Selling and buying in the same 'climate'

[Cam019]

Yes understood. But because my question is based on the maths involved not market sentiment, then for the argument can we assume all being equal, I have lost 20% on Portfolio #1 because I sold on the way up but I immediately bought into Portfolio #2, so doesn't my 20% loss from Portfolio #1 get picked up by Portfolio #2 as it continues up?

I know you may say, how do I know it's going to continue up but lets assume it does for the sake of the maths / percentage gain v loss.

And in reverse?, I don't want to complicate it I'll try explain..

Pretend the market is at 7000... lets say I invest 100k at then the market drops 20%, I now have $80k cash once I sell right? (Ignoring taxes for now)

So with this $80k I buy a new portfolio but because the market has dropped, this new portfolio that used to be 100k is now also $80k right?

When the market goes back to up 7000, I will be back at a new portfolio worth $100k

I know this may sound like a stupid , simple maths question for me to ask but I just want to make sure I'm not missing anything. Financial maths can be different to other maths.


-Frank

There are way too many things to address in this comment. I'm too busy at the moment, and I'll be honest - I'm not even sure where I should begin. Simply put, I think you should heed the advice of @willoneau below.

Frankie the sort of questions you are asking gives me the impression you need to spend some time educating yourself about the markets and not be in a rush to put your hard earned Capital at risk.

 

[Sharkman]

Yes understood. But because my question is based on the maths involved not market sentiment, then for the argument can we assume all being equal, I have lost 20% on Portfolio #1 because I sold on the way up but I immediately bought into Portfolio #2, so doesn't my 20% loss from Portfolio #1 get picked up by Portfolio #2 as it continues up?

I know you may say, how do I know it's going to continue up but lets assume it does for the sake of the maths / percentage gain v loss.

And in reverse?, I don't want to complicate it I'll try explain..

Pretend the market is at 7000... lets say I invest 100k at then the market drops 20%, I now have $80k cash once I sell right? (Ignoring taxes for now)

So with this $80k I buy a new portfolio but because the market has dropped, this new portfolio that used to be 100k is now also $80k right?

When the market goes back to up 7000, I will be back at a new portfolio worth $100k

I know this may sound like a stupid , simple maths question for me to ask but I just want to make sure I'm not missing anything. Financial maths can be different to other maths.


-Frank

that would be correct if Portfolio #1 and Portfolio #2 have a correlation coefficient of 1 ie. when one goes up 1% the other also goes up 1%. but if that's the case, what is the point of switching from #1 to #2 to begin with? all you've done is pay a bunch of extra brokerage when you could've got the same result sticking with #1?

unless you wanted to crystallise a loss for tax reasons, but then you need to be careful not to fall afoul of the wash sale rule. though if #1 and #2 are completely different underlying assets that just happen to have a correlation coefficient of 1, you would probably be ok from a wash sale perspective.

 

[matty77]

Keep in mind its a lot easier to lose money then make it, have a look at the following chart, if you say lose 20% you need to make 25% just to get back to even. It worth keeping this in mind before you start buying and selling.

sauce: https://www.investopedia.com/investing/selling-a-losing-stock/

If you are assuming that all stocks are dropping and rising together then I dont see why you would want to sell at a loss just to purchase other shares that you think may perform better later, just buy the better shares in the first place and hold onto them. I just dont see any purpose in taking a loss unless it was possibly for some tax reasons to offset some other gains maybe..

 

[Frankieplus]

If you are assuming that all stocks are dropping and rising together then I dont see why you would want to sell at a loss just to purchase other shares that you think may perform better later

Ok the reason is this , I will explain..

I received an inheritance a short while back. So, I have around $1.2m to invest and as soon as this can get me $75k per year in dividend payments after tax, I will stop working.

$75k dividends per year on $1.2m isn't possible if I want to be diversified. I can do it if I invest it all in CBA, WES and a few other higher dividend paying stocks but that would be a it too risky I feel. (would it?)

So, I am investing in VAS and VDHG which are indexes as well as 2-3 Managed Funds that target growth and some dividends. Hyperion High Growth and Magellan (MGE) are two of them.. This portfolio although pays dividends is a growth / high growth portfolio

Anyways I'm hoping if I sit like this for a few years (timeframe maybe 2-4 years) that the funds will grow to over $1.2, and then if I find that the dividend payments are not enough I was going to convert to more of an income generating portfolio, hence the reason for a possible sell down.


