Beat the market – it’s what everyone wants to do. And there’s an increasing counsel of despair, that the market is efficient and you can’t do that. It will consume you and spit you out penniless. Settle for indexing, and it’ll all be all right.
We’re all running around after the Holy Grail – we want to beat the market. Why, FFS? It’s okay if you really are a hedgie, I guess that’s your job. For the rest of us, shouldn’t we just take a step back and ask ourselves what we want to do?
Most private investors are in the market for a range of reasons. Some of us find finance fascinating in itself. Some of us look at the daily grind and think to ourselves is this all there is – it hits people particularly in their forties, part of the thesis that human happiness follows a U shaped curve through the lifestream[ref]it’s a generalisation – not everyone will follow it so if you’re enjoying your 40s good on you 🙂 [/ref]. And we want out.
Some of us, like your scrivener here, carry on insouciantly through life/career and then take some hits. Discovering along the way that they have fallen asleep at the switch, and want out ASAP but at least past the two-thirds mark. Some of us try and get ahead of the curve and plan their early retirement strategically. Some of us are a little bit more situationally aware than I was and see the marks left by the hand writing on the wall, and perhaps look around and see there are few 65-year-olds in our workplace 😉
I don’t see ‘I want to beat the market‘ as a goal in any of those. These are human beings trying to navigate the tides of life in a rich First World country, and if there’s any one thread running through these it is a desire for financial independence – aiming to become an aristocrat, gentleman of leisure or more simply not having to sell your time for money. At the base of this is a simple goal – that of freedom of action, from work that usually consumes over half of the typical adult’s waking day because they sell their time for money.
For an ermine, it’s seeing the back of the workplace, forever [ref]Work is vastly overrated as a source of meaningful life as I currently see it, over a year and a half after checking out of the workplace for good. But I’m not dumb enough to say I’ll never consider working, even as an elective choice. The way companies manage people might move back from digital Taylorism. But if I were to do that, I always want the FU option, so I can’t inflate my lifestyle that much, in which case what’s the point?[/ref]. Some people try that and find they aren’t so happy with a life of leisure, so they take on work – but on their terms. Which is also good – there’s a big difference between going to work but being able to walk away at any time, and going to work because otherwise you will end up destitute. I’ve never tried the first option. It all boils down to the message of A Man With Savings
Freedom is one of the ultimate goals that a sentient being can pursue. It’s right there in one of the self-evident truths the Founding Fathers of the United States declaimed
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
It’s a curious fact of consumerism that it seeks to persuade you to prioritise the pursuit of a narrow form of Happiness at the expense of Liberty – the freedom to do with your time as you see fit. That’s one of the great things about freedom, you choose, and if you want go enter Max Weber’s iron cage for the middle class lifestyle that’s your call. Exactly how I got to my late forties before I realised this was a choice is a matter of some concern to me, if only because it showed a shocking lack of reflective thought, but I’ve tried to make up for it since.
Monevator brings us a counsel of despair along the general lines of laws of Thermodynamics, you can’t beat the market, you’ll be lucky even if you match it etc. I note he doesn’t eat his own dog-food. And since a lot of what I learned this time round comes from there I take some heart from that 😉 I studiously note, but ignore for now, the official line that has developed, because I found the takeaways of three and two – years ago far more useful to my specific temperament.
In the dark days of early 2009, when all around was falling and much damage had been done to the finances of my then employer, I saw that I was short of money and outta time, because I was unlikely to make it another 12 years to retirement age the way the company was being managed. Working there would piss me off so much that it would do my health in. I couldn’t play the game much longer.
I’m glad that I read the inspirational article that lit a way in the storm, because, really, honestly, going out and buying index-trackers wasn’t gonna cut it for me. I’ve been there. Money is crystallised power, and to commit some of that to a path, the story has to sing to you else you just won’t start. We humans are just like that sometimes.
Wealth warning – I’m not saying index-tracking doesn’t work. It wouldn’t work for me at that time because when I was looking for an express way to get a modest income top-up, buy and hold for the next 25 years isn’t an inspiring message. I was lucky to start in the middle of a storm, though it’s arguable I had to start because of the storm’s effect on The Firm
It would probably have worked – most of the message is basically get your ass out there on deck in the storm and BUY when everyone else is selling[ref]that’s called market timing. You aren’t meant to do that and it apparently doesn’t work[/ref]. It probably didn’t matter what you bought as long as it had some basis in reality and not too much to do with US real-estate. As proof of this I bought a shedload of L&G 50:50 FTSE100/Global fund in my pension AVCs, nearly half of which was money that thieving barsteward George Osborne didn’t get to steal from me in tax. That appreciated too, so index tracking does also work in bear markets. If you have the taste for it, it’s not an easy one to acquire.
