Crashing Investment

[Zoran]

I'm going to be a TROLL and say cash the investment and take the loss of €1100 at this stage. You can use the €1100 loss and convert it to a €220 carry over against any future capital gain tax situation [can be carried forward for a number of years].

If you had a car with a gear box problem, would you get it fixed immediately at a cost of €1000 or would you wait 2 to 3 years for the problem you know will exacerbate, at a cost of €3000 plus for a full replacement.

I agree with this if the fund selected was the mistake at the first place.
When looking the prospect of select fund it points it has up to 80% of consensus fund in it. Such fund again has 19% Irish equity and 11% UK equity. That is too much risk for me as Ireland is not even 1% of the world economy. Too less diversification from my perspective.

For me this fund if alone without other funds to support it is the mistake.
It is also mistake to have any loaded fund (e.g. with entry/exit fees).

I have my company pension scheme with Irish Life but I explicitly wanted no entry/exit loads so I got it.
I am invested in only passively managed indexed funds with Irish Life with management fees of 0.75% and no entry/exit fees.
At least that is the best I could get in Ireland.

2. According to Goldman Sachs, America has now had its second month of 0% growth, or in other words has entered into recession. When America coughs all other markets get a cold.

If they know what is good for people then they will not make the loss at the first place.
What happened to their hedge funds if they are so smart?
What is their (market maker) interest in all of this?

I will personally like to see the bear market now as I am still in early phase of accumulation so my money will grow faster after the bear.

But do no believe anybody knows when the bear market is starting.
Do you know is it started?
When it is ending as after the bear market you have the fastest growth and buys?

The above list is not exhaustive, but is not good reading. Therefore I would cash out. Wait 18 to 24 months for the floor then buy in again at bargain basement values. The uplift on your €8900 will achieve profitability much faster. In the meantime consolidate and invest in a high interest 5% account, it will grow to €9441 net of tax after 18mths [You still retain €220 capital loss against any future gains above the 9.4k].

Why 18-24 months?
Are you saying that the bear market is in average that long?
What academic/book/knowledge support you have for such thinking?

Anybody with a different version that is bullish please enlighten me, I stand to be corrected. For now though, encash and sit back and watch the [broken link removed].

I am neither bulish or bearish but academic work is telling that active money management is not working that well long term. Market timing is not winning game even for professional fund managers.
That is why this post as Irish Life fund (actively managed) was tracking best top Irish active managers and it still loose the money.
If you had the nicely diversified passively managed indexed funds portfolio (with some bond or REIT exposure depends on your age of course) you will not loose such money in that period.

Finally on two small points (i)Next time ETF rather than managed fund. You are paying over the odds for something that is easy to organise on line without as much commissions. (ii) If I thought the markets were just blipping, then I would agree just to ride it out like other posters suggestions but markets are reacting way more than this.

Passively managed indexed ETF's are the same/similar as passively managed indexed funds.
Both ETF's and funds can track their respective indexes and are usually charged small management charges.
In Ireland you can buy expensive funds (even passive indexed funds are 0.75% cheapest) or opt through some (usually US) broker to buy ETF for $10.
My ETF's I have in tax managed account are 0.2% charges in average with that initial $60 to buy it out.

 

[Zoran]

Sorry - what is a "tax managed account"? I

Ah, sorry for such word. Reading too much US forums and books

It is the money you have outside the pension so you need to bear in mind about CGT and other issues arises from it.

 

[MichaelDes]

If Goldman Sachs know what is good for people then they will not make the loss at the first place. What happened to their hedge funds if they are so smart? What is their (market maker) interest in all of this?

It is the same as every other hedge fund who are now licking their wounds caused by their own financial follies, which every month has an even worse scenario toting up. Their follies remind me of the Spectrum licence sale of 3G in the UK, so many Telco’s through over enthusiasm ended up with some real bad deals that could not be offloaded. Most hedge fund MD's got the sack and handisome payoffs in the millions - somethings in banking etc never change regardless of the sublimety.

Was it Sach's that resorted to borrowing 11% from the Saudi's to protect its position? If a large institution can not get legitimate funding without punitive rates what hope is there for corporate Europe and America? Consolidate, other than a small to medium weighting in commodities or Far East stoxx.

But do no believe anybody knows when the bear market is starting.Do you know is it started? When it is ending as after the bear market you have the fastest growth and buys?Why 18-24 months?

Are you saying that the bear market is in average that long? What academic/book/knowledge support you have for such thinking?

