The impact of selling the wrong assets at the wrong time

It is very important to understand just how negative the impact of selling assets at a loss is on the long term portfolio performance of a portfolio.

Example

Investor A: Assets are invested in a single mixed asset pension fund as follows:

  • Short dated bonds (20 %) 
  • Absolute Return Funds, Medium Term Bonds (50%)
  • Long only equities, equity funds (30 %)  

Investor B: Assets are invested in Tideway Horizon Portfolios as follows:

  • Horizon 1: Short dated bonds (20 %)
  • Horizon 2: Absolute Return Funds, Medium Term Bonds (50%)
  • Horizon 3: Long only equities, equity funds (30 %)

Scenario

An investor needs 10% capital withdrawal after 1 year, financial markets are under stress and the value of the assets has fallen to 89% of the initial investment in both cases.

  • Investor A sells across the whole fund to raise the 10% capital
  • Investor B sells only out of Horizon 1.

Once markets recover to the original values, the Single Mixed Fund is valued at 88.87% of the starting value but the Horizon Portfolio is valued at 90% of the original value.

This means that the investor selling across all the assets has paid an extra 1.13%, which does not sound like a lot but that is to get access to 10% of the capital value so is actually a penalty cost of 11.3% on the capital accessed.

This highlights the very powerful effect of "selling low" on long term returns.

  Intitial
value
Allocation 1 year
value
2 year
value
Horizon 1 100 20% 100 100
Horizon 2 100 50% 90 100
Horizon 3 100 30% 80 100
Horizon
Portfolio
100 100% 89% 90%
         
Single
Mixed Fund
100 100% 89% 87.3%

 

Tideway Investment Group comprises the following entities: Tideway Investment Partners LLP; Tideway Wealth Management Limited and Tideway Asset Management Limited. Tideway Asset Management Limited and Tideway Wealth Management Limited are appointed representatives of Tideway Investment Partners LLP, which is authorised and regulated by the Financial Conduct Authority. FCA number: 496214.

Tideway Investment Partners LLP
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London EC3A 4AF

+44 (0)20 3143 6100
info@tidewayinvestment.co.uk

© Tideway Investment Group 2019