What is beating the market, anyway?
For me, beating the market is getting ahead of the FTAS, for the simple reason that through my abortive attempt to index-track from 2003-2007 that’s what I chose – it is a broadly-based UK index, and not a bad one to choose for someone living in the UK. There are good cases to be made for choosing something wider, and if you like that sort of thing then Vanguard’s Lifestrategy100 isn’t a bad place to go.
I have beaten the FTAS (in the form of a Vanguard accumulating fund) [ref]accumulating because then it factors in dividend payments, something that is otherwise the devil’s own job to add to an index[/ref] since the inception of my ISA in 2009 and Vanguard Lifestrategy100 over the last couple of years. I only have two years of data for that as it’s presumably only recently been crafted. Lifestrategy (VGLS100A) is of interest to me as I may switch future funds to it now my HYP pays me enough dividend for the target income (after this year). But it pays no dividend, being an accumulating fund. At the moment my ISA is an accumulating fund too because I reinvest dividends. Unfortunately I am not sure how to unitise/track an ISA if I draw from it. I haven’t bothered to get my head round that because it will be a good few years before I do.
So there is a philosophical issue in choosing the market you want to beat. Tracking these two funds, and the performance of my ISA, isn’t enough. I have to turn the knowledge into wisdom. It’s easy now as I am doing better than the FTAS, given my purchase history. But if I don’t – does this mean I should pack it in and buy the FTAS instead?
Why do you want to beat the market?
Now if you’re starting saving over a period of thirty or forty years for a pension then yes, you’d probably like to beat the market. That’s because you have a massive integration time of four decades, where, if you save into pension you won’t be allowed to get a hold of your money until 55. That’s the flipside of the tax breaks, because the youthful you might spend it on fast cars and holidays. A project like that is straightforwardly about building wealth, that wealth being about 20-25 times the amount of annual income you want to have in retirement. Because you aren’t allowed to touch the money, the performance of your portfolio is irrelevant to your day-to-day finances. So you can look at the sort of 50% loss in capital value that the stock market can do to you in one year with sanguine disdain, knowing that your net-worth will very likely recover from the suckout in five years time.
Or you can take inspiration from the poster and bugger up your returns. If you are investing over decades, tragically you have the time to try and be clever, but you’ll only ever know if you were clever by the end. And if you weren’t, then you have no Plan B. So that’ll be you on Tesco Value beans and dry bread, huddled in a coat in front of a one-bar electric fire.
That doesn’t sound so nice, so you go with the index. The fundamental premise of index tracking is that equities reflect a representative subset of the aggregate value (not just price) of the goods and services in the economy which gradually drifts up over time. The equity proxy tracks this in secular time-scales, albeit with some hair-raising year-on-year switchbacks. Integrate them over decades, and divest over a few years at the end if you need to crystallise the lot to buy an annuity, and you’ll probably do okay. Building your pension capital is a long-term project that’s on a much bigger scale than what I am doing, which is building a top-up for my pension to compensate for retiring early. I am older, wealthier and can eat more risk than the nearly thirty-something younger me that joined The Firm’s pension scheme over a quarter of a century ago.
If I were saving for a pension for 20,30 years I’d buy VGLS100A every month. The downside of screwing up is too high on a project like that, and there it really is total return that matters, because I would sell the lot in stages over the five years running up to retirement to buy an annuity – or hopefully something else by then. I wouldn’t give a toss if the total return comes from capital gain or income reinvested. That’s irrelevant to that kind of project, whereas the difference between capgain and income is very relevant to me. I need some capital appreciation to fight inflation over the years, but an income matters to me in a way it just doesn’t to someone saving towards a distant pension.
Not everybody wants to beat the index – some keep an eye on the dividend income…
I can say that because I am beating the indexes I would otherwise buy at the moment – the FTAS over all the time my ISA has been in existence (from 2009), VGLS100A for all the time it has been in existence, the young whippersnapper. If I weren’t, indexing pundits would say I was a sourpuss loser trying to hide all sorts of cognitive failings. Nevertheless – some investors have other priorities than beating the market, and a need for income without making sell calls is one very valid exception. Young folk saving in a pension do want to beat the market but they probably shouldn’t try, because of the risk of those beans and that electric fire if they aren’t as good as they think they are. And I’m not beating my benchmarks so much that I expect Lloyd Blankfein to rock up asking for a cup of coffee and inviting me to join him in doing God’s Work.
