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 Partners LLP
is authorised and regulated by the
Financial Conduct Authority.
FCA number 496214.

Contact
Tideway Investment Partners LLP
Thomas House
84 Eccleston Square
London SW1V 1PX
+44 (0)20 3143 6100
info@tidewayinvestment.co.uk