Forget academia, 18 months etc could be the floor but it is hard to gauge. Just watch graph trends and papers etc. Choosing when to buy is subjective. We are in a bear market downturn and that is objective. Until the worm turns, I would sit tight.

Passively managed indexed ETF's are the same/similar as passively managed indexed funds.

ETF's or trackers is my only consideration. That is a subjective consideration too. There are 1000's of choices within either.

 

[Zoran]

Hi to the last 3 who posted replies to my question. Thanks a lot. I think you're probably right. Btw, it is an absolute curse being able to access the results online. I've been trying my best not to look more than once a week or so. You can drive yourself demented! What's worse is I listen to Newstalk most days from apx 7am and the good old 7.25am slot on business and the markets does nothing to put a rosy glow on my morning!
I'm meeting with my financial advisor tomorrow, who's going to explain to me why I shouldn't pull out until the 5 year term is up. He keeps talking about "showing me something on the internet" which should apparently put my mind at ease. My question is, what is his vested interest in keeping me in? I mean, the fees are the fees. I'm pee'd off that he didn't patently explain to me in clear terms about the exit fees. It was only when I looked at the paperwork that I received "after" I'd signed on the dotted line that it mentioned them. Anyhoo, what does he gain by me staying, or more to the point, what does he lose?
Zoran, I am afraid that as a novice investor with practically no knowledge of the markets, I have no idea what you are explaining in your thread, but you sound exceptionally knowledgeable and I thank you for your advice. If there's any of it that you can put in any simpler terms for me before 2pm Monday, I'd find it useful, so that I'd be better armed for a discussion with my FA. Thanks to everyone who's posting on this. I'm finding it very helpful.

Mers,

If this is your only fund then it is not good enough diversification.
19% of stocks from consensus fund that is part of select fund looks too much.
I am not sure I got it correctly from the prospect but that is poor diversification as Ireland is such small market in the world perspective.

Dependant on the risk academic research is suggesting buy&hold strategy with yearly rebalance to keep percentages tight and investments into passively managed indexed funds (you have a few indexed funds with Irish Life I am using in my portfolio).
The percentages of these funds in your portfolio together with bond fund and maybe some tiny percentage of REIT's (property fund - that I am not sure they have - I have seen some crazy expensive Fidelity property fund that I remember so not sure).

E.g. I myself have this proportion (and that is not good for everybody) especially that I did not buy 10-20% of bond funds due to my age.

With Irish Life I have these positions (not your recommendation but you can see what diversification means). I am a bit more Europe averse as you can see:
Ex Indexed European Eq Ser P - 40%
Exempt Nth American Equity Ind - 35%
Exempt Japanese Equity Indexed - 10%
Exempt Pacific Equity Indexed - 15%

I did not opt for Fidelity funds as they are all actively managed and with huge charges. Fidelity passively managed funds with Vanguard passively managed funds are one of the best in the world but we have no choice to opt for them but rather having crazy expensive (1.5% or so) Fidelity funds.

As you can see I am missing bonds, some percentage in emerging markets and eventually some small percentage of REIT's (property fund - 5-10% max)
I do not like property fund that is invested in 1 country or 2 countries like this one from Irish Life but it does not mean it is bad as they are with negative correlation to some other holdings.

Do not take my words or anybody else's just like that.
Check it out yourself, research a bit as without the knowledge and your real situation, age, time dimension and so on nobody will give you good advice.

I hope at least a few points to ask your adviser.

Best of luck.

 

[MichaelDes]

With Irish Life I have these positions (not your recommendation but you can see what diversification means). I am a bit more Europe averse as you can see:
Ex Indexed European Eq Ser P - 40%
Exempt Nth American Equity Ind - 35%
Exempt Japanese Equity Indexed - 10%
Exempt Pacific Equity Indexed - 15%

Your portfolio is likely in my opinion to be negative for the short term although this is subjective. Irish Life has free switching, would you not avail of this option of safer funds for some categories until +ive sentiment and economic data returns to these markets? Btw I do like Japan though, especially as the Topix yield is the same as bonds, each time the trigger occurred in the past, spikes emerged of 25% to 40% [based on last 15 years - 4 times]. Japan has been as false starter in the past and 2007 was very disappointing at -10% growth. Growth in 2008 should correct this though. Sorry – I do not mean to be Trollish, just basing observations on data. But each to their own, s/markets out perform other classes but timing too, in this, is essential to me.

 

[Zoran]

Was it Sach's that resorted to borrowing 11% from the Saudi's to protect its position? If a large institution can not get legitimate funding without punitive rates what hope is there for corporate Europe and America? Consolidate, other than a small to medium weighting in commodities or Far East stoxx.

