Managed Funds Going 100% cash

In the spirit of informed discussion, and less deletion, please let us assume this thread is NOT related to any fund in particular

In this swinging market, a share fund 100% in cash has advantages and disadvantages. The capital is safe in the short term until lost opportunity and inflation erode it, but how and when one would re-enter such a fund has me perplexed.

To buy units before the fund starts to reinvest, one misses out on the risk and rewards of entering the market in a fully invested fund.

To buy units after the fund starts to invest, if the market has increased then one is buying too late and has missed some value buying. If the market has dropped then I see good opportunity still.

Anyone have any thoughts on a personal strategy for handling such a situation?

Has anyone experienced this before?

 

Your decision doesn't have to be too complicated.

If you strongly think the market has significantly further to fall say below the 3,500 mark, WAIT.

If you strongly think the market as reached the bottom or is nearing it, INVEST.

If you have no idea which way it's going to go and you have a long term view with a long term investment horizion, there shouldn't be too much harm in investing now (dollar cost averaging preferably).

An Australian share fund which is 100% invested in cash will do the thinking for you, but you'll pay more in fees while you wait.

I'm of the personal beleif that if your a long term investor stay invested regardless, weather the storm and wait for the upswing. Only those that can perfectly time markets should consider switching in and out of cash. If your one of these gurus you would have sold out over 12 months ago and would have a massive smile on your face right now as you'd be bargin hunting.

 

Great thread MrDarcy. Now I’m no expert (far from it) but I can think of three ways…

1) If you think the bottom is nearby then you could average back in over a period of time. This would likely smooth out any volatility.

2) If you can see opportunities in the market and wish to have your funds invested, but really have no confidence of where the slide could end, then perhaps you could seek to purchase some sort of downside protection.

3) Just buy in NOW and take advantage of the yields that are on offer, disregarding the swinging day-to-day price. Of course, this would not be a sensible option for the highly geared because of the risk of a margin call or stop loss event.

Throughout 2008, I’ve been steadfastly pursuing option 1 but now I'm not so sure.

 

Sim, YG and ffc1883_1996, thanks for your responses.

These form part of my plan.

I think market may go down further and was DCA on days of market downs up until last week. On those -7% days I would jump in my car with a cheque (as I did the Thursday before that Friday ) and purchase units that day.

I am willing to invest with the risk the market will go down more. Long term the upside is worth it, but I also want to try and make the most of any significant moments of weakness.

I have stopped buying as my prefered fund is... 100% cash! and those -7% days are not currently reflected in the value of the fund.

A share fund being 100% in cash is no longer a share fund. It is like a motorbike stopped at the side of the road waiting for the rain to stop. The rider is safe and dry, but will always be behind the traffic once the rain stops. Of course, the bike won't crash either. For some, this choice may be the best action.

Cash in my bank is not the same as cash in a fund. Until an epiphany occures, I'll keep my cash in the LOC at 9% no fees.

 

there are plenty of other fish in the sea, diversification across managers isn't a bad thing.

you could always sell out of your investment, lock in so capital losses to be offset against some future gains and reinvest your money in another fund which is fully invested or something like STW.

 

Hi YG,

Fund selection and diversification are not issues here, just strategy for a DCA into a share fund 100% in cash. None the less, the above is good investing advice. (BTW I've got some other funds that are real dogs to sell to for capital loses , happy with this hypothetical one)

 

Getting back to the topic of this thread (please don’t mention Buffett again CRC), I’ve a question for MrDarcy. On the big down days (like today maybe), will you be DCA into your other managed funds – the ‘dog loss’ funds that are still invested in shares?

I ask because I’m facing similar decisions myself.

Regards - Ben

 

Hi FFC,

Oh ignore lists, wonderful thing. Back to topic as you say.

I have thought about this. One fund is CFS Geared, I'm down about 65%. Being geared it has had large swings so today may be a good day and would certainly bring down my average cost. However, this is a growth fund and I'm allocated for growth funds right now, but it is tempting. Even to dump and buy back, but this may smell of a wash sale to the ATO. Another big loser is Macquarie Property Income, down nearly a cool 75% for me with bugger all income at present. In the light of these, I think my hypothetical 100% cash fund has performed quite well…

Also, as I’m obviously trying to time the market a bit here, I can't choose the day exactly, with the subject fund I would deliver a cheque on the day and so I knew the value I was buying.

 

I too have a share fund which has “beat the market” for the last twelve months. However the fund has gone to cash for the time being so I’ve been considering my options.

It’s interesting that you hold units in the CFS internally geared fund because that’s one of the alternatives I’ve been thinking about. It’s obviously a bad place to be at the top of the market but one would imagine that were relatively close to the bottom now. Maybe?

Looking forward with the benefit of hindsight, have you any thoughts to share on GEARED Australian share funds?

 

From my very amateur point of view, I've been looking at the market going down and people rubbing their hands together in glee saying "Bargains! Get in now to avoid losing out on the upswing!" But then I see the market still dropping and ask myself "What is the advantage of being on board for a 10% increase if you've suffered a 25% decrease beforehand?"

So I'm happy to keep pouring cash into my mortgage offset and if I miss the bottom percent of an eventual market turnaround because of that then I'm confident I'll have 'made' far more in the meantime than if I'd been chasing bargains in a wildly volatile and southward-plunging market.

 

You have a strategy and a plan and you stick to it. I think that's what most professional planners get paid to do. Sudden, dramatic and emotive changes to the plan are not good (like going 100% cash perhaps).

Amateur, not at all.

 

The way I see it is:

Every dollar you don't save/invest your getting a return of -100%.

So I don't care if I get a short term loss as if I hadn't invested it I would have spent it on some other crap.

 

That's a remarkably concise and clear point of view and I'm going to store that away for future use. In my own case I know that I'm saving lots and not spending it all on crap, ahaha, but it's something I can use when I'm considering spending money on short term no-return crap! (eg: "I'm about to spend $50 on cheap booze that is just going to be ****** out tomorrow, why don't I chuck that into a fund instead?")

 

What bargains at the moment, just picked up stock code OIF paying 20% PA yield at its current price.

Orchard Funds Management - Orchard Industrial Property Fund

with secure tenants like woolworths making up most of the property holdings, and 11 year average lease, how can one go wrong with this!!

 

the market hasn't been going down, its yet to break its previous low of 3900 which its bounced off twice from this point.

Plus quality stocks like say CBA have been sideways trending for months!

Its only stocks like RIO and BHP killing our market, the rest of the market isn't doing to bad and certainly not continuing to fall.

This is unexpected cause I always thought resources were way over valued.

 

I'm not certain but I thought its low of Oct 10th was 3937, which it has flirted with on a couple of occasions both today and over the last two weeks. Ironically the market closed at 3939 today so depending on how Europe and Wall St hold up tonight we may well see brand new lows tomorrow.