important, but with inflation so low, I'm more focused on saving hard and ensuring a more diversified portfolio which minimises my tax liabilities.

[Errol]

5% of the fund in gold?

[JoeDavola]

I'm learning a lot about the tools available these days, and there's various ways you can generate low risk income if you're prepared to go for modest targets ( inflation plus a couple of percent.).

Could you give some examples? I've got about 4 years worth of pay sitting in my bank account doing nowt.

[Kiwi Toast]

If you want a low risk portfolio you could follow Mr Wicao's example of a balanced portfolio. But I actually think someone who is young (20s or 30s) and not about to retire a heavier equities weighting is sensible.

[ManVsRecession]

Could you give some examples? I've got about 4 years worth of pay sitting in my bank account doing nowt.

The basic principle is to "sell volatility". You sell put and call options in various combinations depending on your market view. Nobody knows what the market will do tomorrow, so the default position is generally to be market neutral, i.e. bet that the market will stay within a range.

There is an intrinsic edge in doing this, because fear of future volatility is generally overpriced, particularly in market panics.

So you might sell ( short ) a put and a call option each month, to expire in 45 days time, at 1 standard deviation above and below the current price. Some months you'll lose, but most months you'll make a profit, and by closing out positions early if profit targets are hit, or rolling options to different strikes or expiry months as the market moves, you can increase the odds in your favour.

And the odds are easily figured out when you make your trade based on the options prices and various other supplied metrics. No guesswork required.

Ultimately, it's the casino / bookmaker / insurance model. You just need to focus on making lots of small, low risk trades, limiting your maximum risk in case of a black swan event, and then letting the law of large numbers play out.

The best place to learn is www.tastytrade.com. Just immerse yourself. Happy to explain in more detail if you're interested.

Edited June 2, 2016 by ManVsRecession