Superannuation / Credit Crisis - Changing from Cash to Equity fund ..?

Anyone thinking that the drop has finished is mad

I switched my AVC fund from equities to cash at the start of Oct 2007.
IMO it's not time to go back to stocks yet.
The end of stock price volatility will indicate the worst is over.

You need to do some research Akseland.
If you are in the UK Moneyweek is a good place to start.

Spot on Jon!
I wouldn't go near equities for a long time unless I was Warren Buffet, able to lose billions.

Great question Akseland. The three replies you received are the general opinion and totally correct, but.......... if you follow the general opinion you'll miss out on a potential huge rise. You have to preempt the rise. The time to invest is deep in the bear market and not when it starts to feel bullish.

This advice come from the worst stock trader in history.

Hello All,

I am living in Australia and we're not yet in a recession however I believe there has been a contraction in growth and there will be a marked slowdown next year. Prime Minister Rudd has just given Pensioners and others $8.1 billion dollars of the budget surplus to spend and he wants them to spend it.. put it back into the economy. I missed out. My mother and her partner will receive $2400.00 between them. She wants to buy a new sink because it doesn't polish up that well...!! I think I've convinced her it could be better spent on a black box for me. lol

Jon, how much more can the market lose..? it's pretty much bared it's sole. It's been a bumpy up and down ride here on the Australian Stock Exchange and as we know, all over the world.

I believe there would not be too much more of a decline before we see sharp rises and then steadying out for slow sustained growth.


555, I agree with when the volatility has subsided then it might be a good time to switch funds again and take advantage of the short term stellar growth and then hopefully sit back and try to relax. I concur, some research would be a great idea and I will surely do that before doing so.

Count.d, ExactlY..! Although the others are absolutely correct, if I follow the general opinion I will miss out on the huge rises that will eventuate. Preempting the rise is what we'd all like to be able to do and this is what I am really trying to get a feel for as I believe it's not too far away and all very exciting.

I can't believe my luck of getting out of equities and into cash when I did. Many work colleagues lost many tens of thousands of dollars. I feel without asking any professionals that we'd be rather deep into the bear market, it's been over a year of horror losses. If I switch funds now and the markets continue to fall but not too much ( the damage has been done ) then I will be ready and waiting in the correct fund to reap the benefits of the upsurge.

I'm guessing the worst is over .. unless something like the US car giants collapse.. then it'll start all over again. The multi billion dollar bailout to the car makers is not enough and from memory won't last too long.

Preempting the rise.. ! Hmm m mm ...!

Thanks for your thoughts guys..

Akseland.

quote:

how much more can the market lose..?

They can always lose lots more! In a bear market there are regular 'sucker rallies'.
This is when prices fall & make stocks look 'cheap', so people buy & prices go up.

However these gains are soon wiped out,
& then extended as the primary bear market continues.
I recall certain 'experts' telling me 'it's time to buy stocks' at the end of September 2008. Most indices are down 10-20% since then.

Here are some recent articles to help with your reasearch ...

The simple way to tell if it's safe to buy

The next big storm to hit the markets

UK banks on the edge of the precipice?

Investors pay US government to hold bonds

Good fortune!

quote:

Originally posted by 555:
I switched my AVC fund from equities to cash at the start of Oct 2007.

You should almsot certainly switch your AVCs to a personal pension - the vast majority of AC do not have any tax-free cash available - now pensions commencement lump sum - whereas PPs do.

T

My AVC fund is within a (final salary) company pension scheme.
I understand this provides me with the full tax-free cash allowances for pensions,
but please correct me if I'm wrong!

Cheers - John

555, AVC, like any personal scheme, allows tax free cash.

You may care to see if another scheme can give you the same funds for lower costs. Some AVCs (especially FSAVC) were quite pricey and if those costs are high, clearly that disproportionately eats into returns. The costs may be OK nowadays tho' so go and get some personal advice before doing anything (if you feel the need to do anything!). If it genuinely is in your final salary scheme (i.e. you have bought added years) then lucky you. If not, it will be run by a life company via managed funds of some description).

As to the timing of investment, it always has been and still is dependent on whether you can afford to take the risk. There is no black or white, right or wrong. As some of the links above show, there will always be bears and bulls and differences of opinion. Sometimes it's easier to be a bear, get it wrong and miss out on growth than it is to be a bull, get it wrong and see a big drop.

