Would you trust an IFA right now?

[Andrew]

Many may know the share markets have taken a plunge since the New Year. Those with financial savvie (not me) will maybe have opinions as to why. Me, I just take advice from those with more knowledge than I. With that in mind, I contacted our IFA about moving the portion of our savings that are in stocks and shares to a less volatile, more stable platform. His response took an hour and reminded me of sales pitch.

This gave me the niggling feeling that his advice to "hold our nerve" was more influenced by something other than his opinion of the current situation and our best interests,  perhaps it was influenced by commission protection? I don't know.

I've read a number of doom mongers, predicting another crash. They are not single voices, nor without credentials. Our IFA dismissed all of that (citing reasons) but such was his zeal that he didn't seem even handed. It felt he was telling rather than advising. This gave me my predictable, knee jerk contrary desire to withdraw all of our investment and stick them in bank deposit accounts!

We originally engaged our IFA because we trusted them to give good advice. Now, I'm not so sure of that advice.

[Jaded]

The advice our IFA has given us has been largely bollocks. I think the best thing to come out of it has been his fee.

[ian]

Well, if they were that good they wouldn't be IFAs would they?

[Aunt Maud]

Ah, that's classic.

You're not worried about a dip in the market and thinking of cashing in after the price has dropped are you ?

[Andrew]

Markets have been slowly/steadily falling for some time. We ride that as that's the name of the game. I think I'm understandably concerned about another 2008.

[Canardly]

Maynard Keynes made a fortune by buying stock at the height of the depression. Not an easy call. One of the problems atm is the huge amount of cash sloshing around looking for a decent return, hence the rush to assets and property boom, which will no doubt crash/undergo a major correction in due course, as it always does. When 2008 kicked off the more accurate pundits forecast 10 years + before things recovered fully and they are proving to be not far off. Political moves in the UK regarding Europe are also not helpful in terms of uncertainty.

[Aunt Maud]

Markets have been slowly/steadily falling for some time. We ride that as that's the name of the game. I think I'm understandably concerned about another 2008.

Maybe you should take a look at your dividend return and do the sums. If you can make a better return elsewhere, go there.

[P Walsh]

You've missed your chance to sell shares at a good time. Better to hang on for the ride now. It can't be too long before it bottoms out and then there will be a flurry of buying. Keep your nerve and maybe stop looking at the FTSE for six months.

I sold mine about a year ago when the markets stopped looking so buoyant. I made about £2k on a  £10k initial stake over about three years, which is good. I won't put any into shares until I see a lot more optimism out there.

You don't need a financial adviser for stocks and shares.

[Andrew]

When 2008 kicked off the more accurate pundits forecast 10 years + before things recovered fully and they are proving to be not far off.

True. Our investments recovered by around 2013 but I do really wan't to avoid a repeat. And there are people saying 2016 will be a repeat. Circumstances are different today but such is the fear and uncertainty that it could well be self fulfilling prophecy.

I'm really not clued up in these matters nor, in truth, interested in acquiring the knowledge. Which is why we have an IFA.

Right now, it just seems to me a risk I don't need to take. It's like a pub argument to me; I don't care who is right and who is wrong, I just don't want to get caught up in the crossfire!

[mrcharly-YHT]

Anyone who truly thinks they can predict the market is a fool.

shares are low now. see if you can ride it out

[Andrew]

Keep your nerve and maybe stop looking at the FTSE for six months.

This is a well reasoned advice. Thank you.

You're right, now is not the time for micromanagement. If I stay put, I should simply close the door on the pub argument (my above analogy) and peek through the window from time to time. I expected 2016 to be a rough ride, just not quite as sudden and (comparatively) severe.

There's a US Fed Reserve statement today (?) - be interesting to see how the market responds to that.

[TimC]

The crash of 2008 was caused by the markets realising that much of the banking system was based on leveraged amplification of bad debt which would be quite likely to be worthless. Unraveling that left an enormous hole in banks' valuations and risked the collapse of the banking sector - with pretty obvious consequences to the rest of the world's finances. That's why the reactions by governments were huge and relatively rapid.

