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What return are you targeting?

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
Itsallaguess
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Re: What return are you targeting?

#238207

Postby Itsallaguess » July 21st, 2019, 1:08 pm

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 -

Image

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 -

Image

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

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Re: What return are you targeting?

#238221

Postby Aminatidi » July 21st, 2019, 2:15 pm

Thank you, I'm not about to go and rush headlong into more risky assets simply because people on here told me I'm risk averse :)

I would be very interested in what amount of a cash buffer people keep in the bank/instantly(ish as I guess NS&I linked certs count).

I know that seeing £100K sitting in a savings account is dumb.

I don't know know what the right level to try to get it down to is.

This may sound counter-intuitive but I'm actually more comfortable having it at some risk but accessible than locked away 100% safe in, for example, a fixed term savings account.

Appreciate that will always depend on circumstances rather than being one size fits all.

And to stress, I'm employed so it's not like I'm in a drawdown situation or dependent on my investments to live, as I think, with all due respect, quite a few of the members on here are.

Itsallaguess
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Re: What return are you targeting?

#238225

Postby Itsallaguess » July 21st, 2019, 2:33 pm

Aminatidi wrote:
I know that seeing £100K sitting in a savings account is dumb.

I don't know know what the right level to try to get it down to is.


I wouldn't use the word 'dumb' - I think the phrase might be that it's a 'nice problem to have'.....

Might it be worth looking at this a different way?

If you think that your current cash-allocation is something that makes you both comfortable from a psychological point of view, and is also 'sufficient' to carry out it's job, then why not forget about that side of things for now, and given that you are still working, I will assume you are accumulating monthly sums via wages, or even some additional portfolio income, that might then be 'available' for investment in fairly regular amounts?

Why not try to concentrate on getting those new funds into the market, on a pound-cost-averaging basis (perhaps not every month, depending on size of funds, so maybe every other month, or every three months...), and then at least you'd be taking some sort of half-way-house approach to your natural risk-aversion.

The thing with taking this approach is that mentally, you'd get used to the 'enough is enough' approach to cash, and you'd be able to hopefully find a way to deploy 'additional funds', over and above that cash, into the market, and also, the 'cash balance' then becomes something that can perhaps be modified to suit at a later date, depending on your view of the market at any particular time, or your attitude to the size of that cash balance in terms of the risk-aversion you might hold at a future point in time..

I find the above approach works quite well for me personally. It's difficult talking about cash levels, as those don't particularly mean too much given that we all have different monthly demands and lifestyles, but my '20% cash' level probably amounts to around 3 years of 'normal outgoings', if that helps at all.

Given that I expect my investments to also produce some level of dividend-income, even during market downturns, I've decided that this level of cash or near cash is 'good enough', even for a risk-averse investor like me, and I can then really quite comfortably, from a psychological perspective, then continue to drip-feed any additional funds from wages or dividends into the market, whilst still roughly maintaining that 20% cash level....

You could try a similar approach from your current cash levels, which you've set against your current market-nervousness, with only additional funds over and above those cash/near-cash levels being put 'at risk', and you might surprise yourself how easy it is to live with such a strategy, even with a really quite risk-averse approach to the markets...

Cheers,

Itsallaguess
Last edited by Itsallaguess on July 21st, 2019, 2:39 pm, edited 1 time in total.

Aminatidi
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Re: What return are you targeting?

#238231

Postby Aminatidi » July 21st, 2019, 2:39 pm

Yes it's absolutely a nice problem to have, I'm acutely aware that even starting to moan about it might seem crass.

It also highlights that many people would dream to wake up to be looking at a bank balance of £5K or £10K and I'm slowly getting round to realising that when I feed £5K in to funds/ITs from the cash pot I don't "panic" or feel poorer as it's just a number moving from one balance sheet to another.

One thing that's only just occurred to me is that since I started investing I have never withdrawn cash other than a tiny leftover when switching platform.

Maybe some of the psychology is realising that when you've got the thick end of quarter of a million quid and it's all reasonably liquid, I'm actually worrying way too much.

As an aside and whilst I get that people are perhaps wary to recommend investments, given the funds and IT's I've mentioned, is there anything people would suggest taking a look at?

Especially interested in the IT space because of holding fees, where most mixed asset funds seem to be in the Flexible sector.

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Re: What return are you targeting?

#238235

Postby xeny » July 21st, 2019, 2:53 pm

Aminatidi wrote:I don't know know what the right level to try to get it down to is.
.


