How much of your savings are you comfortable investing?

[Somestockguy]

As a relative newcomer to the markets, I was initially very cautious investing even a small amount into shares but now after six months watching it climb I'm kicking myself for not placing more in. I'm just investing in safe ETF's for the time being and have good cash sitting in a mortgage offset only making 2%. For the more experienced investors, do you feel safe putting all your money into stocks? Should I be doing this with the ETF's?

 

[divs4ever]

As a relative newcomer to the markets, I was initially very cautious investing even a small amount into shares but now after six months watching it climb I'm kicking myself for not placing more in. I'm just investing in safe ETF's for the time being and have good cash sitting in a mortgage offset only making 2%. For the more experienced investors, do you feel safe putting all your money into stocks? Should I be doing this with the ETF's?

so if you started investing THIS year and not 2020 , i think the cautious approach was correct for you

there is a concept in investing called FOMO ( Fear Of Missing Out ) and that can be a nasty trap for a novice

now a novice in 2020 is probably doing so well that they feel bullet-proof and in the next correction ( whenever it comes ) that will be a savage lesson as well , ( they MIGHT wish they had taken SOME money off the table OR kept back some cash for a cash reserve )

all investing carries risk , the federal government has a bank deposit guarantee plan , just in case a bank fails

now a bank failure risk might be low but in 2008 even our Federal Government saw the risk and acted

** do you feel safe putting all your money into stocks? **

me personally ?? ABSOLUTELY NOT , but stocks are the cleanest shirt in the charity donation bag ( currently ) and to clarify i do have some cash in reserve , in case a genuine opportunity arrives be it a share , bond , or any other asset class

** should you be doing this ?? ** this is not what i would be doing , but you really need to be talking to an accountant or tax accountant about this ( it might be perfect FOR YOU )

one positive point is .. most ETFs all highly liquid ( check your is ) so if you really need to, you can sell them very quickly close to their NTA ( Net Tangible Asset value )

cheers !

( asking questions is a good thing for a novice , don't let harsh answers stop you from that )

 

[tech/a]

If I know how to apply appropriate risk management while continuing to trade ETF’s
I could trade 70% of my surplus savings whilst limiting risk to 10,15 or 20% or whatever I’m comfortable with.

which is not advice but what I could do.

 

[Somestockguy]

A little more about my personal situation, I won't need the money for a long time and ideally would just like to see it grow and live on it one day once large enough. Would be great to have a passive income coming in

Thanks again for your help

 

[Warr87]

A general rule when it comes to whether to pay off a debt, or invest my money, is which one would yield me more? but i don't have a mortgage, so my personal circumstances are very different. if you are doing something more passive like investing in ETFs, averaging in, then smaller amount may be ideal. if i had a mortgage i have no idea how i would split it up. i have been learning (and continue to learn) how to actively trade my money which I believe would yield me a greater % than capital returns on a house. for your own personal circumstances, perhaps think about the amount you could put away and still sleep at night without wondering what the market is doing. this is a good rule to follow in any case, but one for you to ponder a bit harder. @tech/a also uses his own risk tolerance, i.e. 15% drawdown. another consideration to take onboard when investing (to determine your tolerance). most people over-estimate their tolerance though, i.e. you think you can handle 30% drawdown but you start wanting to get out and stop at 20%. investing in the stock market carries risk, even in an index ETF.

if you want to do a little research you could look into using an ETF strategy using ratios: i.e., depending on market performance change the ratio of a bond ETF and your index ETF. ive seen examples on the US market and it has done pretty well for what is a low involvement strategy. I myself trade a monthly (trade once a month) with 10 different stocks. a mixture of an All Ords ETF, bonds ETF, global equities ETF, could provide you with enough diversity and investment opportunities but it may not necessarily give you a big yield. if you want to get 20% returns then understand you have to put in more risk, and likely more research into active trading.

i know its hard, and i have to hold back myself, but the whole FOMO can be terrible. don't think about 'what if i had only put in twice the money', that is a fallacy. you don't have a crystal ball. what if it went the other way? what if you put in a bunch of money right before the market crashed?

your circumstances are unique to you, so figuring out what you are comfortable with (which should be an amount that wont put you or your house at risk) is up to you. from there you can figure out what to do with the money.

there are no clear answers from this, but it should (hopefully) at least provide you with something to think about. asking the right questions is important place to begin.

 

[tech/a]

Warr87
There is a clear answer and it’s based on knowledge of how to
protect capital along with trade and risk management.

 

[Allan11]

What time of your life you are at is the important factor. if you are 2.5 years away from finishing work, no mortgage and have around what you need to retire early (58years) and that will last for the coming years then low risk could be better. how much growth do you miss out on verse how much you could loose in a market adjustment and how many years would it take to get that back?