Time is usually a standing method of mitigating risk as opposed to timing. The World is unlikely to stop turning. If it does, your pension will be worthless anyway and we can all start using leaves for currency.

Drip feeding/pound cost averaging ones investment may also allow one to hedge ones bets.

NONE OF THIS IS ADVICE, MERELY COMMENTARY!!!

quote:

Originally posted by JamieWednesday:
555, AVC, like any personal scheme, allows tax free cash.

Sorry to sound rude but this is not quite the case. The only way AVCs allow for TFC / PCLS is if the Trust Deed and Rules of the Scheme allow for this; they are the definitive documents but the members' booklet is usually a reliable guide.

quote:

Originally posted by jon honeyball:
Anyone thinking that the drop has finished is mad

It has barely started. Nothing will shake the public in the UK to see Woolies start their closing down sale in every high street in the land. People will ponder whether any job is secure ...

And when the spending confidence of the general public disappears the fall will actually accelerate downwards. We have not begun to see the speed that this is going to happen at over the next 12 months, and then quite possibly a bear market for even two years.

The recovery is going to be very slow after that.


All in my humble opinion of course. George

What I'd like to know is how you guys knew to go into cash last year............


and why you didn't tell me



SJB

quote:

Originally posted by Sloop John B:
What I'd like to know is how you guys knew to go into cash last year............


and why you didn't tell me



SJB

Sloop,

Changing to cash for me last year was nothing more than an educated guess. I rent and will probably never buy a home, so for me, my Superannuation is all I will have come retirement thus the active interest in the markets.

Here in AU and undoubtedly around the world, Superannuation funds had 5-6 years of remarkable growth 15-20 % every year. I was reading an article and it warned of the
' Bull ' market coming to an end. I figured all good things must come to an end and now (2007) would be an okay time to switch. I gave up some modest growth in my fund by switching rather than taking the predicted heavy loss by staying in.

I switched to cash while my Super was still on the rise. As it turned out the money I did not make by staying in the growth fund has turned out to be far less than what I would have lost had I stayed in.

Now, my lucky educated guess could all but be wiped out if I change to a growth fund too early with the markets apparently having not yet bottomed out.

I just had an active interest in probably the only substantial asset I will have come retirement.

I needed to protect that asset.

PS : My apologies for the rude face poking it's tongue out in my original post. It was meant to be a smile. I did not realise the face would be poking it's tongue.

Akseland.

My AVC fund can only be invested in a small number of funds offered by Fidelity Investments. My employer & the pension board members decide which.
They changed these a year ago because they felt the charges were too high.

My pension is a real final salary scheme,
& the rules allow for tax free lump sums at retirement.
The AVC element was (not open to new employees ) for shift workers, because a significant part of our earnings were 'non-continuing allowances', so not taken into account when calculating pension credits. It was a fine AVC fund – the employer matched staff contributions £ for £. There was a separate option to buy additional years for those unable to earn 40/60 by retirement age, which I also took up.

quote:

As to the timing of investment ...

Also consider how far you have to go to retirement.
If you have 10+ years you can ride the economic cycles.
Less than that & you should start moving into cash,
to avoid the disaster many soon to retire workers have just experienced.
I figure at 9 years max 90% equities, 8 years 80%, etc,
& that's when you decide stocks are a good investment!

quote:

What I'd like to know is how you guys knew to go into cash last year ...

Following the best investment advice I've ever received.

Perform plenty of research & read what 'experts' are saying about good investment strategies, then ask yourself 'does their advice & reasoning make sense?'

quote:

... and why you didn't tell me.

You didn't ask!

quote:

Originally posted by GFFJ:

quote:

Originally posted by jon honeyball:
Anyone thinking that the drop has finished is mad

It has barely started. Nothing will shake the public in the UK to see Woolies start their closing down sale in every high street in the land. People will ponder whether any job is secure ...

And when the spending confidence of the general public disappears the fall will actually accelerate downwards. We have not begun to see the speed that this is going to happen at over the next 12 months, and then quite possibly a bear market for even two years.

The recovery is going to be very slow after that.