Forget academia, 18 months etc could be the floor but it is hard to gauge. Just watch graph trends and papers etc. Choosing when to buy is subjective. We are in a bear market downturn and that is objective. Until the worm turns, I would sit tight.

I am not saying that market is in greatest time ever but I have no clue when the bear market starting or ending. When to enter and where to not.
If so many professionals does not know to market time how do you know.

So when you will get back in the game?
When prices go up 2%, 10% or 20%?
Are you going to miss best days of the new bull?
How do you know when it is bottom?

Research on market timing and actively managed funds doing market timing is that they under-perform long term buy&hold of market through cheap passive indexed funds.
What you are saying is that you are smarter then professional active managers and that you will beat the market (be better then some benchmarking index) on the long run (to say 10, 20 years or more that you need for pension)?

The only certain thing in the market is that the value is created over the long time period as the stock market is going up last 400 years.
Try to market time it and you are entering the trading game where best pros will be better of then you.

ETF's or trackers is my only consideration. That is a subjective consideration too. There are 1000's of choices within either.

There is no so many cheap real passive indexed ETF's out there. Look for costs less then 0.5% and look only passively managed ETF's.
I will exclude market timing ETF's that you will buy and seel as per will and feeling from media.

Just forget market timers as they all screw up at the end.
They will anyway get their management fees and big fat salaries so I will not worry about them but rather about your hard earned money.
To not mention the time you need to spend (if you have it at all) apart from your job to do market timing that academics proved wrong for the individual investors.

In Ireland it is still monopoly and it is hard to get cheap passive trackers (indexed funds) and/or to buy cheap passive indexed ETF's in euro (you can in $) and that is a shame.

 

[Zoran]

Your portfolio is likely in my opinion to be negative for the short term although this is subjective. Irish Life has free switching, would you not avail of this option of safer funds for some categories until +ive sentiment and economic data returns to these markets? Btw I do like Japan though, especially as the Topix yield is the same as bonds, each time the trigger occurred in the past, spikes emerged of 25% to 40% [based on last 15 years - 4 times]. Japan has been as false starter in the past and 2007 was very disappointing at -10% growth. Growth in 2008 should correct this though. Sorry – I do not mean to be Trollish, just basing observations on data. But each to their own, s/markets out perform other classes but timing too, in this, is essential to me.

Thanks for the suggestions.

I know it is not perfect but I at least put out what I have.
This was my first pick when I open my company scheme with the Irish Life and I know it is far from ideal.
I should have 10-20% in bonds due to my age.

Also just could not buy any fund with >1% charge, that was just not ethical.

Just one point, I am not market timer but rather buy&hold for a long time with rebalancing to reduce the risk every year (e.g. if Japan is up more then the others then I will move money around to have the same percentages).
I have no clue how to market time the market (do not forget that I have read 50 books, do myself market timing, stock picking and so on and get to the conclusion it is too much time and I have no valid long term strategy).
Also by reading a lot of proper books and academic studies it was obvious that market timing is no win in the long run for the individual investor especially (due to all studies are based on active manager pros who did not beat the market - e.g. S&P 500 or any benchmark index they followed).

 

[Zoran]

Mers,

If this is your only fund then it is not good enough diversification.
19% of stocks from consensus fund that is part of select fund looks too much.

Wanted to say 19% of consensus fund is in Irish stocks and that is just to much for tiny Irish economy in the world perspective.

In simple words it is too much risk.

 

[Jim1000]

you can get 100% allocation on some PRSA with low charges annual. I went through LABrokers check out .
Note that a broker sitting in Eagle Star Head Office could not beat this !

I would say sit on your investment for now unless you have some great alternative for it.

Remember in the high tax rate you are saving 41% anyway.

re all the credit crunch comments above I think investing in the globally big companies with good dividends, easy to understand products (eg NOT CDOs and long successful histories is the way forward, think of the name's your granny knows (school of Warren Buffet)

 

[docker]

Hey Mers, if you do not need the money for the next 5 - 7 years and if it is not the end of the world to take some loss than you should keep the faith. I had an Equity SSIA and the value was down aprox 15 - 20 % in the first two years. However by the fifth year it was valued quite a bit above what I would have earned with a deposit SSIA. In most cases you will get a reasonable return over this period.

