Aminatidi wrote:
I sat December 2018 out and didn't do anything, but it sure as hell made me ask myself how I'd have reacted if it was 40% or 50% or 60% and it was 80 to 100% of my net worth that was happening to.
I don't see anything wrong with believing I'd have probably panicked - better to realise it before it happens and do something that to not realise it and then panic is how I see it
It's completely understandable that during December 2018 you may have had lots of doubts like that, especially if it was your first experience of a fairly chunky general market drop, but given that we're now in July, and the market has recovered, there's another question you could now ask yourself -
"Did I do the right thing to stick it out with no action?" - If you ask yourself this, what would be your answer, given what you know now?
Would you perhaps say that next time, if a similar market downturn occurred, you might not have the same sense of 'panic', given that you sat tight 'last time' and things quickly returned to 'normal'? That's good market experience if you're able to say that, wouldn't you agree?
I only ask because if we look at a one-year chart of the FTSE100, we can see that December 27th 2018 was just about the 1-year low -
We can also see that the FTSE100 has generally recovered almost all of it's dip on the run up to Christmas 2018, and looking at my own invested portfolio, that's also reflected in my portfolio-value chart for the previous 12 months -
I've invested some additional capital since Christmas, which explains why the chart is higher now than before the Christmas dip, but my portfolio chart tells me that so long as I didn't have a pressing need to release invested capital over the past 12-months, then the right thing to do was to simply ride out the market turbulence.
You're absolutely right to give credence to the psychological aspects of investing, and I think one of the major things we can do as individual investors is to fully understand our own unique 'investor personality', and try to find a replicable, long-term strategy that suits us as individuals, but I think it's also important to pay attention to how we deal with things like risk-aversion, and make sure that we're not throwing the baby out with the bathwater if other approaches can perhaps deliver the same end-result, but in a way that maximises the 'opportunity-cost' that we might be giving up if we were not to do so...
The important thing to remember during market-downturns is that so long as you're not a forced-seller then you give yourself an opportunity to ride out such turbulence. That market turbulence may go on for some considerable time, of course, so a cash, or near-cash buffer of perhaps a couple of years of income may be required to give a good sense of safety-margin, but beyond that, it's likely that even over quite long periods, markets are likely to bounce back after their really quite regular coughing-fits...
The short version of the above is that you seem to see a very large proportion of 'cash' as the only real answer to your risk-aversion, but that might be considered to be an extreme 'answer', given that there may be other strategic approaches to deliver a similar risk-profile whilst also delivering improved 'market opportunities'.
I should add here, for completeness, that I consider myself really quite risk-averse myself, and at around 19% cash, find myself with the largest proportion of cash, or near-cash, that I've had for many, many years, so I do sympathise with your 'market-concerns', but just wanted to mention that such concerns can be overblown, and perhaps can be handled in different, less 'costly' ways, from an 'opportunity-cost' point of view....
Even with all of the above said, I also want to say that given the near-term risk of discussions between the UK and the EU, I wouldn't look to alter anything much with your current personal approach until some dust has settled one way or another with the outcome of those discussions. It's all well and good reading some well-intentioned investors on a website that might be telling you that you're perhaps being too risk-averse, but perhaps now's only the time for appreciating how that might change at some future point, rather than rushing into any potential changes at this particular moment in time...
Cheers,
Itsallaguess