After all, when I started investing this time[ref]I’ve had three phases of stock market investment – one in my early twenties with the BT flotation, which was okay and one crap period in the dotcom boom where I researched a lot of ways to lose money, followed by some lacklustre indexing[/ref] in April 2009, my aim was simple. It appears I – and my boss were one of the FT/Grauniad‘s Cling-ons, presumably that The Firm was trying to evacuate itself of 😉 My boss had just had a child in his early forties with his second wife[ref]I didn’t know this backstory at the time, else I might have taken a different line, after all, I was a Man With Savings[/ref] and therefore was desperate for money and prepared to do what it takes to please his boss in a feverish environment where profits were plunging.
I wanted to be in a position to tell my boss to piss off and stick his precious newly created micromanagement objectives where the sun doesn’t shine. For that, I needed money. Fast. I had capital, but did not have the knowledge of how to turn that into an income without running it down. I wanted an income I could half believe in – I didn’t want to beat the market, just turn some savings into an income. It was a revelation to me that the variation in income from a diversified portfolio would vary so much less than the market value of its components. For instance, as a percentage of purchase cost my yearly dividend yield across the ISA has been
2.5%, 5%, 4.9%, 4.9%
for the years 2010-2013, looking back over the previous year. The first low figure is the result of some random trading daftness, and the current slow fall is because I’m finding yield harder to find as the economy improves, though capital appreciation is increasing. Although capital appreciation isn’t particularly what I want, part of the art of investing seems to be going with the flow. Yield was easy to have in 2009 and 2010. Capital appreciation seemed the order of the day in 2013, though I contributed no new money to my ISA, simply shifted an ISA-worth of unwrapped holdings because I felt unable to make a purchase that was worth the money. It made more sense to live off cash and shift investments because the cash gives me a 4% p.a. increase in pension by not drawing it a year earlier.
This ISA year seems to hold potential opportunities in emerging markets and a generally less gung-ho attitude, which is good for net buyers though it makes all the papers and CNBC a lot less excited. Some of that capital appreciation will disappear, probably, ‘cos the stock market is just like that – what it gives with one hand it takes away with the other, just a teeny bit less over the decades. Unlike the ephemeral capital gains, however, I have a steadily increasing income from all this lot. It’s not guaranteed, but it’s a helluvalot less volatile than the capital value.
I now prioritise geographical diversity over yield, and that seems to shift returns more in terms of capital gain. But I’d actually prefer to forego some capital gain for a higher yield [ref]you can of course always exchange capital gain for yield – sell some shares – but which ones? I’m not good at making sell calls, and very good at sitting on my backside doing nothing, so selling shares is a decision I don’t want to make.[/ref]
I had a lot of luck. I started just after a big market crash. That’s luck – you can’t make it. But you have to see it when it’s there, and even that’s not good enough. You have to fight part of yourself to get out there and do it. And then you have to keep on doing it when the opportunity next presents itself.
People after income sometimes prefer the steadiness of income to rip-roaring capital appreciation – after this is the theory behind having a mix of equities and bonds that favours the latter as you age. The young pups of equities give better historical returns integrated over decades but far worse volatility. Bonds give a piss-poor historical return but can vary a lot less. If you retired and were fully invested in equities in 2009 you were stuffed. Whereas if you had switched over time to a mix you’d not have been hit as hard.
Now I have a total blank spot when it comes to bonds. I don’t own them, I don’t touch the buggers [ref]with the exception of some bank preference shares that have bond-like properties[/ref]. That’s because I have a deferred pension which gives a very bond-like proposition, so I don’t need more assets with that nature, though I am very glad to have what I do have.
So provided I can get the income I want I’m not hugely fussed about beating the index. Say it’s the FTAS – the FT all-share currently yields 2.8%. If I want 4% income from the FTAS I’d have to sell of 1.2% of the units this year – ie take the divi and sell off 1.2% of my capital. Over time you expect a positive total return over inflation, that isn’t an unreasonable thing do do. As long as you don’t sell too much. Therein lies the rub, how much is too much?
The whole point of investing for me is to become a gentleman of leisure, to avoid that dreaded w*rk word. Or more to the point, to avoid jumped up pipsqueaks and tosspots telling me what to do when it has no meaning in the grand scheme of what the company is trying to do, it’s just because some bunch of oiks have dreamed up some targets to get their bonuses/save their jobs. No. Bollocks. The world is far too interesting to be unable to stick and inquisitive snout into all the various wrinkles of it, and I’ve only got one life to live, and it’s too short to flush it away one day at a time doing someone else’s bidding.