Depends on your circumstances.

FWIW, I'm working, with funding for the next 52 months, no dependants and no mortgage. I'm undecided what I'll do if the funding is renewed.

I aim to keep ~£5K in a current account, plus a couple of credit cards which typically have ~£10K of available credit on them. I'f I needed more than that in a hurry then some equities get liquidated, which will take say a couple of days, but I've held them long enough now that I'm more than 100% up on them, so selling them even in a market 50% down wouldn't be a net loss.

If I need to buy something less urgent, I stop buying equities until I can afford it.

If my circumstances were different, I'd probably choose to hold more cash.

Aminatidi wrote:
Yes it's absolutely a nice problem to have, I'm acutely aware that even starting to moan about it might seem crass.

It also highlights that many people would dream to wake up to be looking at a bank balance of £5K or £10K and I'm slowly getting round to realising that when I feed £5K in to funds/ITs from the cash pot I don't "panic" or feel poorer as it's just a number moving from one balance sheet to another.

Especially interested in the IT space because of holding fees, where most mixed asset funds seem to be in the Flexible sector.


Having not enough money is a problem. Having some spare presents a different set of problems - that of doing the most appropriate thing with it.

If you've not already got one, I found a spreadsheet with all my assets on it, % asset allocations and a net worth total figure somewhere at the top helped enormously with reducing that stress level. At that point it is simply reallocating an asset to a different class.

There's no rule that you've got to stick to a platform that has holding fees for OEICs. Especially when you're accumulating you just accept which platform you're associating that year's ISA allowance with.

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Re: What return are you targeting?

#238246

Postby Aminatidi » July 21st, 2019, 4:05 pm

Yeah that puts it in perspective i.e. I'm sure I could go down to "only" £20-30K sitting in direct cash (excluding the NS&I linkers) and not even need to think about it.

I do have a net worth spreadsheet, as you say it has all accounts listed and the stocks/cash split and percentage invested etc.

Sadly I only started it in November last year but it's a good illustration of what a difference investing makes over sticking to "cash".

Regards fees I use HL so I know some people will say I'm being bent over but they're cheap for holding ITs and ETFs and shares and it's everything under one roof which is good or bad depending on your POV I guess.

Reading some of todays SJP articles I think it puts fees in perspective and whilst it does all add up, I'm not sure I'm going to be losing sleep over 0.2% here and there.

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Re: What return are you targeting?

#238251

Postby Dod101 » July 21st, 2019, 4:30 pm

Aminatidi wrote:As an aside and whilst I get that people are perhaps wary to recommend investments, given the funds and IT's I've mentioned, is there anything people would suggest taking a look at?

Especially interested in the IT space because of holding fees, where most mixed asset funds seem to be in the Flexible sector.


I already offered the following earlier in this thread.

'If nothing else you ought to have some international ITs such as Scottish Mortgage or Monks, Murray International, and maybe something like Henderson Far East or an emerging markets IT. Then Caledonia and/or RIT or an old standby, F & C' (or whatever it is now called, I mean Foreign & Colonial Investment Trust)

I think there are many good reasons for looking at ITs rather than OEICs and you seem to be moving in that direction as well, so maybe these names can help.

Incidentally there is no answer to your other question, how much should you hold as cash. You say you are in full time employment, and do not need to draw down any cash so in theory you do not need a cash reserve. I think though, as part of your asset allocation, cash or cash equivalent is probably not a bad idea and I would look at somewhere between 5% and 10% of your investment assets, no more. My cash equivalent (mostly in old N S & I Index Linked Certs) is as I have said about 10% which equates to about 3 years of my required income, because I live off my investments. In the last 20 years I have never drawn on this reserve to fund any shortfall though.

Dod

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Re: What return are you targeting?

#238253

Postby scrumpyjack » July 21st, 2019, 4:53 pm

I haven’t really followed this thread but have a few observations.

Target return – My aim has always been to hope that my investments would at least maintain their value in real terms whilst providing some income. I can’t really see the point of having a target return, unless part of the equation of how much you need to save to meet some long term target. Having a high target return may lead to making excessively risky investments and ending up a lot worse off as a result! Just invest in strong well run companies which you think have a great lomg term future and the returns will take care of themselves.

