Concerns over investment

Around this time last year I decided to dip my toe into the investing world and decided to purchase some shares of a mutual fund. I thought it would limit the risk and seeing as it is professionally managed that they would have greater knowledge on what markets to invest in than I ever would.

The fund is diverse enough with 50% in equity, 40% in bonds and 10% in cash. Unfortunately it has not panned out the way I had hoped. The investment has dropped over 10% in value in less than a year.

I had intended for this to be a medium term investment, maybe a 5 year term depending on how the returns faired. But now I have fears that I may never even get my original investment back. Whilst I have not invested a huge amount of money, it is still significant to me. If I lost it all, it wouldn't be the end of the world.

Do you have any advice for a novice investor such as myself? I originally set a lower limit of 15% loss in value before I cash out, but as I have a limited knowledge of mutual funds, I'm not sure if this is a wise decision, especially as I had envisaged a 5 year term.

I understand that no one can predict the future behavior of a fund, but can anyone provide advice on the best approach considering the current stock market conditions?

You would be mad to get out now. With a 15% limit in your own head, you should not have invested in the first place, but as the saying goes "we are where we are". Stick with your timeline and hang in there. Markets go down as well as up, but once you have a decent timeline, they always go up.

Gordon Gekko said:

You would be mad to get out now. With a 15% limit in your own head, you should not have invested in the first place, but as the saying goes "we are where we are". Stick with your timeline and hang in there. Markets go down as well as up, but once you have a decent timeline, they always go up.

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Do you think a 15% limit is too low? The fund wasn't particularly high risk or even high return and thought that a 15% drop in value was unlikely, but I still set a limit because otherwise I could keep telling myself it would pick up and eventually I could be down 30% or more.

The only guarantee I can give you is that the company that sold you the Policy and the agent will make money, no matter what happens to world markets. Which company's product are you invested in ? Markets go up and go down and down again. If its run by a decent company and you don't need the money, relax and wait. As long as all other matters including charges are according to plan, there is nothing you can do.

Hi, i hope i can offer some perspective.

Current market conditions should have no bearing on a carefully thought out investment strategy.

Markets are volatile things. That's what they do. But volatility isn't risk, just like snow in November it's something you should be prepared for.

In 2008 a balanced portfolio (50% stocks and 50% cash and bonds) dropped by almost exactly 20%.

This should be your starting point for your realistic expectation of a bad 1 year return. Global equities declined by around 40% from the peak. You have half in equites, so you should expect a 20% drop in a bad year. Not 15%. So yes, 15% was never the right number based on your investment.

Also, and i don't want to scare you but, That's not the worst you could get either. The worst year on record for the US market was -67% in one year. In October 1987 shares declined by about 22% in one day.

That's the nature of the stock market. It can have bad days, really bad days and run for years without making money. Over the long term stocks go up but over the short term they can go down a lot and you should expect that to be the case before you invest.

However, you should also not fear that you will lose your entire investment. That's what makes people panic and sell which is when you would turn a paper loss into a permanent loss of capital.

You originally intended to invest over the medium term. That was good planning and that's what you should try and stick to.

The only way the market rewards us is if we’re willing to tolerate its eccentricities.


Hope that helps

Let's take a step back and have a look at your plan when you started:

1. 5 year investment term
2. Falls of 15% before you start to get worried

So you knew there would be falls along the way, otherwise you wouldn't have a limit. As we are now seeing, there is a big difference between people saying they have set limits and what happens when they actually occur. You still haven't hit your limit of -15%, so why are you fretting? There may also be really bad times (such as 2008), when your loss limit may be exceeded, but that is no need to panic either. Share prices may be down but people are still drinking Coca-Cola and babies are still wearing Pampers.

Then there's the time frame. You have a 5 year investment term. You haven't got to that stage yet, so why panic? Give it the term that you planned on at the outset. At the end of that term, if you are down, it may be a case of extending the term. If you have a good investment strategy, you will make money from it. In some cases, it might just take longer than expected.

I would question why you have cash in an investment bond. You can most probably get a better interest rate from a bank yourself. There is a management fee charged on this portion of your fund that you can quite easily look after yourself.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

heisenberg said:

Around this time last year I decided to dip my toe into the investing world and decided to purchase some shares of a mutual fund. I thought it would limit the risk and seeing as it is professionally managed that they would have greater knowledge on what markets to invest in than I ever would.

The fund is diverse enough with 50% in equity, 40% in bonds and 10% in cash. Unfortunately it has not panned out the way I had hoped. The investment has dropped over 10% in value in less than a year.

I had intended for this to be a medium term investment, maybe a 5 year term depending on how the returns faired. But now I have fears that I may never even get my original investment back. Whilst I have not invested a huge amount of money, it is still significant to me. If I lost it all, it wouldn't be the end of the world.

Do you have any advice for a novice investor such as myself? I originally set a lower limit of 15% loss in value before I cash out, but as I have a limited knowledge of mutual funds, I'm not sure if this is a wise decision, especially as I had envisaged a 5 year term.

I understand that no one can predict the future behavior of a fund, but can anyone provide advice on the best approach considering the current stock market conditions?

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Hi Heisenberg
Like you I invested this time last year, April by the time it was all put to bed, it's a balanced portfolio 50/50 and for the previous 3 months was showing a 4% growth per month. First 2 weeks everything was on target but since then it hasn't gone to plan, the defensive side is holding its own but the growth side is down about 15% it did get to 20% but seems to be coming back at the moment.
My experience of the markets is very limited but I do know stocks go up and go down and when they are down you have to trust yourself and the advice you got at the time was good and remember that you are not playing(timing) the markets but rather looking for a return over a 5 year period.

heisenberg said:

Around this time last year I decided to dip my toe into the investing world and decided to purchase some shares of a mutual fund. I thought it would limit the risk and seeing as it is professionally managed that they would have greater knowledge on what markets to invest in than I ever would.

The fund is diverse enough with 50% in equity, 40% in bonds and 10% in cash. Unfortunately it has not panned out the way I had hoped. The investment has dropped over 10% in value in less than a year.

I had intended for this to be a medium term investment, maybe a 5 year term depending on how the returns faired. But now I have fears that I may never even get my original investment back. Whilst I have not invested a huge amount of money, it is still significant to me. If I lost it all, it wouldn't be the end of the world.

Do you have any advice for a novice investor such as myself? I originally set a lower limit of 15% loss in value before I cash out, but as I have a limited knowledge of mutual funds, I'm not sure if this is a wise decision, especially as I had envisaged a 5 year term.

I understand that no one can predict the future behavior of a fund, but can anyone provide advice on the best approach considering the current stock market conditions?

Click to expand...

15% down is pretty high in a year when you consider bonds have risen in value in most cases , the equity markets globally are below where they were this time last year , there is no way you will loose all your money , i would not worry about this

The most important part of investing is to ensure you get what you have signed up for. Keep every piece of correspondence and check it within the allowed period. Ireland is a haven for abuse, so be very careful. And remember those they are involved in Investments work on Commission. And for those that follow me on AAM, they'd know my thoughts on these type of people.

Thank you all for the response. I think I got concerned because the drop happened much quicker than expected, especially as the value was rising for quite some time previous to my purchase and practically the following day the value began to fall. I guess I was just very unfortunate with my timing.