Black Swan Event Under Way

[TragicMonkey]

Originally Posted by The Atheist

When it occurs, yes, things will improve, but it won't be a magic wand, especially for those at the bottom.

I don't remember claiming anything would be "a magic wand" for anybody, much less the bottoms. But I'm glad you recognize that things will improve, which means this is not a permanent state of affairs but rather a temporary storm to be weathered.

[Pixel42]

This month's update on my stocks and shares ISA.

Date	% +/-	Date	% +/-
5.18	1.3	7.20	7.8
8.18	3.4	8.20	8.1
11.18	-3.1	9.20	7.9
2.19	-0.8	10.20	9.9
5.19	1.9	11.20	12.6
8.19	7.4	12.20	15.1
11.19	6.6	1.21	18.7
2.20	10.3
3.20	3.7
4.20	-4.9
5.20	0.3
6.20	5.8

A reminder of the context: I have been saving £300 a month since May 2017, choosing a fund to invest in each month. I have so far invested a total of £13500 in a dozen different funds; the current value of my investments is £16025.

[Matthew Best]

I don't understand what the percentage figures are supposed to show.

[Pixel42]

Originally Posted by Matthew Best

I don't understand what the percentage figures are supposed to show.

The change in the value of my investments. Their current value (£16025) is 18.7% more than the total amount invested (£13500).

[Matthew Best]

So they’ve gone up by 18.7% since May 2017?

[The Atheist]

Originally Posted by TragicMonkey

...which means this is not a permanent state of affairs...

Who suggested it was?

[Orphia Nay]

Originally Posted by Matthew Best

So they’ve gone up by 18.7% since May 2017?

And is that not including the deposits, Pixel42?

[Pixel42]

As I said, I've been investing £300 a month since May 2017. Every month I compare the total amount I've invested with the current value of those investments and post the result as a percentage change. The idea, as originally stated, is to use my experience to monitor how good or bad a decision it was to continue investing, rather than cash in, at the start of the pandemic. I'm not sure what it is about this that people are having difficulty understanding.

At the moment it's looking like a good decision, but that might well change as time goes on.

[The Great Zaganza]

I am amazed at how unfazed the Stock market was about the occupation of the Capitol by a hostile mob.

[lionking]

Originally Posted by Pixel42

As I said, I've been investing £300 a month since May 2017. Every month I compare the total amount I've invested with the current value of those investments and post the result as a percentage change. The idea, as originally stated, is to use my experience to monitor how good or bad a decision it was to continue investing, rather than cash in, at the start of the pandemic. I'm not sure what it is about this that people are having difficulty understanding.

At the moment it's looking like a good decision, but that might well change as time goes on.

I think that ON is suggesting that putting in your deposits gives a distorted picture of what your investments are earning. Using that system, I can get 100% “return” if I ramp up my deposits. Pretty meaningless.

[Pixel42]

When I first proposed doing this as a way to monitor the effect of the 'Black Swan' on a small investor several posters encouraged me to do so. If the consensus is now that it's meaningless I'm happy to stop.

I will, however, continue to use the percentage by which the value of my investments has grown or shrunk to determine if I would have been better off cashing in my stocks and shares ISA back in February and putting/leaving my money in a savings account.

[lionking]

Originally Posted by Pixel42

When I first proposed doing this as a way to monitor the effect of the 'Black Swan' on a small investor several posters encouraged me to do so. If the consensus is now that it's meaningless I'm happy to stop.

I will, however, continue to use the percentage by which the value of my investments has grown or shrunk to determine if I would have been better off cashing in my stocks and shares ISA back in February and putting/leaving my money in a savings account.

I’m not having a shot at you personally. But I hope you see my point. The type of investment fund I’m in publishes its annual return on investment which I use to compare to other funds, shares, cash etc. Last year it returned a bit under 5%, which I’m happy with. This year I’m hoping for 7-8%, which is about the 10 year average.