All in my humble opinion of course. George

And shysters like this guy aren't going to help things either: http://news.bbc.co.uk/1/hi/business/7781086.stm

The trouble is that money is a token - one based on trust. This is true whether one stuffs one's mattress with Bank Of England notes, makes a deposit account with a stuffy old fashioned institution like the still mutual Nationwide Building Society [my choice for over ten years], or an alleged bunch of chancers such as HMG bailed [baled?] out at the begining of the current financial melt-down in trust.

Until investments are trusted, then saving will be undynamic, and this will lead to so much caution that the recession will without question in my mind soon be seen as an unavoidable depression which will easily outdo the crash that set off the Great Depression of the thirties, which was only really cured by the WW2.

No chance we can have WW3 in a decade, as WW4 will certainly be fought with sticks if we do, so that option is not open.

The reality is that there is so much poison and corruption and plain stupidity in Banking and Governement circles that the only way out is going to be very long and very painful.

Trust will be built on extreme prudence and conservatism in financial terms. China [with its savings] is not going to be able to rescue the Western economies without a market for its goods...

I end on the unhappy thought that anyone who thought that Government Bond would guarantee aginst a colapse. Not so. The pound is sliding faster [and even more painfully] than a slug down a razor blade, because we have economically illiterate people like Brown [surely the worst Chancellor and Prime Minister in the history of democracy in the UK] and Darling, who seem think it adequate to load all our children with the debt we have accrued in overcheap, and under regulated personal credit extensions that were breath taking and bound to end in tears. But for these financial bandits, they simply view the next generations as those who will face the consequences in policies of loose fiscal control that will cripple what remaining value that Sterling still has. How long before the Euro is worth more than a GBP? Unthinkable? Are you sure? Consider the Zloty next? How long before Poland is richer than the UK in real GDP terms?

You do not allow the national debt to soak up the consequences of poor finacial governance over more than a decade. The Germans are absolutely correct in their assessment of our predicament. Basically those who are today persoanally insolvent must face the crisis in their own lifetime, and we must not allow the Governement to bequeath our's and their imprudence to blight the future for our children ...

All in my humble opinion of course. George

quote:

Originally posted by 555:
My AVC fund can only be invested in a small number of funds offered by Fidelity Investments. My employer & the pension board members decide which.
They changed these a year ago because they felt the charges were too high.

Hmmmm... save 0.1% per annum, see investments underperform by 3% per annum - puts charges into context... this is not to be taken as a commentary about Fidelity.

quote:

My pension is a real final salary scheme,
& the rules allow for tax free lump sums at retirement.

The AVC scheme may or may not be part of the main scheme. If it is not - by which I mean, if it does not actually fall under the same Trust Deed and make up part of the main scheme benefits - you will almost certainly NOT be able to convert AVC to PCLS. The vast majority of DB schemes allow commutation of pension for PCLS; those set up as n/60ths allow for commutation of part of the fund resulting in you receiving a pension of n/80ths. The commutation rate can make Interesting Reading... in other words, it can be the case that you give up a lot more fund than you might think, when converting pension to PCLS.

quote:

was a fine AVC fund – the employer matched staff contributions £ for £.

I'm not saying that this is not the case, but I have never heard of an employer actually paying into an AVC fund.

quote:

There was a separate option to buy additional years for those unable to earn 40/60 by retirement age, which I also took up.

Almost certainly an excellent decision.

I know what you mean re: costs v gains TMP. What's PCLS?
My employer (BBC) is very nervous about most things (!),
so despite lots lobbying by scheme members they really restrict where we can put AVC funds.
The AVC fund is under the same trust deed of the scheme as the FSPC.
Members can also use their AVC to buy extra years in the FSPC, but it's expensive.

quote:

I have never heard of an employer actually paying into an AVC fund.

It's true, & £1 for £1 too, but these days as rare as a smilie from Adam.
Has also caused more than one IFA to get weepy when I've consulted 'em!
It's a very good scheme. Spouse gets 2/3 of members pension on death of member,
& each dependent child (up to age 18 or until end of full time education) gets 1/3 of members pension.
So if I pop my clogs while sprogs are learning the scheme will pay out 1+1/3 of my pension!


Cheers - John

PCLS = Pensions Commencement Lump Sum - what was Tax-free cash.

The deal you recount seems excellent, particularly the matching aspect.

Regards

Mike

Thanks for that Mike.

Hi Akseland

Sorry for hijacking your thread!

Here's an article you may find useful ...

"Why the next 10 years could be good for stocks"

quote:

Originally posted by 555:
Thanks for that Mike.

