Investing - the stock market and more

[HanoiVillan]

11 minutes ago, CVByrne said:

In the wider market, just be wary of a big market correction that will likely come this summer specifically in tech stocks. Companies like Tesla will bomb by 50%+ as the inflation in the US continues to spike over the summer which means interest rates have to rise soon and that'll crash the market specifically the tech sector. Especially for people nearing retirement age, pensions should be in safer assets which are inflation proof like energy, banks, food or commodities. People need to be careful right now, the music is about to stop.

I have been trying to reduce my tech exposure somewhat too, with similar fears about inflation. I do think the Fed are going to delay raising rates for as long as they possibly can though, they've been quite explicit about wanting to 'run it hot'. Of course it will happen at some point though, and maybe they will cave to the pressure sooner than they plan.

[CVByrne]

They will want it to run hot but when they see it is not transitory they will have to act and it will be much sooner than they were saying of no rate rises until 2023. They need to raise them this year. In general it's always a bad idea trying to figure out the top of a market, you have always made absolutely zero until you sell. Investing is over a longer period of time and in next few years if you are of the view rates will rise to tackle inflation and that's bad for tech stocks you rotate out of them and into something else.

[HanoiVillan]

48 minutes ago, CVByrne said:

They will want it to run hot but when they see it is not transitory they will have to act and it will be much sooner than they were saying of no rate rises until 2023. They need to raise them this year. In general it's always a bad idea trying to figure out the top of a market, you have always made absolutely zero until you sell. Investing is over a longer period of time and in next few years if you are of the view rates will rise to tackle inflation and that's bad for tech stocks you rotate out of them and into something else.

Yes, you should never try to work out the top of a market, I completely agree. As I say, I'm already reducing tech exposure (gone from about 15% of my portfolio to 11%, and happy to go further as and when).

My comment about rate rises is not really related to investing, just as a matter of general interest. I'm sticking to my - admittedly unpopular - view that rate rises will be avoided for as long as possible.

Just on inflation, I think it's worth remembering that within the administration, commodity price inflation is being seen as an inconvenience but not an obstacle, and wage inflation is the goal. They aren't hiding this; here are some comments from Biden, speaking at a community college in Ohio last week:

'Now, as our economy recovers, there's going to be some bumps in the road; we know that -- of course there will be. You can't reboot a global economy like flipping on a light switch. There's going to be ups and downs in jobs and economic reports. There's going to be supply chain issues, price distortions on the way back to a stable and steady growth.

[...]

Let me tell you something. My sole measure of economic success is how working families are doing, whether they have jobs that deliver dignity. That means we have to focus on wages like we used to.

When it comes to the economy we're building, rising wages aren't a bug; they're a feature. We want to get -- we want to get something economists call "full employment." Instead of workers competing with each other for jobs that are scarce, we want employees to compete with each other to attract work. We want the -- the companies to compete to attract workers.

That kind of competition in the market doesn't just give workers more ability to earn a higher wage, it gives them the power to demand to be treated with dignity and respect in the workplace. And it helps ensure that America -- when you walk into work, you don't have to check your right to be treated with respect at the door.

[...]

A lot of companies have done extremely well in this crisis, and good for them. Good for them. The simple fact is, though, corporate profits are the highest they've been in decades, and workers' pay is at the lowest it has been in 70 years.

We have more than ample room to raise workers pay without raising customer prices. Soaring corporate profits and stagnant wages aren't the American Dream, and they aren't the American deal.'

from: https://www.presidency.ucsb.edu/documents/remarks-cuyahoga-community-college-cleveland-ohio-1

Politicians say shit all the time of course, but this focus on wage growth and full employment is a big change from especially the pre-Trump consensus. And a lot of the people in important roles at the Fed and the Council of Economic Advisors seem to be quite bought in to this focus.

Anyway, time will tell.