How much cash to have – There are so many factors here. What stage of life are you at, are you earning or retired, to what extent do secure income sources cover your needs, what commitments do you have (eg family members to support), do you have a mortgage or own your house outright, what is the inflation rate (low inflation and the loss of purchasing power from hold cash is small, high inflation and the loss can be huge). Etc etc etc

FWIW I have greatly increased my % cash over the last 3 years, partly as I’m retired, so it now would cover many years of outgoings. I have altered the balance of investments towards overseas and reduced UK in view of the political situation and to reduce risk (we are a very small portion of the world economy!). I hold no fixed interest and never have (apart for ILGs many decades ago). We are shaped by the economic environment when we are younger and I am forever wary of UK inflation.

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Re: What return are you targeting?

#238291

Postby Aminatidi » July 21st, 2019, 8:30 pm

@Dod I think at this point I'd be more interested in infrastructure/alternatives than piling into yet more more traditional stocks.

That area seems a minefield in its own right though with most things on a premium.

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Re: What return are you targeting?

#238304

Postby Alaric » July 21st, 2019, 10:02 pm

Aminatidi wrote:
Maybe some of the psychology is realising that when you've got the thick end of quarter of a million quid and it's all reasonably liquid, I'm actually worrying way too much.


I find investing in shares easier to justify when alternatives like cash struggle to reach 1% a year. When you could get 6% on an instant access online account, leaving money there seemed easier to justify rather than punting on equities.

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Re: What return are you targeting?

#238310

Postby 77ss » July 21st, 2019, 11:11 pm

Aminatidi wrote:....

I would be very interested in what amount of a cash buffer people keep in the bank/instantly(ish as I guess NS&I linked certs count).

....


Approximately 4% of my liquid assets is in cash/premium bonds - the other 96% is all in equities. I am living off my dividends and pensions, with no need for capital drawdown yet.

You say you are in your early 40's with a steady salary. Should you not be thinking on a 40 year timescale?

Yes, a market slump is rather unnerving, but if you have a salary and a decent cash reserve (in case of job-loss) then it can be ridden out. I have been invested through 2 slumps, where the FT110 fell by over 40%. Other with a longer history will have seen more.

I think you mentioned December 2018. This short term market noise. My share values fell by about 4.5%, fully recovered in January 2019 and about 13% up so far this year. If you can't deal with this kind of fluctuation then perhaps the stock market is not for you - and I don't mean that as a criticism in any way - peace of mind is of immense value! Trackers and large global Investment trusts maybe.

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Re: What return are you targeting?

#238322

Postby SalvorHardin » July 22nd, 2019, 7:48 am

Aminatidi wrote:As an aside and whilst I get that people are perhaps wary to recommend investments, given the funds and IT's I've mentioned, is there anything people would suggest taking a look at?

Especially interested in the IT space because of holding fees, where most mixed asset funds seem to be in the Flexible sector.

Investment Trusts. I second other posters' recommendations of F&C, Caledonia, RIT Capital Partners. The latter two are very concerned with the preservation of family wealth, so they are managed with a fairly lengthy time horizon in mind.

Finsbury Growth & Income (FGT) is effectively Lindsell Train's global fund in investment trust form. It's managed by Nick Train along the same lines.

Brookfield Asset Management (BAM). It's a Canadian alternative asset manager, dating back to 1899, which owns a lot of real assets around the world and also manages a lot for clients via its funds (around $365 billion worth). BAM isn't an IT but it's a lot more diversified than the UK typical infrastructure fund and it's much larger with a market value of c.£36 billion. BAM is well covered on Seeking Alpha

https://seekingalpha.com/symbol/BAM

TR Property. Unlike most REITs, this really is a property investment trust with about 90% of its assets being shares in British and European property companies.

Any Indian focused investment trust (my money's in JP Morgan Indian). Hold for the long-term and ride out the inevitable bumps. A better bet for the future than China IMHO, if only because India has more secure property rights.

As to concerns about investing everything in one go, why not drip feed money into the market? Sort of tipping your toe into the water.

You mentioned earlier about cash levels. I'm currently 4% cash 96% equities - that level of cash is more than enough for several years' of living costs (I live cheaply!) and I'm perfectly happy with that level of equity exposure (my finances can cope with a 50% fall in capital and income with no bother (my portfolio fell by 47% in 2008)).

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Re: What return are you targeting?

#238323

Postby Aminatidi » July 22nd, 2019, 8:00 am

77ss wrote:
Aminatidi wrote:....

I would be very interested in what amount of a cash buffer people keep in the bank/instantly(ish as I guess NS&I linked certs count).

....


Approximately 4% of my liquid assets is in cash/premium bonds - the other 96% is all in equities. I am living off my dividends and pensions, with no need for capital drawdown yet.

