Where to put the money safe if you think a crash is coming

Sunny

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Which is more risky? Leaving €100,000 on deposit for the next 20 years or investing €100,000 in Global Equities for the next 20 years? In my view, it’s the former.
Sigh. Gordon no offense but for some reason this thread has you really worked up and your stance is confusing. And it doesn’t seem to be just me thinks it. Fine you disagree so I don’t see any point debating it. I also completely disagree with your definition of risk. If all you at is potential losses without looking at potential losses relative to expected returns, then you don’t know what risk is.

And the fact that you would tell someone that investing in equities that they will not lose money over 20 years is frightening.
 

Duke of Marmalade

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There is a fundamental reason why equities, esp. US equities will do well in the long run. It is called the "Bernanke Put option" after a former boss of the FED. Basically the argument goes that equities have a purchaser of last resort in the government itself. Oh they don't actually physically buy the market in a crash - that would against capitalist ideology. But they do pull out all the stops to support depressed markets. QE is a case in point. It is not just a policy of supporting equity investors per se it is a recognition that depressed markets are very mad for aggregate demand and the economy in general.

Though of course we still face the fact that Japan has bucked all these arguments.
 

Sarenco

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Which is more risky? Leaving €100,000 on deposit for the next 20 years or investing €100,000 in Global Equities for the next 20 years? In my view, it’s the former.
I would have thought the stock investment was obviously the riskier choice.

You would certainly expect to be compensated for taking the additional risk but equally you know that there are no guarantees in this regard.

There is an umbilical link between risk and return. You cannot expect higher returns without taking higher risk.

To say there is no risk in investing in global equities over a 20-year horizon is just silly. There is always a risk that your expectations will not be realised and, with the benefit of hindsight, you would have been better off investing in lower risk investments.
 

Sunny

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And to reiterate, based on current valuations, and the performance of markets since records began, I see no risk in investing in global equities today with a 20 year time-horizon. You will not lose money.
By the way what does that even mean?? How are you linking current valuations and historical performance to give you a model that produces a guaranteed positive return after 20 years.
 

Gordon Gekko

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Sarenco,

That depends on one’s definition of risk.

A cash deposit is pretty much guaranteed to lose money in real terms over the coming years.

Equities are less risky, given the appropriate time horizon, and 20 years is fine on the basis that nobody has ever lost money in real terms when investing in the S&P.

But if you want to make up your own definition of risk, that’s fine.

Cash) Almost certain to lose in real terms
Equities) Have never lost in real terms

Best of luck to all.
 

Gordon Gekko

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By the way what does that even mean?? How are you linking current valuations and historical performance to give you a model that produces a guaranteed positive return after 20 years.
Sunny,

Sarenco is a decent skin, despite our occassional clash, and he/she has the mental capacity for reasoned debate. I fear that you do not, so I won’t be engaging with you any further. Best of luck with your “chop and change” investment strategy. I suggest that you ignore Donald Trump’s Twitter feed for starters. You are akin to a pedant who repeatedly attacks someone for daring to contend that a plane won’t crash. I wish you well, but I fear that your poor investor behaviour will condemn you to poor investment returns.

Gordon
 

Sunny

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Sunny,

Sarenco is a decent skin, despite our occassional clash, and he/she has the mental capacity for reasoned debate. I fear that you do not, so I won’t be engaging with you any further. Best of luck with your “chop and change” investment strategy. I suggest that you ignore Donald Trump’s Twitter feed for starters. You are akin to a pedant who repeatedly attacks someone for daring to contend that a plane won’t crash. I wish you well, but I fear that your poor investor behaviour will condemn you to poor investment returns.

Gordon
Maybe you are right I don’t have the mental capacity and I bow to your superior intelligence. Sorry for having having the cheek to attempt to engage with you. I know my place now.

I bow to anyone who defines risk as permanent loss of capital....
 

Gordon Gekko

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Maybe you are right I don’t have the mental capacity and I bow to your superior intelligence. Sorry for having having the cheek to attempt to engage with you. I know my place now.

I bow to anyone who defines risk as permanent loss of capital....
Sunny,

If you have the asset class that has delivered the greatest return for investors, a 20 year time-horizon, and you’re armed with the knowledge that nobody has ever lost money over that time-horizon, how would you categorise that investment?

Gordon
 

Sunny

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Sunny,

If you have the asset class that has delivered the greatest return for investors, a 20 year time-horizon, and you’re armed with the knowledge that nobody has ever lost money over that time-horizon, how would you categorise that investment?

Gordon
I don’t come on this site to be insulted about my mental capacity so I am bowing out of this.

As for what I would call it, all I will say is that I wouldn’t call it risk free or even low risk. But as you say, people are free to make up their own definition of risk so it doesn’t really matter.

Enjoy the sun all.
 

Sunny

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By the way, can you show me one regulated fund manager that has ever once claimed that investing in global equities for 20 years is risk free. Just one piece of research or marketing material that makes the same claim you are making. There must be loads of examples.
 

Sarenco

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That depends on one’s definition of risk.
Not really Gordon. In this context, I'm really just talking about the possibility (not probability) that your expectations will not be realised.

A fixed-income investment gives you a guaranteed contractual return (subject to default risk). A partial ownership of a company, in contrast, comes with zero guarantees. You might have an expectation of a positive return over your holding period, based on historical returns or some other criteria, but there is absolutely no promise, never mind a guarantee, that your expectations will be realised. There is always a possibility (risk) that the return will fall short of your expectations.
A cash deposit is pretty much guaranteed to lose money in real terms over the coming years.
I don't think it's wise to be so certain about the future.

I know you are keen on extrapolating the future from the past - did you know that over the long term, cash (TBills) has actually produced a modestly positive real return?

There have been long periods (30 years+) in the past where domestic government bonds have outperformed domestic equities in all major economies. There is no reason to believe that could not be repeated over your individual holding period. You may not think it is very likely but you have to admit the possibility - however remote.

Again, nobody is saying that somebody with a 20-year investment horizon shouldn't be heavily invested in equities. We are simply trying to persuade you of the simple reality that there is always a possibility (risk) that will not turn out to be optimum strategy.
 

Gordon Gekko

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Again, that depends on your definition of risk, Sarenco. I don’t believe that risk is the fact that your chosen strategy mightn’t be the best one. Risk most certainly is not volatility. T-bill delivered negative real for the period 1945 to 1980 by the way, which is analagous to today, with central banks aiming to keep inflation above interest rates.
 

Jim2007

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I would have thought the stock investment was obviously the riskier choice.
Neither option is risk free and being invested is probably the less risky over the long term. There are several US studies that show how female owned self-directed pensions tend to under perform in the long run, due to their owners being heavily invested in money market type products, including deposits.
 

Sarenco

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I don’t believe that risk is the fact that your chosen strategy mightn’t be the best one.
Nor do I and that wasn't what I suggested. I was very clear what I meant by risk in this context.

You can't say with certainty that the future will be analogous to any period in the past. That might be your working assumption but you don't know it as a fact.
 

elacsaplau

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You can't say with certainty that the future will be analogous to any period in the past. That might be your working assumption but you don't know it as a fact.
That's ridiculous Sarenco!! - that's akin to saying that past performance is somehow not a reliable guide to future performance! :D
 

Gordon Gekko

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That's ridiculous Sarenco!! - that's akin to saying that past performance is somehow not a reliable guide to future performance! :D
Hilarious stuff.

A statutory warning to stop people thinking that an asset’s performance over recent times will be repeated going forward.

Pretty different to looking at all available data for 20 year periods.
 
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