 

[Allan11]

What time of your life you are at is the important factor. if you are 2.5 years away from finishing work, no mortgage and have around what you need to retire early (58years) and that will last for the coming years then low risk could be better. how much growth do you miss out on verse how much you could loose in a market adjustment and how many years would it take to get that back?

 

[divs4ever]

yes important enough to earn two likes

 

[tech/a]

What time of your life you are at is the important factor. if you are 2.5 years away from finishing work, no mortgage and have around what you need to retire early (58years) and that will last for the coming years then low risk could be better. how much growth do you miss out on verse how much you could loose in a market adjustment and how many years would it take to get that back?

Sorry I don’t agree.

Warr87
There is a clear answer and it’s based on knowledge of how to
protect capital along with trade and risk management.

Relevant from the first penny invested to the last!

 

[divs4ever]

as a person in similar circumstances to what Allan11 describes in late 2010 ( and unskilled in the investment markets ) very similar considerations went through my mind ,

lower risk does not always equal lower gains ( or a smaller risk , you can still lose 100% , but you MIGHT be less likely lose it all .)

all that wisdom is sheer luxury , when you are a novice entering a volatile market , all that jargon , all those ratios , and a frenzy of price moves

i kept hearing that Sovereign Bonds were risk-free and then the Greek and Cyprus crises hit , i guess those bonds weren't so safe after all

and money in the bank was 'as safe as houses' .. and then Cyprus froze bank accounts , bail-ins , limited withdrawals and force-merged banks , so as safe as Japanese nuclear plants it seems .

now sure if you are a sophisticated trader with complex analytics programs on your computer , not such a problem , but when the newbie doesn't know the difference between a death-cross and a rising star all sorts of financial difficulties can happen

poor Mr/Ms novice has to learn all this QUICKLY ( and get it mostly right to survive )

 

[noirua]

These days I aim to keep between 50% and 70% in cash. Not always succeeding because if share prices go up the cash percentage is lower. Back in 1987 I over did it and smashed my life up when mining stocks crashed. One position saw a 66% fall in one day and 90% in three weeks (Endeavor Resources now St Barbara Limited, fell eventually from 36c to 1c. In 1994 rose from 2c to $2.80 and then crashed back down again ) - my story is here somewhere on ASF. I fully understand why some people take their own lives and why one man in the states in 1999 murdered 12 people at stockbroking firms.
Some companies go from brilliant to bust as in the case of OneSteel Limited. Can 62% grade iron ore now over US200 a tonne fall back to US$42 per tonne, YES, it has already done it. Can gold go to US$5,000 per tonne in one year - YES. Can gold go to US$500 in one year, YES.
If we understand this it is not a case of being frightened to death it is just an early reality check.

 

[divs4ever]

i remember One Steel ( later ARI ) well it confirmed my faith in rescuing that investment cash whenever sensible ( whether near a top or not ) i lost the last bit as ARI but that could have been much worse had i held the full holding with diamond hands ( i got a scratch not an amputation )

i am retired so try ( not very successfully ) to keep cash ( not bonds/term deposits etc. ) between 10% and 20%

but yes even in my 10 years in the market i have seen some jaw-dropping moves , i was brought up with Depression era parents ( both were teens at the start of WW2 ) so debt/credit was only used when absolutely necessary ( they even paid the home off more than 5 years early ) and i resist borrowing as well .

i have no idea where we go next , we are that far lost

 

[Somestockguy]

Thanks for your answers everyone, much appreciated

At the moment I'm struggling to see how Vanguard ETF's etc could really lose as bad as people have experienced with volatile mining stocks etc. Looking at past history the dips have been small and short with only steady growth trending ever upwards. Not to sound optimistic but I just can't see the risk associated with these. Am I missing something?

Once again, many thanks

 

[Somestockguy]

I feel if we don't invest our money will definitely be worth less but if we do invest wisely we will at least preserve with inflation. Doing nothing and parking cash is a pretty bad investment that's pretty much guaranteed to be bad I'm finding

After playing this cash game out of pure fear of losing money, I've lost thousands upon thousands of potential gains in the market at instead made 2% on my mortgage through offsetting. I'm working my ass off to save it and it's not working for me, I still will have to work really hard until the government pay me a pension and I can quit in 30 years. I don't want to live like this

A great friend of mine started me off on this share investing, she retired early at 55 after selling an investment home and parked a million dollars in to ETF's. Has been living on the rise and dividends for 8 years now. That's what I aspire to do

 

[qldfrog]

Thanks for your answers everyone, much appreciated

At the moment I'm struggling to see how Vanguard ETF's etc could really lose as bad as people have experienced with volatile mining stocks etc. Looking at past history the dips have been small and short with only steady growth trending ever upwards. Not to sound optimistic but I just can't see the risk associated with these. Am I missing something?