There is no such fundamental weakness in today's markets. The current instability is largely generated by automatic trading algorithms which are fairly dumb and rely on simple databases of past movements to predict future ones. Any suggestion that share price movements are an intelligent reaction to real events are more than somewhat exaggerated. The world's recovery from those dark days is mostly slow but steady, and there's no reason to believe that that should not continue.

The oil price going down the pan is a relatively simple (given the complex way in which oil prices are determined) reaction to oversupply (tar sands, fracking, recovering output in Iraq and Iran, OPEC's reluctance to moderate output). The worries about China are way overblown - an annual growth of 6% of today's China is worth a lot more to the world economy than the 10% of the Chinese economy of 2000, and that simple sum has bypassed many commentators.

Those algorithms may force markets to hit lower lows over the next few weeks, but I have no doubt that markets will recover into the summer - and some people will do very well out of that!

[Canardly]

I think you need to remember that the Indian economy is growing like stink, China's economy is still growing at more than 3 x the rate in the UK (if official stats are correct) and the US is not doing too badly at all. Green shoots are there in Europe also.

[Andrew]

Thanks TimC and Canardly. The IFA raised some of those points - China's continued albeit reduced strong growth, reasons for oil price and over supply, state of US economy. Plus he mentioned Germany's soild if unspectacular performance. He summarised the current situation as market hyper-sensitivity and overreaction.

What's worried me is the doom merchants. These guys are more in the know than I could ever be so I ought take some account of what they say. Even if to, on balance, ignore it.

[TimC]

Some of the doom merchants have a vested interest - they've shorted the markets and they want to see them go down. Some of those are perpetual 'Bears' who only bet on markets going down. Some people get paid money to be miserable and relish it. The papers and tv programmes can always get an 'expert' to put over whatever PoV they wish to push.

The broad consensus is that this is a temporary - and illogical - disruption. That said, there are some good arguments that said shares were overvalued (when the FTSE was at 6800-7000), and that a correction was due. We've had that and more. I don't see any justification for further falls, but -as I said earlier - trading software may well force some further lows before recovery sets in.

[Bledlow]

Markets have been slowly/steadily falling for some time. We ride that as that's the name of the game. I think I'm understandably concerned about another 2008.

Maybe you should take a look at your dividend return and do the sums. If you can make a better return elsewhere, go there.

My only remaining shareholding pays good dividends. I'm tempted to buy more with some of the money that's currently earning bugger-all interest.

...China's economy is still growing at more than 3 x the rate in the UK (if official stats are correct) ...

And IIRC at least twice as fast as the UK even according to the more pessimistic estimates of the exaggeration in official stats.

[frankly frankie]

IFAs generally don't seem very independent to me.  They are almost invariably encountered following a recommendation by someone else in the financial sector, so for that reason I avoid them like the plague, but if I can't avoid them I take any such advice with a pinch of salt, and more often than not do the opposite.

I draw a works pension, and interestingly I've recently had a barrage of mail from them concerning a new option to, basically, cash some of it in instead of continuing to draw it monthly with periodic increases in line with whatever.  This option doesn't interest me at all but I assume they have to offer it as a result of some tinkering by our beloved Chancellor.  However, considering it's only an option, which I can ignore, the mails are very insistent to the point of being unwanted junk now. 
But I do notice that, before taking up the option, I must consult an IFA nominated by the pension fund and free of charge.  What a joke.  (I'm hoping that any such IFA would just say "no - don't do it".)

[Canardly]

A dollop of cycniscm is healthy but the pension fund is probably trying to protect your interests by steering you towards a particular group of IFAs.

[frankly frankie]

Of course - but they're not technically 'independent' any more are they?  Not unless 'independent' is a jargon term and not to be taken literally (which I guess is probably the case).

[Pancho]

We originally engaged our IFA because we trusted them to give good advice. Now, I'm not so sure of that advice.

When it comes to financials, I don't trust anyone - not even myself. No one knows what's coming - they're dangerously deluded if they tell you they can.

All you can do as an investor (which is just a grand term for someone who wants to retire one day, or someone who who earns even marginally more than they spend) is have a view on your investment timeframes[1], understand your preferences for income or capital[2], and calculate the risk you can afford[3]. And remember diversification[4].

