There is zero need to take on the risk of the stock market.
buy whatever state investments are available and put the rest in the bank,
Cash is less risky than equities as a fact. To compare apples for apples you would need to consider the probability of default of a bank vs the companies that you have invested in. A diversified equity portfolio is inherently going to have a larger Loss Given default given some sectors inherently have higher probability of defaults than Financial institutions. Banks in Ireland are in fairly good capital standing as of now, regulation over the last 10 years has ensured that.
Cash is still less risky and that is a fact. There are not many examples of individual cases your example is a macro one.Hi Andrew
There have been many examples of wealthy people invested in cash being wiped out. German inflation is probably the most dramatic.
Irish inflation has also dramatically reduced the wealth of cash investors.
If the OP buys a portfolio of equities, it's very likely that some of them will fall to zero. But the maximum loss on any investment will be 100%, the maximum gain on the others is unlimited and should compensate for that.
The Irish economy is in a very difficult position , and all the more so, because people don't recognise it. Irish banks could all topple down together. Probably not this year or next year, but over the longer term which is his investment horizon.
You would probably be correct if you were comparing a deposit in AIB with a €4m investment in one individual share. But a diversified portfolio of equities is less risky than bank deposits.
Brendan
Cash is still less risky and that is a fact.
Cash is still less risky and that is a fact. There are not many examples of individual cases your example is a macro one.
Why are the Irish banks going to topple? What insight do you have the support that statement?
But inflation IS the risk over a 30 to 40 year horizon. If not every 30 year old in the country would be advised to put their pension in cash. Why would it be different here?What is the argument to support cash being riskier other than currently putting it on deposit is not going to beat inflation?
But inflation IS the risk over a 30 to 40 year horizon. If not every 30 year old in the country would be advised to put their pension in cash. Why would it be different here?
The credit risk can be diversified away with cash, but the inflation risk can't.
If I put $100 into a broad based equity index tracker for 5 years,
Even if inflation is the risk, it is very very very remote that it could match the potential volatility of the stock market.
I'd hope you'd have $105?...If I put $100 on deposit at 1% (risk free rate) for 5 years, after 5 years providing the institution has not defaulted I will have $101.
You have suggested earlier that the best place for a 41 year old to put the money that they will use to fund the rest of the life (let's say up to 50 years) is in cash. So let's forget about 5 year horizons, and your risk appetite. Where should the OP put their money for their time horizon?I hope this is clear but happy to clarify further.
Hi Andrew
You are making the common mistake of confusing risk and volatility.
None of us would disagree that over the next 5 years, equities are more "risky" than cash. It is quite possible that stocks will be lower than they are today. It's unlikely that inflation or a bank default will wipe out today's deposit.
But over the longer term, volatility of the stock market does not matter but the risks of inflation and bank default increase.
You are quite entitled to your opinion that the stock market is riskier in the long term than cash and I am entitled to disagree with you. But you are not entitled to say that cash is risk-free.
Brendan
I'd hope you'd have $105?...
You have suggested earlier that the best place for a 41 year old to put the money that they will use to fund the rest of the life (let's say up to 50 years) is in cash. So let's forget about 5 year horizons, and your risk appetite. Where should the OP put their money for their time horizon?
For the record, I've funds that I've invested for a 5 year horizon which I've put into state savings. I want certainty on that money in that timeframe, so that's where it is.
I've also invested for my children's future which won't be needed for 12+ years. That's predominantly in equities.
And my pension (I'm in late 30's) is 100% invested in equities.
I probably understand the risks of stock market, and particularly stock picking, better than most. I personally lost quarter of a million during the crash (all equities).If you are in your late 30's for a significant part of your investment history you have only seen the stock market go up.
I probably understand the risks of stock market, and particularly stock picking, better than most. I personally lost quarter of a million during the crash (all equities).
So if you're going to be condescending you can pick somebody else.
It's very black and white in my case.It is not that black and white
I see now where you are coming from.
You believe that you can time the market and that it is overvalued? Therefore he should be in cash until the market is fair value again?
I don't have your ability to time the market. If I did know that the market was going to fall, then I would advise as you have.
However, I don't think it's possible to time the market.
Or do you accept that you can't time the market, but it's just that after such a long period, the risk is higher?
Brendan
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