-Frank

 

[qldfrog]

Keep in mind its a lot easier to lose money then make it, have a look at the following chart, if you say lose 20% you need to make 25% just to get back to even. It worth keeping this in mind before you start buying and selling.

sauce: https://www.investopedia.com/investing/selling-a-losing-stock/

If you are assuming that all stocks are dropping and rising together then I dont see why you would want to sell at a loss just to purchase other shares that you think may perform better later, just buy the better shares in the first place and hold onto them. I just dont see any purpose in taking a loss unless it was possibly for some tax reasons to offset some other gains maybe..

the point I wanted to make; so stock at 7000; down 20pc: 5600

to go back to 7000 you need to gain 25%..and just remember before GFC: asx200 at 6850 in 11/2007

next time it reach that high that high: January 2020; and this assume that none of your stock from 13y ago got out of the asx200, by definition, asx200 is a winner selector

So let's assume we followed your thought in the past in 2007 or 2008 after the small bear market trap:

down 6850 to 5000 then bouncing back toward 6000..does not this sounds VERY similar???
Anyway you carry on, lost a lot in GFC, but all good, change stocks, capitalise your losses
then enjoyed the longest bull market ever and in January 2020 break even again:
hurra 12years and a few month and you start celebrating
for...1 month before being slammed again by the coronavirus black swan

N o need to highlight where all this can go very wrong: in 12 year, where will you be, your family, the world..Lucky if you know, inform yourself, do not throw away good money ...

 

[willoneau]

Ok the reason is this , I will explain..

I received an inheritance a short while back. So, I have around $1.2m to invest and as soon as this can get me $75k per year in dividend payments after tax, I will stop working.

$75k dividends per year on $1.2m isn't possible if I want to be diversified. I can do it if I invest it all in CBA, WES and a few other higher dividend paying stocks but that would be a it too risky I feel. (would it?)

So, I am investing in VAS and VDHG which are indexes as well as 2-3 Managed Funds that target growth and some dividends. Hyperion High Growth and Magellan (MGE) are two of them.. This portfolio although pays dividends is a growth / high growth portfolio

Anyways I'm hoping if I sit like this for a few years (timeframe maybe 2-4 years) that the funds will grow to over $1.2, and then if I find that the dividend payments are not enough I was going to convert to more of an income generating portfolio, hence the reason for a possible sell down.


-Frank

Frankie if you want to generate 75K per year look for fund or system that generates at least 6.2% return each year plus tax.

 

[willoneau]

This is not investment advice, but for example
buy 10 EFT's with the lowest management fees and every year replace the EFT with the lowest yearly return with one that has low fees but higher yearly return.
Obviously something like this needs backtesting and verifying but just one of many idea's that is possible.

 

[InsvestoBoy]

Ok the reason is this , I will explain..

I received an inheritance a short while back. So, I have around $1.2m to invest and as soon as this can get me $75k per year in dividend payments after tax, I will stop working.

$75k dividends per year on $1.2m isn't possible if I want to be diversified. I can do it if I invest it all in CBA, WES and a few other higher dividend paying stocks but that would be a it too risky I feel. (would it?)

So, I am investing in VAS and VDHG which are indexes as well as 2-3 Managed Funds that target growth and some dividends. Hyperion High Growth and Magellan (MGE) are two of them.. This portfolio although pays dividends is a growth / high growth portfolio

Anyways I'm hoping if I sit like this for a few years (timeframe maybe 2-4 years) that the funds will grow to over $1.2, and then if I find that the dividend payments are not enough I was going to convert to more of an income generating portfolio, hence the reason for a possible sell down.


-Frank

People on this forum are not legally allowed to provide you financial advice and you shouldn't seek it here.

Instead of increasing your risk to pursue your goal, just accept your inheritance as the good fortune that it is, invest it with the advice of someone qualified and keep working. Re-invest the profits to grow the investment, and over time your investments will grow until they are enough for you to live off.

 

[InsvestoBoy]

This is not investment advice, but for example
buy 10 EFT's with the lowest management fees and every year replace the EFT with the lowest yearly return with one that has low fees but higher yearly return.
Obviously something like this needs backtesting and verifying but just one of many idea's that is possible.

@Frankieplus if you listen to people on this forum with advice like the above you might as well just set fire to your money right now.

 

[willoneau]

Sorry I got a little carried away with my thoughts.

 

[Frankieplus]

Sorry I got a little carried away with my thoughts.

All good I like opinions

Its good to see possibilities and options.. Thanks


-Frank

 

[Frankieplus]

Instead of increasing your risk to pursue your goal, just accept your inheritance as the good fortune that it is, invest it with the advice of someone qualified and keep working. Re-invest the profits to grow the investment, and over time your investments will grow until they are enough for you to live off.