If you don’t sell your time for money/work for a living you need to look after your capital…
Becoming a gentleman of leisure means I start to think like old money. Old money never sells the family silver, it doesn’t sell land, and it bloody well doesn’t run down its capital. In a theoretical and intellectual way I can see buying a FTAS index and selling off (4% – that year’s yield) at the end of the year is one way of doing it. But I’m not old enough to start running down my capital like that. My investment performance improved no end when I took selling out of the equation.
I don’t need to beat an index. I want an income, at about 4 or 5% of the capital I can muster, with some tracking of inflation [ref]even dividend paying stocks provide some inflation protection through capital appreciation over the whole business cycle. They are usually at the staid end of the market in terms of capital appreciation, because as Jim Slater said, elephants don’t gallop. If you want racy returns, AIM is where you want to be. You just need to avoid buying the duds, of which there are many. I use ASL to somewhat lean against the big-company bias of a HYP – but that’s only because they were cheap and yieldy at the time[/ref].
Don’t get me wrong, I am happy to have beaten the FTAS and Vanguard Lifestrategy 100 so far. But the slow fall in yield does disturb me. Yield was easier to buy in the hell-hole of 2009 than it is now, whereas capital appreciation seems to rise to the fore. I will continue to try storm-chasing and buying the unloved. That’s unashamedly market-timing. I don’t have to shoot for everything – I miss some and I take some and some I cock up altogether (AGK).
Of purchases – I still aim not to sell [ref]I make an exception for The Firm because I acquired a shedload of shares in The Firm through sharesave. I need to sell some of these for the sake of diversification and CGT utilisation [/ref]. Stock plungers like Jesse Livermore did well on the selling side. He had far more talent and operated in a far less sophisticated market. However, fear and greed haven’t changed that much in 80 years. I have a suspicion that it’s hard to be good at timing both long and short trades, you need such a different mentality when doing one compared to the other. I am pessimist enough, so short trades would always have too much of an attraction for me. Short selling is much more geared by definition, so I have only shorted assets I already own or have a claim on. I’m just not hard enough to do otherwise.
The trouble with that is you can’t predict storms, and it’s still bloody hard to overcome the fear and buy into them. It doesn’t get that much easier with time, sadly. In many ways if I am going to be active, I need to be opportunistic. I’m not trying to set up a black box trading system. I’m not smart enough nor have enough information to do it. But I have observed human nature in storms. The market is efficient most of the time, but people still panic in market storms.
Because I can afford to make mistakes in my ISA I’ve run towards storms – in 2009 after reading this, through 2010, a pause in 2011 until the Summer of Rage, a bit of opportunism at the Direct Line IPO which stitched me up in adding cash to my ISA though it was profitable enough [ref]I had to offer to buy more than I expected to get, which means I had to keep a lot of ISA allowance clear. In future I will do IPOs in a regular trading account[/ref] and a motley collection of housebuilders and infrastructure ITs that were looking peaky.
So it is hard to beat the market. But so far not impossible. Of course as the years roll buy there’s opportunity for me to crap out. With a no sell rule the amount of screwing up I can do in any one year becomes lower. Yes, I lose on the opportunities that selling dogs and investing in bulls offer. However, when I was on iii I tried one simple thing. You can run multiple virtual portfolios on there, and every time I sold a stock I added it to a ‘sold’ portfolio at the date, price and number of shares I sold.
When you look at a portfolio like that and see the portfolio aggregate value rising over time, you learn something unique and insightful about your ability to call good sales points that you can’t get in any other way. I observed my talent for that, and took the appropriate action. I stopped selling. One of the attractions of a high-yield portfolio approach is that in the canonical variant you don’t sell. Sometimes not selling will turn out to be the wrong thing to do. But in general, for me, it will save me from myself 😉 It also indirectly makes me more careful on buys.
I think Warren Buffet or Charlie Munger said something about buying and holding as if the market will be closed for the next few years. It’s one of the fundamental premises behind a HYP and Robert Kirby’s 1983 paper on the Coffee Can Portfolio – that’s the original 1984 article, but if you Google The Coffee Can Portfolio you can get the whole PDF without paying 🙂 There’s something to the idea of being actively passive, whereas the whole indexing scenario is based around being passively active.
How do you know if you are beating the market?