Hi Akseland

Sorry for hijacking your thread!

Here's an article you may find useful ...

"Why the next 10 years could be good for stocks"

555,

No worries... it's all interesting reading, and thank you for the previous and current articles.

If you think or feel like it's time to switch back into Stocks, then perhaps a best way to do it is to average yourself back in. So, instead of taking 100% of your cash and moving it 100% into a stock fund, whatever that may be.

Take your fund, divide by 12 and every month for the next year, transfer money across from cash to stock. That way you protect yourself from market swings a bit.

Roy.

quote:

Originally posted by Roy Donaldson:
If you think or feel like it's time to switch back into Stocks, then perhaps a best way to do it is to average yourself back in. So, instead of taking 100% of your cash and moving it 100% into a stock fund, whatever that may be.

Take your fund, divide by 12 and every month for the next year, transfer money across from cash to stock. That way you protect yourself from market swings a bit.

Roy.

Roy..

Thank you, and noted. A very sensible way to get back into growth.

Akseland

I heard an interesting expert opinion when I attended the Precision Guided Investments AGM on Saturday.
PGI is a subscription investment advice service run by Paul Hill,
who is a highly regarded & successful expert in analyzing companies,
and finding shares which are grossly undervalued.

I can't repeat the share tips, but Paul Hill made a very interesting general point.
Considering the economic climate & recent equities performance,
cash &/or physical gold might seem the safest place to put your 'hard earned'.
Well they did to me.

P.H. pointed out physical gold is highly over-bought.
That is because it's such an obvious asset to move in to now,
so gold is over priced & not currently a good investment.
(though he did advise those owning physical gold to hold)

Because of the global financial wobble & the mess banks / governments are in,
there's a real risk that currencies will be devalued by governments or have to be bailed-out by the IMF (a la Iceland).
In this situation anyone holding large amounts of the affected currency could find they have lost 40% or 50% of their wealth overnight.
So cash isn't as safe as it might appear a first glance.
Indeed having a high % of cash is risky at the moment.
P.H. opined that an investment ratio of roughly 40% equities, 30% cash & 30% property to be prudent.
This is for someone with a medium to high attitude to risk.

Mrs. 555 & I had an investment ratio of 0% equities, 75% cash & 25% property.
The PGI warning about holding lots of cash makes sense to us & felt like a wake-up call.
Today we invested some of our cash in equities,
so our investment ratio is now roughly 10% equities, 65% cash & 25% property.
Over the next 6 months or so we aim to have our investment ratio at roughly 40% equities, 35% cash & 25% property.

If all goes well the 2nd 555PS will be mine!

quote:

Originally posted by Tarquin Maynard-Portly:

quote:

Originally posted by JamieWednesday:
555, AVC, like any personal scheme, allows tax free cash.

Sorry to sound rude but this is not quite the case. The only way AVCs allow for TFC / PCLS is if the Trust Deed and Rules of the Scheme allow for this; they are the definitive documents but the members' booklet is usually a reliable guide.

Doh. Eejut. Read the question and all that. Apologies etc. Although in practice, whether directly or through the main scheme, I've yet to come across an AVC (as opposed to FSAVC like what I assumed you had) in recent years that doesn't allow access to an equivalent lump sum value...However I'm aware there are those out there that won't. As TMP says though, if there are no reasons against it (exit charges/mvr's etc.), then switching to a personal scheme of some sort is usually easy enough.

Anyway. Investments. Buggered if I know in the short term. I've never seen such a diverse range of opinions between analysts. Normally at this time of year you get a rash of expert's forecasts, which are rarely correct and if they are, perhaps more down to lucky guesswork based on the numbers put in front of them than crystal ball like genius. This year, there's little consensus apart from: It's a bit shitty, it may get worse yet, markets have in the past recovered before economies as a whole but whether that starts this year or 2012 or somewhere in between is a tough call. Too many variables at play here.

As far as I'm concerned the world does not stop turning. And for all the above, the consensus is that things will get better, so if you invest, diversify and keep your head down for the forseeable, that may turn out to be a good call over the longer term, if a little unsettling in the short.

So, as ever...hedge ones bets (assets and economies), drip feeding does give one the benefit of pca so may be a good plan, don't believe all the hype (good news and bad) and perhaps just trust your instincts, they're normally a reasonable indicator of your risk profile...