If you are happy with what your system tells you, that’s fine. But saying 18.7% increase is not a useful point of comparison to anyone else.

[Pixel42]

Fair enough. I was never convinced it would be useful to anyone else, to be honest.

[Orphia Nay]

Glad that got cleared up. I didn't want to start any arguments.

Pixel, have you read about the 50/30/20 rule?

"Senator Elizabeth Warren popularized the so-called "50/20/30 budget rule" (sometimes labeled "50-30-20") in her book, All Your Worth: The Ultimate Lifetime Money Plan. The basic rule is to divide up after-tax income and allocate it to spend: 50% on needs, 30% on wants, and socking away 20% to savings.1"

https://www.investopedia.com/ask/ans...udget-rule.asp

So 18%ish is pretty close to the goal, though I guess it gets muddy again if you drill down into whether savings includes growth.

Well done on your investments, anyway.

[Pixel42]

Originally Posted by Orphia Nay

Pixel, have you read about the 50/30/20 rule?

Interesting.

My records show that in 2020 I spent roughly 46% of my post tax income on needs, 22% on wants and saved 32%. Of course 2020 was unusual - not only did my holidays (normally the biggest chunk of my 'wants') get cancelled but I also spent a lot more than usual on essential maintenance (including a new garage roof) for my house, which added significantly to 'needs'. A similar rough calculation for 2019, which was more typical, gives a 28/35/36 breakdown.

Keep in mind I'm not saving for my retirement, I'm already retired. I'm mostly saving with an eye on my possible eventual need for long term care; I'm hoping I'll be able to afford a live in carer so I can stay in the home I've lived in for over 30 years rather than move into a retirement/nursing home.

Bottom line is that I have savings of about £70k, a house worth about £450k and after tax income (from final salary pensions) which exceeds my typical 'needs' by about £2000 a month. So I think I'm OK.

[The Don]

Originally Posted by Pixel42

Bottom line is that I have savings of about £70k, a house worth about £450k and after tax income (from final salary pensions) which exceeds my typical 'needs' by about £2000 a month. So I think I'm OK.

Well done

That's a great position to be in and gives you a good buffer should you require expensive care much later in life. It's essentially the same position Daddy Don was in and meant that his last 18 months were spent in safety and comparative comfort in an excellent care home.

edited to add.....

I realise that you'd like to be looked after in your own home. So did Daddy Don but eventually his medical needs exceeded what could be provided for at home

[blutoski]

Originally Posted by Pixel42

When I first proposed doing this as a way to monitor the effect of the 'Black Swan' on a small investor several posters encouraged me to do so. If the consensus is now that it's meaningless I'm happy to stop.

I will, however, continue to use the percentage by which the value of my investments has grown or shrunk to determine if I would have been better off cashing in my stocks and shares ISA back in February and putting/leaving my money in a savings account.

This is where there are different ways to review one's investment performance, because people are often measuring different things to track different goals.

What I think is being conflated here is portfolio valuation vs returns on investment.

I track my portfolio valuation to see how I'm progressing toward my retirement target number. Basically: I want to have $x by the age of 55, how'm I doin'?

Alternatively, I'm curious about how hard my savings are working for me. So, the metric for this is what's called a 'dollar adjusted return'. To calculate this, I only consider how much growth has come from the investments themselves, and exclude my new savings. If my portfolio grew 15% this year, but 10% of that is new savings, then the portfolio only returned 5%. I might want to compare that to some sort of benchmark to see how my investment choices are panning out.

This is why I mentioned in an earlier post that it's a big deal to consider this, because when we're just starting out, our annual contributions are the bulk of each year's portfolio increase. Later, as compounding takes a larger effect, our annual contributions become proportionally smaller to the point of being a rounding error.

Some people actually reach a point where compounding alone will achieve their dollar goal by the target date, and stop contributing new savings. I'm at that stage.