You choose your index (FT All-share in my case). Then you forget about it, and go find an accumulation fund that tracks it, because you need to take the dividend income into account. It’s kinda nice if the TER is low, so if you can find something from Vanguard that’ll usually be great. For the FTAS this Vanguard fund will do. Then unitise following these instructions.
That does my head in, so I run a calculation using the simplistic method. I assume the new money I put into the ISA for the year 2013/14 all goes into the index fund at the price in January 2014, it’s easy enough to calculate the number of units I’d get. To this number I add the number of notional units I had last year, and then calculate the market value of the total notional holding at January’s price
If you’re beating the index your market value is bigger than the index simulation’s market value, rescaled in this exercise. If you aren’t, then ask yourself if there is a good reason – wanting to take your investment return as income without selling shares or units is one. If you are saving for a pension then after a couple of years if you are falling behind then switch new money to the index, if after five years you are falling behind switch the old portfolio to the index – you’ll at least have given it your best shot, and you’ll probably avoid those Tesco value beans. In the simplistic calculation I use I simply look at what I’d have if I’d bought that index fund. I will start to unitise as of this April, but the simplistic method is fine if you never draw from the ISA. You are losing some information because in theory you should do the purchase at the time you contribute cash to the ISA. Most of us spread ourselves out across the year, because most people save into an ISA from income.
I track the FTAS because it’s the obvious choice for a UK retiree, but I also track VGLS100A because an equally good case can be made for the global diversification though with some UK home bias of that fund. Indeed, for Mrs Ermine’s ISA I use VGLS100A because much of the argument about younger people saving for a pension applies. I don’t market-time, I do shift sectors at times, but otherwise it’s canonical index investment…because Mrs Ermine is not using it to boost her current income, so she is interested in total return, yield is irrelevant. And just as nobody gets fired for buying IBM, one has responsibilities not to deviate too far from orthodoxy when investing for other people.
The chart shows the relative performance of my ISA relative to the benchmarks. Note this is not a stock chart – at this early stage in my ISA most of the year on year change is due to putting more money in. Unfortunately the 2011/12 value for my ISA only shows the value of my holdings, not the cash, because 2012 is the year I discovered that I have to print out the damn statement every January. In 2012 I moved from iii and discovered there is no long-term memory in online sharedealing, so the value is backworked from my holdings. The cash shows in the fossil record of the ISA though, because I used it to buy stuff which shows in 2012. I have initialised the benchmarking assuming I liquidated the existing contents of my ISA for the January 2011 market value, when I was fully invested, because I don’t have the printouts from then. The UK flavour of Lifestrategy didn’t exist on January 2011 or Bloomberg just won’t show it to me so I’ve just replicated the Jan 2012 value. That’s probably a bit unfair to it, I’m not sure how to correct for that, because of the lost information on the cash in my ISA in Jan 2012.
Initialising in Jan 2011 obviously loses the 2009/2010 activity. However, most of the ISA is from money since then, so it shows I’m not being absolutely slaughtered relative to the benchmark
I learned something about my investment beliefs here
Writing this helped me clarify some of what I’ve grown to believe about investment – or at least a snapshot of what I believe now. Some of it will no doubt turn out to be wrong. Life is like that. I am more idiosyncratic than I’d thought I was. I started this post because everywhere seems to tell me indexing is the One True Way. Maybe it is, but it bores me shitless, and I need some passion and some hope to forego the spending in order to invest.
- I am a market-timer. I didn’t realise this, but running towards fire implies a hidden assumption – that other people are dropping value on the ground in their rush to flee. There are years that just doesn’t happen (2013), but it’s happened a lot in recent times. The market is cyclical, and has euphorias and swoons every few years. Euphorias are hard to find value in, swoons can offer rich pickings.
- I have no investment knowledge edge – it’s true that engineering underlies a lot of the FTSE100’s composition and a HYP tends to draw from that pool, but I don’t use any detailed knowledge of what these firms do to say one is better than the other. I do use some financial metrics to try and weed out the hazardous. I am numerate, but not an accountant.
- I do not sell – with the single exception of The Firm, purely until my holding of The Firm is a reasonable proportion of my ISA. This seems to be unusual, but that iii sold portfolio showed me my talent for calling sells, and I’m just not playing that weak hand any more. Why it’s weaker in me than everyone else I have no idea.