Once again, many thanks

Consider inflation.if you had. Invested 10k in a vanguard etf for the asx in 2007,where would you be now,after dividends..and tax......get that figure then realise what money was worth then.
Probably double or nearly so if you have less than 20k..you lost....
Just saying..do not know the figure, but i highly suspect it may not be that glossy,even in a booming market....and this is not something i would bet on carrying on for 15y,
You have also options like bonds..gov.. including CPI protection.
Would probably have beaten the market if taken in 2007..but they are quite dear now...
There iss no easy answer and 2020 was only great if you invested after the covid crash .not so great if you invested before..
A bit of diversification would help in my opinion.
Some here jake a killing on fmg or fake honey, banks,etc, they did not diversify much and were winners, others who did same on dog stocks with less success...you will not hear from them,and they may drive an uber to make ends meet.are you a gambler a slow grinder?

 

[qldfrog]

Lastly,you mentioned you will not need that money for a long time..can i buy your crystal ball?

 

[Somestockguy]

Well I've had a couple years living expenses cash sitting for 6 years now as a safety from when I quit my job and decided to start "taking it easy" and then started a business where I now mostly work hard. Have been adding to this over time as well as spending it (bought a new home so that's where most of it went. It's come back again now though since). So far we haven't "needed" to use it apart from wasteful things like renovations etc. I've since found that it's not going to be my ticket out of work though unfortunately, safe as it may seem.

Looking at the crash in 2008 (which was a shocker!) It took 5 years to come back to the previous level and start making a good return. Which must have felt like a lifetime for those invested. I know I would have gone through a rollercoaster of emotions and possibly even sold to take a loss of depending on whether I thought it would come back or not but yes I see why people state long term for all investments. It can be a bloodbath if one was to retire right on the crash etc so understanding the risks a bit better now. My friend who got me into this also said they were a bit afraid it seems too good to be true and said "how long can this go on for?"

Thanks for pointing that out, I hadn't looked that far back (only the five year graphic in my platform) and this information really is helpful for a noob like myself

 

[divs4ever]

Thanks for your answers everyone, much appreciated

At the moment I'm struggling to see how Vanguard ETF's etc could really lose as bad as people have experienced with volatile mining stocks etc. Looking at past history the dips have been small and short with only steady growth trending ever upwards. Not to sound optimistic but I just can't see the risk associated with these. Am I missing something?

Once again, many thanks

ETFs ( i hold VAS and VHY since 2011 ) are mostly a basket of shares mostly selected by computer and a market algorithm ( a S&P index or another mathematical formula ) BUT each share in that basket is partly influenced by retail investor activity in the underlying share and an ETF ( unlike a LIC which normally moves slower ) moves reflecting the current value of that basket of shares offers a buying price that drops almost as quick as the market in general .. now IF you are a contrarian , buying in a crash , or savage dip that is a GOOD thing , however a scared passive investor will not enjoy that some move , especially those that restrict any buying to , say . the end of the month ( rather than a market move )

now not all ETFs hold a basket of physical shares ( or bonds ) a few are comprising almost completely of derivatives like took inverse VIX ones , or an oil or other commodity ETF ( you don't think , say Blackrock or IShares is going to store millions of tonnes of wheats or barrels of oil do you , these ETFs rely on very few staff , but a lot of computer activity ( most share and bond certificates are electronic now )

an index ETF goes down with the current value of the shares in the basket BUT it also relies on the market price to quickly redeem units for departing unit holders ... what happens if sellers ( folks wanting to redeem ) vastly outnumber buyers you end up the same as any other historic crash all willing ( and desperate ) sellers and hardly a buyer to be found so the ETF can't sell ( because most do not have cash reserves , like a LIC might have ) and few want to buy so it has to freeze trading until there are both buyers and sellers

BUT this will be very similar to the ordinary share market at that moment . remember if you are a heavily leverage investor , you will need money NOW , to honour margin calls ( and other nervous lenders )

now if you the ETF holder have no outstanding debt ( so you are not FORCED to sell ) your only extra risk is the ETF ceases operation and redeems all units at the current market values ( when they can sell the underlying shares ) , how big or small that risk is, time will tell

i guess the only way we will find out for certain is if we have a 1920's style market crash .

 

[tech/a]

Can I just point out

It only takes ONE greatly timed and well funded investement to be life changing.

AFTERPAY
Gold from $250 an ounce
short oil
Long DJIA or DAX
Housing an number of times.
AUD when it went to $1.10 from 50c
many stocks move 300-1000%

Yes you have to be in the right place at the right time
with enough capital to make a difference but it happens

OH and on early retirement. BORING AS BATSHITE I too work for
myself and although I could have retired 15 years ago am glad I have the challenge of business
particularly in theses times to sharpen my whits!

Ive said this before
you’ll make more money from LUCK than anything else.
look for on coming TRAINS load up and hop on .

(1) Most people can see opportunity
(2) Few know what to do when they see it.
(3) Very few DO ANYTHING

So get good at (1) (2) (3)

The more I put myself in front of PERCEIVED opportunity the luckier I get.

see my previous posts on investment management and RISK evaluation.