You say you are in your early 40's with a steady salary. Should you not be thinking on a 40 year timescale?

Yes, a market slump is rather unnerving, but if you have a salary and a decent cash reserve (in case of job-loss) then it can be ridden out. I have been invested through 2 slumps, where the FT110 fell by over 40%. Other with a longer history will have seen more.

I think you mentioned December 2018. This short term market noise. My share values fell by about 4.5%, fully recovered in January 2019 and about 13% up so far this year. If you can't deal with this kind of fluctuation then perhaps the stock market is not for you - and I don't mean that as a criticism in any way - peace of mind is of immense value! Trackers and large global Investment trusts maybe.


Absolutely no criticism taken.

I think this is where perhaps knowing my limitations, for now, may be something that's on my side.

I'm happier with toes in the water chasing the kind of returns that the more cautious funds offer for now, but perhaps over time that will change as I gain awareness.

As you say 40 year timescale potentially, but I still see a huge amount of options between "nothing in" and "100% stocks" :)

Incidentally given you can't market time, does anyone pay any attention at all to the time of day they buy/sell ITs?

I think I've noticed that often there can be a bit of a "jerk" at the start/end of the day but that could of course just be what a chart of the FTSE looks like.

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Re: What return are you targeting?

#238332

Postby BrummieDave » July 22nd, 2019, 8:47 am

Aminatidi wrote:
Incidentally given you can't market time, does anyone pay any attention at all to the time of day they buy/sell ITs?

I think I've noticed that often there can be a bit of a "jerk" at the start/end of the day but that could of course just be what a chart of the FTSE looks like.


I think choosing the time of day is perhaps taking things a little too far especially with your 40 year investment horizon, although I did once read that statistically the days at the end of the month are on average the cheapest times to buy shares generally, driven mostly (apparently) by being the day pension funds and other large institutions liquidate sufficient holdings to pay their monthly outgoings to their pensioners and other beneficiaries.

Consequently, when I was in the pot building stage, my regular monthly purchases were made on the 28th of the month. I can't say I noticed any advantage! :lol:

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Re: What return are you targeting?

#238354

Postby Aminatidi » July 22nd, 2019, 10:25 am

BrummieDave wrote:
Aminatidi wrote:
Incidentally given you can't market time, does anyone pay any attention at all to the time of day they buy/sell ITs?

I think I've noticed that often there can be a bit of a "jerk" at the start/end of the day but that could of course just be what a chart of the FTSE looks like.


I think choosing the time of day is perhaps taking things a little too far especially with your 40 year investment horizon, although I did once read that statistically the days at the end of the month are on average the cheapest times to buy shares generally, driven mostly (apparently) by being the day pension funds and other large institutions liquidate sufficient holdings to pay their monthly outgoings to their pensioners and other beneficiaries.

Consequently, when I was in the pot building stage, my regular monthly purchases were made on the 28th of the month. I can't say I noticed any advantage! :lol:


haha yes I'm asking out of curiosity as I believe that "stuff" can happen out of hours on markets that can influence the very opening and closing stages.

Could be mistaken and I'm certainly not suggesting that time of day makes a massive difference - unless today is Black Monday :)

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Re: What return are you targeting?

#238466

Postby tikunetih » July 22nd, 2019, 5:20 pm

The situation you have is that:

- as a result of having generous amounts of human capital (unless sudden misfortune befalls you, which is unlikely but always possible), then your capacity for risk is theoretically pretty high;

- but as an inexperienced investor, unaccustomed to volatility and the psychological pressures this can being, your actual tolerance for risk is pretty low.

This is entirely normal.

You've recently had experience of a market slide, and you didn't much like it. You did OK by not panicking as some might (will) have done. With this experience under your belt, you'll probably find a future similar market fall not such a big deal. Over time, this repeated cycle will desensitize you, despite your capital at risk becoming much larger. This is essential, as sometime in the future you'll experience brutal market conditions which will test your resolve. Better to underestimate your risk tolerance and achieve lower returns than overestimate and pay a very heavy price by capitulation selling.

Ideally, you'd have begun investing earlier in life, feeding in money month-by-month, and by now have become more familiar with and desensitized to volatility than you are. But, as people like to say, you are where you are. So you start that process now, investing on a monthly basis in order to get a good chunk of that existing cash invested, along with the new money you earmark for investment from your monthly earning. Automate the process so that you put money in rain or shine, come market hell or high water.