[CVByrne]

Politics is a very different thing to monetary policy. The Fed has a mandate to keep inflation anchored at 2% and if inflation continues to rise they will have to act earlier than their stated target of 2023. They want to avoid rises until then if possible but it looks highly unlikely they will be able to. The only way they can is if the inflation is transitory as they keep repeating and we'll find that out in next 6 or so weeks with the next two cpi figures for May and June. If we see rises of 0.8% or higher for each of those months we're taking 12 month inflation to beyond 5% and towards 6% and it's impossible to continue to argue inflation is transitory. So it all comes down to if you believe the inflation is transitory (temporary) or not, if you think rates won't rise until 2023 as the Fed says then you must believe the inflation is a temporary thing

If we see a pre inflation announcement drop in the growth tech stocks next week we'll know it's a big inflation number for May. 

[HanoiVillan]

49 minutes ago, CVByrne said:

Politics is a very different thing to monetary policy. The Fed has a mandate to keep inflation anchored at 2% and if inflation continues to rise they will have to act earlier than their stated target of 2023. They want to avoid rises until then if possible but it looks highly unlikely they will be able to. The only way they can is if the inflation is transitory as they keep repeating and we'll find that out in next 6 or so weeks with the next two cpi figures for May and June. If we see rises of 0.8% or higher for each of those months we're taking 12 month inflation to beyond 5% and towards 6% and it's impossible to continue to argue inflation is transitory. So it all comes down to if you believe the inflation is transitory (temporary) or not, if you think rates won't rise until 2023 as the Fed says then you must believe the inflation is a temporary thing

If we see a pre inflation announcement drop in the growth tech stocks next week we'll know it's a big inflation number for May. 

Good points, but the idea that politics and monetary policy aren't closely intertwined is not one borne out by history. Trump spent most of his time in office bullying the Fed to keep interest rates low, got a bunch of criticism from 'the experts' for it, and then they eventually caved anyway. Yes, times are different now, but presidents can have massive influence in this area, it's just that pre-Trump they didn't bother to use it.

[CVByrne]

4 minutes ago, HanoiVillan said:

Good points, but the idea that politics and monetary policy aren't closely intertwined is not one borne out by history. Trump spent most of his time in office bullying the Fed to keep interest rates low, got a bunch of criticism from 'the experts' for it, and then they eventually caved anyway. Yes, times are different now, but presidents can have massive influence in this area, it's just that pre-Trump they didn't bother to use it.

They didn't cave to Trump, they had the repo crisis and a drop of inflation below 2% which resulted in them cutting interest rates. Basically they did their job which is to anchor inflation at 2%. So when inflation was above 2% from 2017 to 2019 they were increasing rates and then when it dropped to 1.5% they began to cut rates. So believing the Fed will keep rates low because of political pressures in face of rising inflation has no evidence to support it. 

That's before we even get to if President Biden would put pressure on the Fed to ignore it's mandate to do the Presidents bidding. Something (unlike Trump) he probably wouldn't do, especially as his own Treasury Secretary herself said rates would need to rise if inflation kept rising. The President and Congress have powers to spend and unlike in the recent few decades they are exercising that power more now. That is the thing that has changed recently and not Fed ignoring its mandate. 

 

[Xela]

Following on from @robitee's question

Quote

Anybody with any financial nouse on here? If you jad approx £100k what would you invest it in? I've recently sold house and have ni clue as to what to do with it

None of this is advice as we all have different goals/aims and risk tolerance. 

Are you not going to use it for another house? Do you have any timescales in mind?

For me, if i had a spare £100k and didn't need it for anything (or at least 10 years)

£20k (the max you can put in during one financial year) into a stocks and shares ISA for this financial year - into a low cost passive tacker (Vanguard Life Strategy / HSBC Global Strategy) - your risk tolerance will be dependent on your personality and age but i'd go 100% equities at my age. Higher risk but higher reward (potentially - your capital is at risk) Probably drip feed £2.5k in a month so level out any dips / spikes. I'd choose accumulation units over income units due to compounding. 

