Finances, Index trackers, Investment strategy

The FTSE and S&P nosedive!

The last five days of the FTSE all share* (and other indices) have been notably downward, wiping out any initial gains I’d made since buying my trackers last month. The index is also down from a year ago (scroll down to the second chart) though still up from a low over the last year in late December. The trend is similar for the S&P 1000 over the last days (though doing a bit better) and down from a year ago but still not as low as last December (last graph). The background to all this is US-China trade war – a long running dispute between the two largest economies in the world.

The last 5 days of the FTSE all share: Interesting times…

Holding your nerve?

I’m not too worried though at this moment, because I knew the drop would be coming at some point and I didn’t wanna withhold buying any longer, standing at the sidelines as I was watching it go up. Not cool. But now I’ve taken the plunge, the water isn’t warm. I could say, ‘why oh why does this always happen to me?’ It’s easy to catastrophise or shrug with resignation. 

But nope, I’m watching carefully for whether it will go down further soon. If it does, I will simply buy more! And when I do, I’ll have bought at a lower price than my initial investments (pound cost averaging, anyone? 😉 ). But, the most important thing of all is to HOLD what you already have.

The last year of the FTSE all share:
Compare with below starting from June 1997 and 10 years ago just half way on the chart…
Definitely an increase from 10 years ago (dotted line) but mid-2007 was better than Aug 2009

I resisted the urge to stick too much into the markets at once. The slowly slowly approach allows me to dip my toes in and gauge my attitude toward risk. It’s an ongoing project: Understanding my own attitude toward the ebb and flows of the market indices. Then, tweak my portfolio accordingly. It’s much better long-term especially as many platforms have no initial fees these days. I think only through experience and smallish amounts do you understand how you react to market noise/turbulence. Of course, I’ve read heaps on the ways of the market and the case for index tracker funds, such as MMM’s classic posts.

The two rules I now know deep in my bones is that:

  • Markets are cyclical
  • Markets as a rule go up over the LONG-term (10 years+)

I wouldn’t have been like this in my previous ‘incarnation’. Nope, I’d have been checking the markets a few times daily now, using my mental powers to will the FTSE to go up! I might’ve looked at the chart and ask myself in indignation: “Why didn’t I buy 5 years ago?”

I reflected on my previous losses in the market in recent days. When I was barely an adult, I bought British Telecom shares (when our telecoms system privatised). During the dot com bubble, I bought tech funds, a health fund and a European fund – all managed (active) funds with high fees. What I didn’t realise until recently was that all my purchases had 3 things in common! 

(1) The underlying reasons I had for buying each of these were understandable, but I’d been influenced by glossy marketing (this was often the way to do things back then, yes, literally glossy, as in, on paper!). (2) The high initial/ongoing costs and/or bid-offer spread made it hard to make money (feel the drag). (3) To varying degrees admittedly, but in all cases: I did not sell at their very lowest point, but! I sold when they had not very long started rising. Had I kept hold of them, I would’ve made money! The last 5 years saw the Axa Framlington Tech fund rise 220% until the dip in the last few days. Sigh! I was too quick to sell. I took the loss.

It’s easy to see that now, but if you’ve not experienced it before, when you’re there in a prolonged downward market, it can make you jittery. Keeping your cool and not selling involves going against all your instincts to rid the mental discomfort! Better to make a loss, you think, than lose everything! I couldn’t bear that! So, it must take even more discipline to buy in a recession. When it’s hurting, stick your hand back in that fire! …And that’s exactly why I will buy.  As Kipling felt was worthy to start his famous poem:”If you can keep your head when all about you are losing theirs”.

What I won’t be doing is trying to get too greedy by trying to time if and when the index might bottom out. Even if I time it well, it’s just luck. At 3600-3700ish and I will pump a little more into the FTSE all share. My UK holding is currently around 20%.

Image result for anticipation
Are we heading for a snow storm?

Over the long-term, the price I bought at last month and the next purchase I’ll hopefully buy lower won’t make a huge difference (I don’t think), since it’s the price I eventually sell at is what’s important. But since we’re in a decade long bull market (i.e. the stock market has been strong), it doesn’t hurt to sprinkle a little purchase at a lower price than my initial one. After all, it’s a test of my agility in the stock market (*getting pumped*)… at least in the context of relatively low-risk trackers!

But how does this fit into my investment strategy?

All told, it’s worth bearing in mind that I’m not using trackers and draw down as a major part of my investment strategy now. I know, that does make it a bit easier for me to say ‘stay calm’! But given how much I have locked in pensions (including the state pension; am I cheating?) that are inflation-resistant, and that I am looking to move into another phase of life soonish (Life 1.2), relying on stock market growth would be a dangerous game for me. It might be a bit different if we weren’t already on a market high (by most opinions). I could in theory FIRE before 10 years time, so I don’t want too much of my capital tied into the stock market. A 20-25% exposure seems sensible.

The Standard and Poor 1000 index: Up next or down next? Who knows! But if it hits 9000, I’ll get me some units

Besides this fun (!), I may look into Vanguard Lifestrategy funds next, which are tracker and bond mixes of prespecified proportions. I’m also half wondering about commodities, like gold (but not in an ISA, lol)…just in case. But not before seeing how the next week/s pan out…

If you have any index trackers, how often do you check their performance? Are you planning to buy more too if it looks like we’re coming to the end of a long bull market, or is this just as bad as trying to time the market any other time?


*I’m focused on the FTSE all share index rather than the popular FTSE 100, because index tracker funds, which many aiming for financial independence are invested in, usually follow the all share index. Same principle for reporting on the Americans’ S&P 1000.

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