[1] Volatility is only a problem if you're forced to sell. Hence the advice of not being in shares for less than five years. Personally, I'd say 20 years is the threshold.

[2] Related to one but it extends more beyond volatility. It's fundamental and is why you might (I wouldn't) buy an annuity for a pension but use fixed term bonds to save to buy a house.

[3] Forget the buzz term "risk appetite". It's bollocks and meaningless. You'll find that people's imagined appetite for risk changes as they move from an envisioned gain to facing an actual loss. However, risk generally correlates to returns so you should maximise risk exposure. But not maximised to  some daft "risk appetite" - instead, ask "what's the most I can afford to lose?".

[4] Various academic papers support the notion that diversification is the only free lunch on offer to investors. Take it. Diversification also limits the risk of developing some self-delusion that you can predict markets.

[Pancho]

Markets have been slowly/steadily falling for some time. We ride that as that's the name of the game. I think I'm understandably concerned about another 2008.

If you're in equities, you're in for the long haul. And, in the long term, there'll be 2008s again. It goes with the turf.

So long as you're not forced to sell, you'll be compensated for the volatility and risk with earnings (partly paid to you in divis) and a share of economic growth (if there's ever an occasion to remember "future may not be the same as the past").

[Pancho]

Anyone who truly thinks they can predict the market is a fool.

shares are low now. see if you can ride it out

Sounds like a prediction that they'll go up again! "Riding it out" may be a ride to the bottom.

[TimC]

Anyone who truly thinks they can predict the market is a fool.

shares are low now. see if you can ride it out

Sounds like a prediction that they'll go up again! "Riding it out" may be a ride to the bottom.

You're either in it for the long haul or you're not, you can't have it both ways! Guessing the bottom is as difficult as any decision about when to do anything in investing, and if you think too much about it you'll drive yourself nuts. The basic truth of investing is that companies tend to increase their turnover and profit as economies expand, aided by a moderate amount of inflation. So long as that holds good, investors who (as Pancho says) diversify adequately will tend to match the long to trend of the markets, which is up. If sufficient of those investment instruments pay a dividend as well, then you can reasonably expect to exceed a tracker's return. Volatility in the short term is worrying but it's part of the deal; so long as you don't need to realise your assets in a hurry, it's not a huge problem.

[Gattopardo]

IFA care about the fee.  They give you options that they have available.  That is it, it is your decision.

Stocks and shares make no sense to me, as in the fluctuations.  But as has been shown these can be manipulated and you will get away with it.

[contango]

Markets have been slowly/steadily falling for some time. We ride that as that's the name of the game. I think I'm understandably concerned about another 2008.

I guess the eternal question, that is a matter of opinion as much as fact, is how you feel about riding a wave that might turn nasty.

If you're in your 20s then a 1929 style collapse is a buying opportunity as you'll hope to live long enough to ride the wave back to profitability even if it does take multiple decades. If you're in your 60s and the market tanks in a big way then it's far less likely you'll see a recovery.

If you depend on stocks for income then a collapse doesn't bode well - although your income would come from dividends rather than the share price directly, if the price collapses the chances are enough people in the market think the company is overvalued, and if it was expected to pay a good dividend the price would at least have some support (just to complicate things there are trading strategies like short selling, bear raids, bear squeezes etc, and sometimes markets move wildly around the time futures and options expire).

As a general rule the time to sell is before a major slump (for fairly obvious reasons), so the question then becomes one of whether you expect a further slump or a recovery. From what I recall (it's been a while since I read about it, so my memory is a little rusty) it was the second stage of the slump in 1929-30 that wiped out more people than the first stage. It seems reasonable to conclude that a lot of people figured the bottom was in and went in hard with their money expecting an easy return, only to find it nosedived again.

Personally I think we'd be better off if people didn't invest in things they didn't understand at all. Conventional wisdom is to put money into the stock market but so many people end up doing little more than handing it over to a relative stranger, trusting a few bits of paper that show they meet some government guideline, and then hoping for the best. I'm not entirely convinced that's a good strategy when it comes to something like retirement.