Here are my 2020 monthly %returns, dollar-adjusted, not annualized (so: real month over month deltas):

Jan-20 7%
Feb-20 -8%
Mar-20 -5%
Apr-20 14%
May-20 6%
Jun-20 11%
Jul-20 3%
Aug-20 27%
Sep-20 -7%
Oct-20 -5%
Nov-20 6%
Dec-20 8%

Annual return is 63%

ETA: I'm not providing the raw numbers because either I'm poor and embarrassed or rich and don't want to sound boasty.

ETA more: and the point I'm trying to make is that this is achieved with me assuming that nobody can predict what stocks, bonds, or the market will do, so building a portfolio model based on that. Dollar cost averaging into a diversified index, buy and hold.

[blutoski]

Originally Posted by Pixel42

Keep in mind I'm not saving for my retirement, I'm already retired. I'm mostly saving with an eye on my possible eventual need for long term care; I'm hoping I'll be able to afford a live in carer so I can stay in the home I've lived in for over 30 years rather than move into a retirement/nursing home.

There's a rule of thumb that even with today's low yields, savings for events <5 years out shouldn't be invested in the market, due to its volatility. The most common example I come across is younger people saving for a home down payment.


I'm on the same page with maintaining independence. My partial solution is to prepare my basement as an in law suite for them to maintain some independence once they require 24/7 support. My mom is close to the stage where she will become a fall risk, so unfortunately, this is the line for me to switch to insisting they can no longer live on their own. Fulltime at-home care is just too expensive, it would exhaust their net worth in a couple of years.

[Orphia Nay]

Thanks for the informative posts, blutoski, and best of luck persuading your parents to leave their house.

[Orphia Nay]

https://www.abc.net.au/news/2021-01-...ality/13089128

"Within nine months, the top 1,000 billionaires, mainly white men, had recovered all the wealth they had lost.

"Conversely, it could take more than a decade for the world's poorest people to recover from the economic impacts of the pandemic.

"That is the upshot of Oxfam's latest report, The Inequality Virus, which highlights how the coronavirus crisis has exacerbated inequality and deepened poverty around the world."

"The report's release came as the World Economic Forum's Davos Agenda meetings kicked off on Monday under the theme A Crucial Year to Rebuild Trust."

"Globally, women are over-represented in the sectors of the economy that have been hardest hit by the pandemic.

"The report said if women were represented at the same rate as men in those sectors, 112 million women would no longer be at high risk of losing their incomes or jobs."


Is the Black Swan over, but only for billionaires? Does it only apply to investors? (Things we've already discussed in here.)

Finance really needs to rethink itself.

[marting]

I've been retired for 15 years. 30% of our assets are savings/investments the rest in real estate (not including our home). No debts. Was 30% 10 years ago but have been shifting to real estate as I consider the stock/bond markets increasingly risky and wife and I are not getting any younger. But we are in good health so no immediate plans but kick around ideas from time to time.

[The Atheist]

Originally Posted by Orphia Nay

Is the Black Swan over, but only for billionaires?

And how.

I just posted in the NZ thread how NZ's richest man has made $3.5Bn since the start of the pandemic.

It looks even worse when that equates to $700 per person in the entire country.

Originally Posted by Orphia Nay

Does it only apply to investors?

Investors are not feeling a lot of pain. It's the people without investments who are hurting.

Originally Posted by Orphia Nay

Finance really needs to rethink itself.

No kidding.

[Meadmaker]

Originally Posted by Orphia Nay

Finance really needs to rethink itself.

Right at the moment, the people who make up "finance" don't have much incentive to rethink themselves. They're getting along just fine the way they are.

[The Atheist]

Nothing to see here, move along...

https://www.theguardian.com/business...rompt-sell-off

[lionking]

Originally Posted by The Atheist

Nothing to see here, move along...

https://www.theguardian.com/business...rompt-sell-off

Give it up. This has not, never was going to be and never will be a Black Swan Event. As the vaccine rolls out, the global economy will roll on and shrug its shoulders at the minor blimp of 2020.

