Ah, the lazy hot days of summers are conducive to all sorts of rumblings – here in East Anglia there is a strong predilection to thunderstorms. But there’s another sound of rumbling in the distance, and that’s the sound of distant promise in the markets…
You start getting people talking about global plunges (though bear in mind it’s silly season and news is thin, so this may still not stick yet) and running pictures like this –
and the ermine feels the slightest waft of a breeze across the whiskers, and the snout twitches to point in the direction of the interesting scent of fear… I have been bored shitless by the markets these last couple of years, I’ve made some desultory purchases like HRUB and a bit of EM stuff, but they didn’t really feel right (and weren’t right) but not enough of them to make any big hit, indeed the time may come to add to these. Most of the time I’ve been selling my own stuff back to myself to get it wrapped in an ISA – that sort of tedious business is what markets hitting new highs are for. But these new straws in the wind seem to indicate things could start to get interesting again…
When I left work in 2012, I transferred my entire AVC fund into cash, because I did not know when I would have drawn down the cash I had saved, and would need to draw my pension early. At the same time I would have needed to invest this AVC fund, saved specifically to compensate me for the loss of taking it early. It looked like the market was on a high at the time, which turned out to be patently not true.
Okay, so I sold out at a local high in March 2012, but it then proceeded to make half as much again. I can be sanguine about that because there’s a lot more than this in my ISA, the overall value of which has tracked up by more than the blue line [ref]note that this is not because I am an ace investor, the share uplift has indeed been most decent when I unitise, because over the last few years it didn’t matter what you owned, you were going to do relatively well. But of course over those three years I have contributed three years of ISA allowance too.[/ref] Obviously had I a decent crystal ball I’d have held on and sold three years later, but I don’t regret this, because I have learned one thing about shares, and that is
be no forced seller
The rough rule of thumb here is that money you will need to call on within the next five years has no business being in the stock market. I did not know in 2012 what the future held. At the time, before Osborne’s changes, I believed I would need to draw my main pension and spring this cash tax-free, possibly to backfill any money I’d had to borrow in the meantime, alternatively to invest it. So cash it was, I accepted the 8% loss to inflation over that period. The insurance of cash against market turmoil has a cost, life is like that. If you’re a forced seller caught on the hop, you could get to eat a 50% loss and have to make a 100% gain to be back where you started. You really don’t want to do that.
But now I will get a lump of this tax-free and have a steady strategy to pull out a personal allowance-worth each year. Unfortunately I’ve already contributed 2/3 of this year’s ISA allowance selling my own unwrapped shares back to myself to use this year’s capital gains allowance, but it starts to look like there will be a stronger case to commit new money to the market if there is a decent rumble. I can do that in my SIPP and with the remaining part of the AVCs – these in particular I know I won’t touch for another five years. I would have been windy of committing them to the markets in the recent highs, but some of that objection is falling away. Five years is a long time in the market – even if I were so unlucky as to buy the FTSE100 at the peak before the financial crisis (6730 on Oct 12 2007) I would be at 6487 five years later (and would have received five years worth of dividends). The odds improve no end in market swoons, and this one starting seems to be a general worldwide across the board throwing in of the towel, so something nice and boring like VWRL seems to be worth buying into in moderate monthly amounts across the next six months with the rest of my ISA allowance.
Extracting the AVC money seems to grind like the mills of God, exceedingly slow, but hopefully the market won”t have recovered by the time I get a definitive answer as to whether I can transfer part of it as opposed to the whole lot. If part I can shift the residual AVC fund into that L&G 50:50 global index because I know I won’t be needing that for 5 years, if not then I will do something with VWRL in my HL SIPP. It looks like the markets are set to get a bit kinder to me, and all the other net buyers out there. Now that I know my time horizons I can use the information to allocate more money to the markets.
So I raise a glass of summer wine to fear and loathing in world stock markets. Of course, it could be the final surrender as capitalism gives up the fight in the face of shocking government debt, Chinese overhangs and falling productivity. Or it could be the second shoe dropping of the financial crisis – all the stuff desperately batted into the air by governments who didn’t want to face the facts. But in that case we’re all stuffed anyway, que sera sera.