Just fiddling about with a spreadsheet or two, trying to keep our finances under control, and I found myself wondering what other folks are thinking about likely future trends in interest rates, inflation, and future asset returns might be?
I'm extremely risk-averse and financially pessimistic, so I'm working on 5% inflation, 3% increase in index-linked pension, 0% increase in equity-based investments, and 5% increase in land/property assets, which are earmarked to pay for a nursing home for either/both of us.
Whaddya reckon? too pessimistic - or too optimistic? And what have I forgotten?
When the market crashes (which it will) do you panic and sell making major portfolio adjustments or sit tight? In the 2008 crash the people who panicked lost the most and took way longer to recover (a number never have) than those that sat it out and stayed the course. Having at least a 1 year cash asset fund to help ride the initial storm and psychological ability to cut back on expenses are real winners in any portfolio.
Isn't a lot of this subject to the stage you are in your life, eg if coming up to retirement or whatever that may influence what actions you have to take at the time. I know my pension pots more than halved in 2008,I retired early in 2010 so had I draw down a pension then I would have been scuppered, but because of other assets and savings I allowed my pots to grow again before drawing on them. Had I not had access to other funds I would have most likely had to continue to work beyond 55, no great shakes some may feel, but I'm reliably informed you are only here once.
I can assure you that some of the most gifted asset/portfolio managers lost their shirts in 2008 and those that really did well out of the crash were those that had the resources to buy the assets at the bottom of the market values awaiting the upturn.. there is a further dimension these days and that is cryptocurrency that have the potential in a crash to wipe the world pretty flat. One of the interesting changes as a result of Covid is that in general the UK is saving more money now than at any other point in time as evidence by reduced credit card borrowing and increased bank deposits, so much so that for the first time ever the UK has a higher saving ratio than Germany, Downside of this is that we are not spending that money in our economy...whether this is a long term shift in the propensity to save no-one knows as yet, but annual Covid outbreaks may enforce the pattern as people chose to travel less, eat out less and so on, which may lead to further recession(s) within the UK leisure, entertainment, tourism etc and respective share valuations.