I'd do the same again for the next 2 financial years as well - so you'd have invested £60k in 3 years in an ISA wrapper - therefore no need to pay any tax on your gains. 

I'd probably keep £20k cash - for emergencies 

I'd look at AVCs into my works DCS pension as well - I'd lob 20k into that and give my works pension a boost. Again, tax efficient. 

You could also look at Premium Bonds / Crypto (very high risk) all manner of stuff. 

Or buy a classic Porsche/Ferrari, enjoy it and hope it increases in value!

Or buy Rolexes - they appreciate in value but practically impossible to buy a new one at the moment due to the waiting lists

All depends on your age and financial security now.

The world is your lobster!

[Enda]

If you've recently come into 100k and know nothing about financial markets, then don't even think about investing it in crypto or Ferraris, @robitee

Read up online (or pay a financial advisor) on how to invest it without getting hit by taxes. Tax avoidance has a bad reputation these days, but these channels are there to legally encourage you to invest it in certain industries rather than down the bookies.

I agree a lot with what Xela says. Put 20k away for emergencies or doing up the kitchen or whatever. Take the other 80k and plop that into a well-diversified, moderate risk, tax-preferred investment account (e.g. a low cost passive tracker as Xela said), spread out over a couple years. If you get 7% growth per year, which is a bit high but in the right ballpark, that money will double in 10 years. If you're 20 years away from retiring, then your 80k could turn into 200k which is a nice little nest egg for later life.

[wazzap24]

Not even 10% for meme stocks, high risk trades and Crypto? 

Boringhell. 

[foreveryoung]

I'd buy a flat and rent it out. Not a good time to invest, unless you are.....ITK.

[Xela]

7 minutes ago, foreveryoung said:

I'd buy a flat and rent it out. Not a good time to invest, unless you are.....ITK.

Flats are the cancer of the property world at the minute with the ongoing cladding/fire safety/EWS1 issues. 

Hardly any flats are being sold and most banks won't lend on them at the minute. 

[foreveryoung]

18 minutes ago, Xela said:

Flats are the cancer of the property world at the minute with the ongoing cladding/fire safety/EWS1 issues. 

Hardly any flats are being sold and most banks won't lend on them at the minute. 

Guess I was thinking like the smaller ones. I got a couple, never been empty in 10 years, not much profit with service charges to cover, but pays the mortgages and they've made a bit of money.

[Rds1983]

@robitee@robitee if I was you I'd certainly follow the advice from @Xelaand buy a world lobster, not entirely sure what that even is but it sounds amazing!

[Rds1983]

@robitee

Bad jokes aside, I reckon his advice is pretty spot on with the ISAs and all, if it is a tad boring. Not sure I'd keep £20k in cash though as rates on that are awful right now. I generally aim to leave about 6 months expenditures in cash and I'm assuming you already have some saved up? If not then £20k in cash might be the perfect amount for you. 

The only other thing that hasn't been mentioned yet and I will so you have all considerations (not saying I condone this or not as it's a sensitive subject to some), is you could look into an investment property or two such, as holiday or rental homes. Although no idea what's going to happen with the housing market short term (long term I expect it will continue to grow) and there is potentially money to be made there whilst also potentially providing you a home away from home if desired/needed. 

[CVByrne]

Yeah ISAs are great and focus on UK and European stock markets as the US is very expensive right now especially Tech. If you drip it in month to month you'll get the highs and lows which will average out. Avoid Crypto as it's just gambling. Putting some in Gold wouldn't be bad idea as inflation hedge. 

