Anyone thinking of going “risk off”?

Like many, my wife and I have enjoyed solid returns on our super over the past 18 months.

However, there appear to be numerous headwinds (actual or high potential) afoot this year that indicate it could be a good time to think about moving to a risk-off position, away from investments like international equities and into more defensive (lower returning) assets.

We’re keeping our property investments held outside super in situ, but am conscious more volatile equity investments could slide rapidly if the Fed overdoes tightening, or Russia (and China) go to a war footing for example.

My sense is the emerging optimism seen during ‘21 is now behind us, and we’ll see business cut growth forecasts and capital investment in favour of de-levering balance sheets to weather the storm.

What’s your sense? Is now a time to take recent gains off the table and hunker down?

 

Perhaps it's a case of de-risking a percentage.

I'm also feeling the winds are shifting, but that might just be the lizard part of my brain which the world has been stimulating for the last two years.

 

Definitely moving into de-risk mode. Debt free (retired), moving more speculative stocks into LICs and ETFs and increasing cash reserve - pushing cash buffer from 1 to 3 years expenses.

 

Howdy mate, I've also had a few worries, lost about 40K this last fortnight which is no good for the party fund. My dog's not getting that premium lamb roll anymore I keep telling myself it's just a correction but it's more likely turning south from here. I might take 25% off the table just to be sure I don't have to go back to work. Might pump it into bitcoin for something new...

 

Instead of a cash buffer why not move it into bonds. It's counter-cyclical so if it goes to hell it's one asset class that will go up.

 

My buffer i also my "grab the opportunity" reserve so I prefer my powder dry. Also with bond yields being so low and not likely to go much lower I am at a bit of a loss to see how bonds can be counter cyclic in the current circumstances as there is no room for bond yields drop if the economy tanks which I understand is the way it is meant to work.

 

Yes that's true, bonds are only useful when the rate is a bit higher. Problem is cash is so deflationary at the moment. Hard to find the right place for it.

 

Err..

Seems like crypto for the most part is a speculative asset that many have piled into while money was cheap - like some growth stocks (see ARKK) - but with 10x volatility. If you think the broader stock market is going to take a dip &/or track sideways, what do you think individual coins might do?

Blockchain seems an amazing technology with a multitude of applications btw.

 

As some smarter than me told me many times, "No one ever went broke taking a profit."

 

Certainly, just proves how many gamblers are out there, like myself. I just checked out a nice MV Augusta, I'm just looking for opportunities. Take care mate

 

Heh, yeah right now I'm eyeing off a Triumph Tiger, a Daytona 765, and a 1980s RD or RZ 250.

That's investing, yes?

 

Beauty, you should buy the lot

 

"If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks."

Jack Bogle

 

If a crash occurs 20% may be "mild".

I forsee a lot of people who have followed the index ETFs take a smashing. In a crash there is a flight to quality for some. This means less demand for index ETFs. There is a high number of people who will hold...for a while. Then the "new reality" will emerge and taking losses becomes a strategy. This takes it further and further. So many investors have never seen a true crash. Many think of the COVID drop as a market event. It was a mere blip and nothing like past corrections. The GFC in 2008 took 10 years to correct. Few investors consider that time horizon. The interest cost to hold will add 50% to the cost of the investment in that time. ie You cant even break even even if the shares rebound after 10 years. You are still down 30%.

One downside to the GFC was also the impact on credit markets. You couldnt even finance a car. Let alone equity out on property.

 

We've pulled the pin and moved the lot into "capital stable" investment option (carries lower fees than "high growth", but a small bid-ask spread means you need to leave in situ 4-6 months in order to break-even on costs).

Having probably missed the market's peak, we're down 4% from where that was a week or so ago, however my view is we at least consolidate the majority of what I believe will be - in retrospect - abnormal gains over 20/21, and then are able to watch and wait from the sidelines before getting reinvested in equities. I hear you on bond prices, but they should at least produce a small yield to mitigate inflation, which you don't really get with cash.

..Now it could be the case that the market still grows this year, but my bet is it will be sideways on best case, with a material risk to the downside pending more visibility on whether the Fed overtightens (with consequent impacts on Aussie banks' cost of financing from offshore money markets); Russia/Ukraine (and potentially China/Taiwan..but that's more likely to be a longer game); emergence of new variants as we head towards colder months; and what action the RBA takes here after the election.

 

Care to back this prediction up with any data?

This video suggests the opposite

 

Took about 5-6 for ASX?

 

The S&P/ASX 200 index only recovered its 2009 peak in the period just after Trump took office. Brexit and Greek default nerves didnt help through that period. 11.5 years.
The ASX's long, long road to recovery

Wrong chart ?