I think you should put more though into your PRSA. €70K charges on a €370K POTENTIAL fund value seem excessive. Although in my case it was aprox €250k in charges in a fund POTENTIALLY valued €700k. This was with BOI...I couldn't believe the 5% charge per contirbution plus 1% annual total fund charge came to so much. I cancelled this straight away!!!

 

[roland]

you can get 100% allocation on some PRSA with low charges annual. I went through LABrokers. Note that a broker sitting in Eagle Star Head Office could not beat this !

I wouldn't be too surprised by that - ring up the booking office in most hotels and they will quote you a rate much higher than you can get through a hotel 'broker' website.

 

[roland]

€70K charges on a €370K POTENTIAL fund value seem excessive. Although in my case it was aprox €250k in charges in a fund POTENTIALLY valued €700k.

How much do you think is a reasonable charge for someone to manage your money, keep you informed, answer your queries and carry out all the administration on that over a period of 20+ years?

 

[docker]

How much do you think is a reasonable charge for someone to manage your money, keep you informed, answer your queries and carry out all the administration on that over a period of 20+ years?

I certinaly do not think taking a cut of 20% (70K / 370K in Mars case) to 35% (250K / 700K) of my personal pension savings in charges is reasonable. Particuallarly for simply "keeping me informed, answer your queries and carry out all the administration" !!

Like I said Mers I advise you look else where to try reduce your charges.

I woud be prepared to pay higher charges if the pension provider could demonstrate they will achieve higher overall returns through their investment stratagies. However it's unlikely that they can demonstrate this...

 

[roland]

I certinaly do not think taking a cut of 20% (70K / 370K in Mars case) to 35% (250K / 700K) of my personal pension savings in charges is reasonable. Particuallarly for simply "keeping me informed, answer your queries and carry out all the administration" !!

Like I said Mers I advise you look else where to try reduce your charges.

I woud be prepared to pay higher charges if the pension provider could demonstrate they will achieve higher overall returns through their investment stratagies. However it's unlikely that they can demonstrate this...

Of course you should look for the best charges, but my point is that adding up all the (potential) charges on any investment over a 20 year+ timeframe is bound to look like a large figure. So, quoting one large figure is not helpful in making these decisions - 'taking 70k from me' is the sort of thing that scares people from investing at all. If you added up all the money you spend on maintaining your house over a 20 year timeframe it would probably also look like a very scary figure. You talk about 'taking a cut' of 20% but you don't give any sense of the timeframe over which this is taken. For example, 1% per annum over 20 years comes to 20%. So your 'taking a cut of 20%' is now the same as 'taking 1% per annum for 20 years'. So timeframe is also very important. You need to get these figures into perspective. I would also suggest you won't find any manager who can demonstrate now that they will achieve higher overall returns.

 

[docker]

Of course you should look for the best charges, but my point is that adding up all the (potential) charges on any investment over a 20 year+ timeframe is bound to look like a large figure. So, quoting one large figure is not helpful in making these decisions - 'taking 70k from me' is the sort of thing that scares people from investing at all. If you added up all the money you spend on maintaining your house over a 20 year timeframe it would probably also look like a very scary figure. You talk about 'taking a cut' of 20% but you don't give any sense of the timeframe over which this is taken. For example, 1% per annum over 20 years comes to 20%. So your 'taking a cut of 20%' is now the same as 'taking 1% per annum for 20 years'. So timeframe is also very important. You need to get these figures into perspective. I would also suggest you won't find any manager who can demonstrate now that they will achieve higher overall returns.

I'm not trying to scare anyone! However I think 35% on my pension in charges, 250K on 700K fund, frankly is scary! Its obviously very important to highligh the impact of charges on your pension. Different pension providers charges can vary greatly...therefor the value of your fund will vary greatly from a result of these charges.

Also you are very wrong with your "1% per annum over 20 years comes to 20%" it does not work this way. If a fund was to charge 2% over 50 years you would not be left with nothing. Even with the additional 5% contribution charge some providers also charge! 5 yr example on investing €100 per year with 1% charges and assuming 1% growth.
Yr1 100, charge 1
Yr2 200, charge 2
Yr3 300, charge 3
Yr4 400, charge 4
Yr5 500, charge 5, total value 500, total charges 1+2+3+4+5 = 15 of €500 = 3% total in charges over 5 years ( not 5% ).

Also most providers "assume" growth of aprox 6% per annum. Therefore their % charges of your total fund should be less as part of their charges are fixed (the per contribution charge) even if your fund is growly at this rate.

For me the 35% charge which was over 40 years seemed excessive..so I cancelled it straight away. However I do value a pension and do have one, just not at these charges.