Pathetic pension

[jackinbkk]

I'm still fairly young at 30 and I haven't really started to think about a pension.(Stupid me! I know.) My fear is that I could be pouring funds into the ponzi scheme that begins to collapse by the time I come to rely on it.

To me the best solution is to buy property and live off the rent it pays as well as using this to pay off the mortgage for the capital gain. That is obviously a long term plan which I need to investigate further. One thing I wonder though is about doing some macro economic investigation and trying to forecast some currency pairs which are more likely than others to appreciate in the comming dacade or quarter century. With the high leverage of FX I wonder if it is easier to create some fairly significant gains in a fairly short time. I'm not lucky enough to have realised the massive potential pay offs that were possible for options and CDS during the 2008 calamity of the biggest market blow up/fraud ever seen. Yes leverage can go the opposite way and make the loses mount up just as quickly as the gains but at the worst I lose what I put in. Trusting this money to a pension fund means paying the fees, relying on the fund manager to do well (lets not start on the efficient market hypothesis!) and being the easy target of the HFTs.

The latest book I have read has really scarred me about high frequency trading. HFTs are now able to do trades in nanoseconds! They are able to watch the market with smart algorithms, spot big funds like mutual funds placing buy/sell orders and jump ahead of them in the queue, essentially stealing money out of the pockets of people paying pensions! This is probably the biggest thefy to date. Apparently 90% of all orders being placed in markets like NYSE and NASDAQ are cancelled without ever being filled. All used in the manipulation of prices, leap frogging queues and gaming the plumbing of the system to extract profits. In the zero sum game that means we are the idiot in the room, the fall guy, the silent victim.

So a 50/50 punt on some currencies. How does that sound?

Edited November 19, 2013 by jackinbkk

[jackinbkk]

Let me explain a little about gaming the big funds. Algorithms spot big players placing big buy and sell orders. In lit markets orders can be seen, in dark pools they can be detected. If a HFT knows a big player is about to sell, driving down prices due to a flood of surplass stocks etc this drives down prices and HFTs aim to sell first. Sometimes funds can be forced to sell or buy assets such as needing to buy equities traded in the S&P 500 to mirror the index. Again if a big player is trying to buy the HFT aims to buy first. A HFT can then dump the stock soon after once the value drops back to lower levels, the demand having diminished.

At times it was found for example that placing oreders for a stock at say $30 would process all orders sequentially in a first come, first served manner but some traders discovered that putting in a big order at £32 would lead to that order being filled first as it started a whole new queue for that price level, going straight to the front of that queue. The order however was filled at best price of $30.

Some HFTs pay a fortune to be metres from the exchange as the ping time on hops from nodes or the transmission time, even on a fibre optic cable can be enough to not bother trading at all. Crazy stuff!

[AyG]

The existence of high frequency trading can be seen as a positive thing: it provides liquidity in the market, meaning you can take on or get out of a position at any time at a good price. The danger, however, is from the algorithms used. If there's a fault in an algorithm it can cause the market to crash, or the company to lose a fortune. It's happened before and will happen again.

[davejones]

Over a long-term period even property prices could collapse. A worldwide epidemic that kills 100s of millions (which will definitely happen one day) will collapse the housing market. These epidemics always happen. We haven't had one for a very long time, but eventually we will have one. Maybe in 10 years time, maybe in 100 years time. For me, property is a safer bet that other things, but still a small but significant risk.

[FiftyTwo]

Over a long-term period even property prices could collapse. A worldwide epidemic that kills 100s of millions (which will definitely happen one day) will collapse the housing market. These epidemics always happen. We haven't had one for a very long time, but eventually we will have one. Maybe in 10 years time, maybe in 100 years time. For me, property is a safer bet that other things, but still a small but significant risk.

WW1 (+Spanish Flu) and WW2 were the last big housing killers in the UK and USA.

[SantiSuk]

As a buy and hold equity investor (a style that suits long term pension saving) that fact that HFTs are taking tiny slice of the action (on a price) is neither here nor there. No excuse not to invest partly in the equity markets.

There is no such thing as "investing" in currencies - might as well say I'm going down the casino to do a bit of investing. Which pair of currencies are going to be good for the long term? You and rest of the world would like to know that but can only guess. Which countries do you think are likely to be the most successful in the long term? Thailand is a good example of a country that may fit that bill .... or may fall into the abyss. Your guess is as good as mine and any other high powered economist in predicting which country of say Russia, China, Germany, US will be the most productive investment target or currency star (and I would not punt all on one pick in any event).

That's not to say there is no place for currency trading in a balanced portfolio approach - but it will take a lot of research and monitoring or paying someone to do that for you.

I have invested heavily since I was in my late twenties. Was able to retire with a prospectively comfortable life-style at 55 and just my non-pension portfolio still generates enough for me to live easily on. I never touched currencies (I don't invest in stuff I don't understand) but I don't discount those who are prepared to understand them and use them. My portfolio was very heavily weighted to mutual fund equities (no property and only 10% fixed, always lots of cash waiting for the next crash to invest), but it was overall a good 35 years to be heavily weighted in equities - whereas the last 20 years have been a good place to be heavily invested in properties. If I were starting again now I would be far more balanced in equities/fixed interest/commodities and (commercial) properties; to do that though I would not be able to rely solely on self-advice (as I have always done with equities).

Long term investing should be done by spreading risk - not by saying this one investment/speculation class is the answer. In retrospect I did not entirely follow that advice though!

Edited November 21, 2013 by SantiSuk

[SantiSuk]

Another thought. Do not invest within the constrict of a formal pension plan unless there are lots of flexibilities for types of asset you can invest in and it is reasonably low cost or there are very big tax benefits in doing so (compared with other alternatives). Pension plans are the refuge of lazy and useless managers IMO (mostly), unless they have hit lucky (or done their selection and review job properly) and found a good sub-contracted investment management outfit to run the assets side of the plan.

There were large tax benefits to me (higher rate tax deductibility) in using a formal pension plan but I had twice as much money outside formal plans as inside when I retired. Looking back now I recognise that my pensions never grew at anything like the rate of my self-invested assets (but probably did ok when tax savings are taken into account - must do the maths sometime out of interest).

[garyk]

I started fairly old. I invest in dividend funds. You should look at the trends of the market over the last 30 years. 7% may not seem like much but it beats inflation by a point or two. I wish I had done it when I was 30.

By the way when I was 30 the same dribble was being spewed and it scared the hell out of me. You never know but the market has been kind to me the last 5 years.

I tried a couple of rent houses. If you go that route you are a better man than me. Very stressful for me. Up keep, renters, what a pain.

Good luck

Edited November 21, 2013 by garyk

[JSixpack]

Can't predict currencies.

And forget about get-rich-quick schemes. Too good to be true = too good to be true. Try one and you'll just lose your shirt. Santisuk above gives good advice.

Edited November 22, 2013 by JSixpack