- Stock-picking is not an edge. I could use index funds or investment trusts, aiming for unloved sectors. I have aimed for unloved (at the time of purchase) firms in unloved sectors, and getting financial metrics on a sectoral index is very hard which may be why I’ve favoured stocks. CAPE10 may offer a way and RIT does a great job with that. I like investment trusts because of the whole premium/discount thing. And I don’t buy them at a premium 🙂
- I don’t really like OEICs. I don’t let that prejudice stop me – I have great respect for VGLS100A as a worthy opponent and own some of it from a period when I started to believe indexing was the One True Way. The no-sell rule means it’s still there, there’s little point in booting a valued adversary out of my ISA.
- I don’t do bonds. End of.
- I don’t do residential property, other than own my own home, which I don’t regard as a financial asset. I was seriously hurt by the UK property market in my late 20s, and I clearly don’t understand it. I don’t do BTL, I don’t buy houses and do them up. I made an exception for the rank stupidity of Help to Buy because if the government’s going to dish out free money to try and win the next election then I’ll have some. But unlike everybody else in Britain, I have no taste for housing as an asset, because I don’t understand it.
- I have no taste for stock day trading. I haven’t got the youth, I don’t have the temperament, what I do sell tends to go up, I don’t have the Bloomberg terminals and the Level2 and what have you. It isn’t what I want to do with my time. I can therefore close my IGIndex account once my shares in The Firm have fallen to an acceptable portion of my ISA (I used it primarily to short them to manage the risk[ref]If you do short employee share save schemes then note some firms have anti-shorting terms built into their terms of employment. The Firm didn’t, to the best of my knowledge when I searched for this on the Intranet, at any rate for pleb grades like me[/ref])
- Online ISA accounts have no long-term memory. In my dotcom days I’d get a paper statement every year, and I stopped when I got the annual statement in the dotcom bust. I know – it was the wrong thing to do 🙂 I have to actively recreate this by the primitive action of taking a screenshot of my ISA and saving it every January. III were just as bad as TD in this respect.
- I keep my own records of sales and purchase – I have a spreadsheet of my ISA purchases and sales year by year, which conveniently supports the yearly index benchmarking. It would be nice to automate this, but I don’t trade so much that it’s a chore. Presumably online trading accounts have no long term memory in the hope you trade more often and remember your successes more than your failures. In the screenshot I trust…
- I’d like to say it was all skill, but that’s bollocks. There’s been a fair amount of luck. Indeed, if there is any difference between the dot-com days and now I was far more sure I knew what I was doing in the late 1990s, and the more I learn about investing the more I feel I don’t know enough.
- I need the benchmark to remember sic transit gloria mundi. I am not invincible. Indexing is useful for that – it’s the road not travelled for an active investor
If I end up not beating the benchmarks for one year I’m not going to pack it in and index. But if I drop to the level of what the FTAS/VGLS100A would have done for me over all time I will start to move new money in the direction of my favoured benchmark, probably VGLS100.
The desperate but opportunistic ermine beat the market in two other ways, though I don’t count them in my ISA performance. The largest win was in my AVC fund – I started buying in April 2009, along the compelling logic of that inspiring post. Although that’s all sat in cash now it was invested in a L&G 50:50 FTSE100/Global fund. I suspect most of the performance boost I got there was holding 50% non-sterling denominated equities during the rapacious devaluation of the pound after the 2007-2010 financial crisis. My AVC fund is the 25% tax free lump sum that will take over the heavy lifting of funding my ISA for a good few years once I run out of cash on my zero income and draw my pension. The cash is of course depreciating but I don’t mind leaving behind some of the value as the boost outweighs that by a long chalk.
The second way was buying The Firm’s shares in sharesave at a low-water mark in 2009. You just can’t lose with sharesave, well, you’re a twit if you do. It’s an awesome one-way bet, if it’s available at your workplace JFDI. At least the crisis that indirectly terminated my working career had a silver lining. Both of these are luck, though the first had a fair measure of desperation too. You can take a stinking amount of risk with tax-sheltered pension savings from income as you come up to retirement – 42% as a higher rate taxpayer. If I’d lost that much but get it out as my 25% tax free lump sum I’ve still broken even, which favours taking the risk if you start in a stock market rout 😉
Second wealth warning – I am not saying you should do anything I am or am not doing. You are not an ermine, you have a different temperament and a different set of strengths and weaknesses. Becoming a better investor is as much about knowing yourself as about knowing the market – the biggest stock market risk for you is the face you see in the mirror every morning. Index investing is a way of avoiding all that aggravation. But it bores me to tears, the indexes I find reasonable for my situation don’t generally provide a 4-5% income unless I were to sell units, and I can afford to take the risk of underperformance. This is a narrative, not financial advice 😉