Over time, this will work wonders for your risk tolerance, and over time (over the years) you'll very likely be able to and want to take on more market risk.

If you're going to be feeding in money for the next 15 years perhaps, then you should want to see lower prices, not higher, so that you accumulate more assets. As you're not stupid, you'll know this, but probably just cannot help wanting higher prices so that you feel better, more comfortable, about your existing investments. That's normal too, but the reality is that as someone in the accumulation phase lower prices are to your advantage and should be welcomed not feared.

When markets fall, and especially if they fall deeply, remind yourself of this so as to stay the course, and keep feeding money in every month.

Your selection of funds sort of gives the game away that you're relatively inexperienced and your strong desire to avoid volatility. Not that you've chosen bad managers, just that you've a heavy focus on selecting active managers whose strategies you hope will be able to shield you somewhat from market volatility. As you become desensitized over time, you'll probably become happier to have purer more direct (and cheaper) exposure to market risk, and the shape of your portfolio will evolve.

If not already doing so, try to read some intelligently written investment books rather than just reading forums and data mining past performance, as the latter has severe limitations and may be misleading you somewhat.

Read good books not to follow any particular guidance or investing template but simply to widen your knowledge and be better prepared, and sooner, for the decades ahead that you'll be investing for.

There's plenty to go at, but if you're reasonably numerate perhaps give some of William Bernstein's stuff a read, eg. Rational Expectations - Asset Allocation for Investing Adults.

Ultimately you'll evolve your own plan that suits you, but it can be useful to pick the brains of others who've gone before and you can communicate the key ideas well.

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Re: What return are you targeting?

#238488

Postby Aminatidi » July 22nd, 2019, 6:31 pm

@tikunetih thanks, lots of sensible stuff there.

I suspect you're right that if I'd started doing this years ago and via scheduled/regular investments I would likely have a different view around risk and simply carrying on day in day out.

Still, as you say we are where we are and you have to be able to sleep so if I end up with £150K in some "safe" funds when 18 months ago it was earning sod all I'd still consider it a massive step forward from where I was a year ago.

I don't wish to sound crass but again the amount sitting around doesn't help as it's not like shoving £100/month into something due to the amounts, though as I type that I guess it's all relative and if that £100/month is 50% of your disposable that you have at the end of the month, so on reflection it does sound a bit crass though equally plenty of people probably think my "pot of cash" is small so why worry so much :oops:

I rather wish there were more mixed IT choices.

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Re: What return are you targeting?

#238504

Postby tikunetih » July 22nd, 2019, 7:54 pm

I reckon you'd benefit from cultivating a different mental attitude: less "if only" and more triage, aka. what do I need to do now?

Your IT reference is presumably a reference to HL platform fees. This is an imaginary problem fixed simply by opening an iWeb account for any OEICs you wish to hold. Tick.

I'd recommend mentally compartmentalising money into "conventional" and "investment" categories. Money in the investment category should be treated as investment tokens where, unlike conventional money, volatility is the norm and hence balances need to be viewed differently:

- An 3p extra on a can of chickpeas at Lidl? Don't like that!
- 5-figure monthly and 6-figure annual swings in investment balances? Nothing to see here.

So, you get simply get on with it and decide what amount from your cash stockpile you want to have invested by a certain timescale (1 yr, 2yrs, 3yrs whatever) then simply divide by the number of months and schedule the monthly purchases. Tick.

Investing is about dealing with the world as we find it not how we'd have it be. Survey the landscape, make your plan as best you can, keeping it pretty simply, and then get on with it. Tweak occasionally as you go along in light of experience gained and insights formed. Don't rush, but don't procrastinate for ever either. All investment plans are imperfect, and the landscape less than ideal. Learn to deal with it.

BrummieDave
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Re: What return are you targeting?

#238533

Postby BrummieDave » July 22nd, 2019, 9:53 pm

Aminatidi wrote:
I rather wish there were more mixed IT choices.


Reading this thread, the last thing you need is more choices! :o

Your investment horizon is long, and the average time it takes the market to recover when it falls is, I believe, 69 days.

Not saying jump in with two feet but, and I say this in a friendly constructive way, don't overthink everything either.

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Re: What return are you targeting?

#238580

Postby xeny » July 23rd, 2019, 7:37 am

Aminatidi wrote:I rather wish there were more mixed IT choices.


I suspect they'll tend not to exist. You choose a manged IT or OEIC to get focus on a particular area or characteristic - that's what you're paying the management fee for. If you want a mixture then buy an index tracker.


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