Yep good plan. I am actually going on the advice of my advisor. Maybe I'm a bit sidetracked now with the market where it's at thinking I can speed up the process or change plan to speed up the process.. All sots of things going through my head now other than 'Stick to the original plan'

Thanks for your post.


-Frank

 

[Frankieplus]

Anyway you carry on, lost a lot in GFC, but all good, change stocks, capitalise your losses
then enjoyed the longest bull market ever and in January 2020 break even again:
hurra 12years and a few month and you start celebrating

Yeah I sort of understand your point here..

But let me ask. When someone re balances their portfolio aren't they basically selling and buying into something else? Whats the go with this?


-Frank

 

[Cam019]

@Frankieplus if you listen to people on this forum with advice like the above you might as well just set fire to your money right now.

 

[qldfrog]

Yeah I sort of understand your point here..

But let me ask. When someone re balances their portfolio aren't they basically selling and buying into something else? Whats the go with this?


-Frank

yes you can do that but usually the idea is to sell profit not loss and along preset strategy, not a ****, I was smashed, lets get out and buy bonds
For example..and warning, you'd better put your money on fire than following that specific example:
you might decide 25% in Oz shares: an etf f.e.; 25% in gold; 25% in cash and maybe 25% in US shares just to find diverse areas
Then overbalancing will mean every n so often quarter maybe or semester, you will sell the packets which increased over your 25% and add the ones which did not perform so well;
See the difference vs what you discussed;
Try to do some self learning but in the meantime, preserve your egs, talk to a FA and go for a conservative approach until you understand what you do, then you will do whatever knowing risks.
Money management is first and foremost Risk management in my opinion

 

[macca]

Trading is a war, every one else wants your money.

Keep your ammo dry until things settle down and backtest your method until you are a very good shot

Think how long it would take for you to Save $100k then think how many people with a million in the market lost that much in a couple of days.

 

[KD2560]

Yes understood. But because my question is based on the maths involved not market sentiment, then for the argument can we assume all being equal, I have lost 20% on Portfolio #1 because I sold on the way up but I immediately bought into Portfolio #2, so doesn't my 20% loss from Portfolio #1 get picked up by Portfolio #2 as it continues up?

I know you may say, how do I know it's going to continue up but lets assume it does for the sake of the maths / percentage gain v loss.

And in reverse?, I don't want to complicate it I'll try explain..

Pretend the market is at 7000... lets say I invest 100k at then the market drops 20%, I now have $80k cash once I sell right? (Ignoring taxes for now)

So with this $80k I buy a new portfolio but because the market has dropped, this new portfolio that used to be 100k is now also $80k right?

When the market goes back to up 7000, I will be back at a new portfolio worth $100k

I know this may sound like a stupid , simple maths question for me to ask but I just want to make sure I'm not missing anything. Financial maths can be different to other maths.


-Frank

Sorry but Id like to understand your investment strategy in a little bit more detail.

I understand your investment implementation is to sell a growth portfolio some time in the future returning say 3% with an income portfolio returning say 3%. Why do you want to do this ?

 

[Frankieplus]

Sorry but Id like to understand your investment strategy in a little bit more detail.

I understand your investment implementation is to sell a growth portfolio some time in the future returning say 3% with an income portfolio returning say 3%. Why do you want to do this ?

Ive started a portfolio that targets mostly growth and some dividends. I don't know what the percentage breakdown of this is. I actually should find out.

But if I find that in a few years that the dividends are not sufficient that I want to consider selling down and investing in an income generating portfolio.

But you know what I've thought about it since I posted yesterday and I think I will leave this growth portfolio alone and put aside 10-15% of my funds and invest in blue chip dividend paying companies now while they are cheap and just hold.

-Frank

 

[willoneau]

Ive started a portfolio that targets mostly growth and some dividends. I don't know what the percentage breakdown of this is. I actually should find out.

But if I find that in a few years that the dividends are not sufficient that I want to consider selling down and investing in an income generating portfolio.

But you know what I've thought about it since I posted yesterday and I think I will leave this growth portfolio alone and put aside 10-15% of my funds and invest in blue chip dividend paying companies now while they are cheap and just hold.

-Frank

how have you determined that companies are cheap?

 

[Frankieplus]

how have you determined that companies are cheap?

I just use stock doctor and read their review and go with their recommendation if the company is fair value or under valued.

I'm no good with fundamentals, this is the best I can do..

-Frank