Bull market(s) – when should you be considering doing the opposite of everyone else?
For those clients who need reminding of a bull market and bear market, and what they mean, then simply think back to 1999-2003 or 2007-2009 and remember what happens when a bull market finishes. This should not be scary, more the idea is to be educational. The key to understanding is that just when everyone is thinking “I should be invested and involved in this” is usually the point where you should be doing just the opposite.
The feeling of missing out
The problem is no-one wants to miss the end of a bull market as you can obtain some good growth. However, what needs to be understood is that most of the risk is viewed as being to the downside as our presentation from Fidelity recently , and which is covered in detail in the next section 3(b). What Fidelity wanted to highlight is the problem that central banks have in dealing with reducing the money supply that has been non-stop in many countries since 2009, versus inflation, versus financial stability.
We covered inflation and the associated problems in the last quarter and we would urge you to go back and read that if you have not done so already. Inflation can be good in terms of reducing the real value of debt, but it can be bad for those having to repay the debt! Everyone wants the former with the pain of the later, and life is not like that. Having higher debt repayments takes money from other areas of expenditure both in governments, companies and individuals. Something has to give and therefore, the issue of interest rates (which directly affects the payments) is a major issue.
When we wrote this to our clients (this gets published later) both the Federal Reserve and Bank of England were suggesting that interest rates were going up in the near future. By the time this is published and read, interest rates have risen. However, the markets have already priced in small interest rate rises and we do not see this materially affecting investing portfolios.
Another interesting fact that arose in our last meeting was the issue of passive investing. We do believe in the utilisation of passive investment in mature markets, but what came across loud and clear is that those using passives linked to government or investment grade bonds would have been far better off investing actively over the last few years.
The investment committee prides itself on not being of a single fixed mind or inflexible. We hear discussions on passive (that is where an index is replicated or copied to produce similar growth and losses) versus active (that is where people make a decision on where and what advantages they feel they can obtain but investing or not investing is shares or assets). Both principles work in different areas at different times. Our own investment approach continues to enjoy this flexibility and results are published in our quarterly bulletin based on real client fund performances.
Stop Loss Strategy
One final thing, we have been asked to consider stop-loss strategies. That is where when a fund/share reduces below a certain level then an automatic sale occurs. We intend to conduct this review over the coming year but, as attractive as it sounds, there is considerable research that demonstrates it does not always work the way it is intended to. We will relay back to our clients our own research and outcomes in 2018.
We offer a forensic review of the 10 reasons to use a QROPS for those that would like revisit the QROPS and investments they hold. Increased investment performance and lower charges may make a significant difference at retirement.
Some offshore salesmen promoting QROPS as an investment solution live in a parallel universe where they claim to make world stock markets behave differently in QROPS than they do if the same funds are used from and within UK pension funds. Think and behave logically, if promises of bigger returns can only be achieved by moving to a QROPS then why hasn’t the entire UK pension industry moved offshore? It hasn’t!
End of article: Will this bull market ever end?
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 5th Dec 2017
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- Investment Review February 2018
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