[The Atheist]

Originally Posted by lionking

This has not, never was going to be and never will be a Black Swan Event.

We've argued it before, and I suspect the tens of millions of people thrust into poverty, the millions of firms closed and livelihoods lost, the trillions spent propping markets up and economic impact that will still be being paid for in 30 years' time, would disagree with you.

Luckily, we have the luxury of waiting and seeing what the fallout really is, but to say it will be shrugged off is way beyond naive.

[The Don]

Let's go back to the OP and have a look.....

Originally Posted by The Atheist

I have it on record in the covid thread, but this is about money and the impact covid will have on the global economy.

Oxford Economics suggest a hit to global economy of 1.2 trillion dollars, which I think is light.

https://www.bbc.co.uk/news/business-51706225

You were right. The global economy is estimated to be around $90Tn and the above article suggests that it shrank by 4.4%.

Originally Posted by The Atheist

While most people won't be too sick with it, some will, and even if 10% of workforces require 3-4 weeks off sick, that is going to have a massive effect on the world's supply chain. Most importantly, it's likely to all happen at once - it won't ripple through like 'flu, everyone will get it very quickly.

It seems to have taken far, far longer to ripple through. Whether this to do with steps taken by governments to attempt to control its spread, the disease being less virulent than originally suggested or a combination of the two is a good question.

There doesn't seem to have been a massive impact on the global supply chain.

Originally Posted by The Atheist

Some companies will be forced to close doors for extended periods, loan defaults will skyrocket, and the sharmarkets will tumble once the size of the impact becomes known.

It's difficult to say what would have happened had governments worldwide not stepped in to support businesses. Share markets did take a big hit but most of the major markets recovered comparatively quickly.

Originally Posted by The Atheist

On Friday, I recommended to several businesspeople I know that they should invest in TVIX - a hedge fund against global downturns. The shares were $38 at Friday lunchtime, and they've opened today at $49. I know two took my advice and threw five grand in on Friday.

They've made a grand over the weekend, with lots more to come.

I can see TVIX going well into the hundreds of dollars range if the pandemic goes the way it looks certain to.

Investment advice: buy TVIX now.

Disclaimer - I am not a financial adviser.

TVIX did have a brief peak close to $100 but has then settled back to trading in a $20 to $40 range.

[The Atheist]

Originally Posted by The Don

Let's go back to the OP and have a look.....

It seems to have taken far, far longer to ripple through. Whether this to do with steps taken by governments to attempt to control its spread, the disease being less virulent than originally suggested or a combination of the two is a good question.

I don't think there's any doubt at all that measures implemented stopped the spread. When they were relaxed, rates rocketed, leading to more lockdowns.

Originally Posted by The Don

There doesn't seem to have been a massive impact on the global supply chain.

No, it's been quite minor, but that's due to the virus never taking the kind of control I thought likely.

People in the supply chain are doing it pretty tough, though.

Originally Posted by The Don

It's difficult to say what would have happened had governments worldwide not stepped in to support businesses. Share markets did take a big hit but most of the major markets recovered comparatively quickly.

Yep, that's what happens when you give away money and have zero interest rates on deposits - it finds a home, and most of it's found homes in shares or property.

Originally Posted by The Don

TVIX did have a brief peak close to $100 but has then settled back to trading in a $20 to $40 range.

Laughably incorrect.

I forget where the high ended up, but it was miles over $100. Almost ten times that. It's in the thread somewhere, but in the meantime, this, from 13/3/20:

Originally Posted by The Atheist

Very good day to be too busy to enact that - TVIX currently at $400.

That's definitely my spot and the sale order is in.

I know they continued rocketing after I sold, but it didn't bother me - I made almost 10x my investment, so if you see another pick where I can get a 900% return in a month, let me know.