Wouldn't be bad holding a lot back to put in slowly as if Inflation picks up the rates go up and stocks go down. Be a good opportunity to buy a big dip that only comes every decade or so

 

[Rugeley Villa]

My Target Date Fund is currently set at 90% equity and 10% bonds. As I get older it changes to be more conservative. I’ve set mine to go past  the year on the target date fund, and not to the year, so it’s not as conservative as it could be. Once I’m at retirement age it will be around 50/50 in terms of equity/bonds. I did look into other stuff, but I know very little and I’m easily stressed, so it seemed the best option to set it up and forget it. It’s a stocks and shares Isa with Vanguard so I’m able to put 20k in a year.   I put 1k in to start it off and I’ve set it up where I put 5k in a year so I’m not in danger of doing my limit. I could currently put more in no problem , but I don’t want all my eggs in one basket, and I like to stockpile save cash so I can get my hands on it easy enough if need be. I read a bit about Target Date Funds and they ain’t for everyone, but from what I read if you are going to have a target date fund, then have nothing else which you invest in because it’s alters the balance of the fund. 
 

Thanks to my grandparents I got left some money from their will. Not a silly amount but big enough to make it work for me. Got a couple of plans with it, and the one in particular could give a nice return, so I may invest a lump sum into my target date fund further down the line, but we’ll see. 

[Genie]

3 minutes ago, Rugeley Villa said:

My Target Date Fund is currently set at 90% equity and 10% bonds. As I get older it changes to be more conservative. I’ve set mine to go past  the year on the target date fund, and not to the year, so it’s not as conservative as it could be. Once I’m at retirement age it will be around 50/50 in terms of equity/bonds. I did look into other stuff, but I know very little and I’m easily stressed, so it seemed the best option to set it up and forget it. It’s a stocks and shares Isa with Vanguard so I’m able to put 20k in a year.   I put 1k in to start it off and I’ve set it up where I put 5k in a year so I’m not in danger of doing my limit. I could currently put more in no problem , but I don’t want all my eggs in one basket, and I like to stockpile save cash so I can get my hands on it easy enough if need be. I read a bit about Target Date Funds and they ain’t for everyone, but from what I read if you are going to have a target date fund, then have nothing else which you invest in because it’s alters the balance of the fund. 
 

Thanks to my grandparents I got left some money from their will. Not a silly amount but big enough to make it work for me. Got a couple of plans with it, and the one in particular could give a nice return, so I may invest a lump sum into my target date fund further down the line, but we’ll see. 

I remember a long time ago you mentioned you could buy your council house pretty cheap under the right to buy scheme. Did you ever do that? It must be one of the best investment opportunities around to buy the house you’re already living in for well under market value.

[Rugeley Villa]

3 minutes ago, Genie said:

I remember a long time ago you mentioned you could buy your council house pretty cheap under the right to buy scheme. Did you ever do that? It must be one of the best investment opportunities around to buy the house you’re already living in for well under market value.

Yes mate we did. It took a long time to sort because of all the red tape then COVID, but we put eventually got the go ahead . We put a deposit down on it, too, so the mortgage was pretty small in the end. I know everyone doesn’t agree with it, but it’s a great way to get on the property ladder and it’s good value, too. My mum has done the same because her financial situation changed once her parents passed away. She lives in a two bed flat so got it dirt cheap as she got the maximum discount .

[Mark Albrighton]

I’ve just had a WhatsApp invite from a mate to something called Pi currency. 

I’ve more or less dismissed it. I’ve read a couple of articles about it, and frankly they make it sound vague at best.

But I’m curious, has anyone heard of this? Please note, I am a bit slow (more than usual) when it comes to this sort of stuff, so if anyone replies, if they could the text to a Sesame Street standard, that would be appreciated.

[CVByrne]

If you are starting out and investing now you're likely to lose money in the short terms as we are at very high prices in the US stock market in particular, especially Tech. Also all these "digital currencies" will be routed at some point when next market crash comes as they are essentially worthless. Bitcoin is the only real one which has a potential future as a store of wealth given its wide adoption.

Very interesting today to see what the Fed say, especially as they need to produce their quarterly forecasts for rate rises and inflation. Could send markets down quite a bit over coming week.