Asset Allocation

Getting onto this thread quite late but ours are below:
- LICs (Australian) - 48.7%
- ETFs (Australian) - 29.4%
- ETFs (International) - 21.9%
The international component will be the primary area of focus for the coming calendar year - will be interesting to look back in 12 months and see the change

 

Asset allocation is one view. Here's another perspective My Household CAGR

 

ChrisP73

Compound annual growth rate (CAGR) is apparently

Does your calculation assume that, or is it dividends and additional contributions added in throughout the year?

This seems to be on a one off investment, or am I off the track here?

Genuinely interested, also interested in XIRR when people look at returns

 

@Redwing it's all in difference between net wealth at start to net wealth at end of period. Includes everything impacts of borrowing, savings, dividends. Includes all benefits from my personal exhertion and impacts of everything, where the investment is "me".

 

btw, think I'm probably "undervalued", and still have a fair bit of upside

 

Current market has presented opportunities to accelerate towards retirement allocation which now stands at:


Current position is


Graph of pathway.


Factor tilt got axed to offset some of the capital gains from direct share take overs earlier in the FY.

WBA proceeds hit account just prior to market jitters and have mainly been redeployed into VAS rather than direct stocks. To be honest, picking direct stocks currently is a paradigm shift from the environment where I can realistically add value. Its not about identifying good quality undervalued companies at the moment – it’s more a probability play on who will and won’t survive and that largely now comes down to government intervention even for some quality businesses – that’s not my game. So, I’m sitting tight with my direct investments, neither buying or selling much, which is my default position when I can’t make clear judgements. Instead I am funnelling any available funds towards the broad diversification of the index instead, safest way for a 100% equity portfolio to ride out the creative destruction coming to a town near you.

Market drop so far has not raised even an inkling of wanting to be in anything but 100% equities.

However volatility of 60% of capital being in passive direct shares has re-enforced why the allocation ramps down to 30% by preservation age. The risk of the transition from active to passive was a sh1ty market early whilst I still had high direct exposure with the new passive management mind set. But, what doesn’t kill me………….

 

Thanks for the update @dunno.

Of note is now your eventual local / Global split for retirement is getting closer to 60 / 40 rather than the previous 50 / 50? Curious as to why that’s changed?

Our intended split is 68 local / 32 Global. We’re close to that in SMSF but a way to go yet outside Super.

 

Have to agree with that. The “self cleansing” nature of cap weighted indexing has never been more important than in this current environment. Active Mgrs in many cases are really only guessing given the massive disruption.

 

Why allocate more for ASX? I would imagine Asian economies would recover faster and outperform in the long run. Likewise with S&P500

 

It doesn’t work like that. Global equities performance expectation is factored into the price leading to expected returns to converge on risk adjusted basis. Earnings yield is determined by price and earnings. High growth/expectation = high price. Low growth/expectation = low price. Both can have same earnings yield.

 

50 / 50 is still my ultimate end point for want of being smart enough to finesse a more sophisticated allocation.

Tax deductable donations through PAF will be exhausted before preservation age so I have adjusted the path a bit on tax considerations and recognising that I don’t have to be at the ultimate allocation on preservation day. I live with the vain hope that current tax situation will remain, and I can make final adjustments juggling between SMSF and personal. Ultimately direct shares will still drop to 25% and funds directed towards international.

The diversification and systematic renewal of a cap index is hard to beat in the face of a **** storm.

I run my directs as an Investment company. The Dunno Investment Company (DIC) and I’m head stock picker. I guess that makes me the DIC HEAD.

Being a DIC Head I would suggest my fund is lower cost, more tax effective, has better stock selection and better manager than other LIC’s but cap weighted index still superior and that will be true even if I happen to outperform ETF over long run.

 

I'm not following.
Let's take Nikkei 225, it's been at the same level since 1992.
During the same timeframe Shanghai composite has grown 296%.

If you invested in an index tracking each one, how would you not be better off with the high growth option?
Are you referring to the dividends being more or less the same? If that's the case, then why not opt for the economy that shows more resilience and strength to outpace growth? Increase your networth and collect the same dividends.

 

All ordinaries is up over 300% price alone for the period quoted...and that’s what I’d presume you consider a low growth market.

I can play with start and end dates and tell you that you’ve doubled your money on the Nikkei and lost money on the Shanghai composite over the last decade. You may have had an insight back in 1992 knowing how things would unfold, or you may just backfill your story now, knowing how things unfolded.

I posit you this, why would institutional investors invest in “low growth” markets if they could achieve better earnings yields in “high growth” markets, and why, if such a free kick is on offer, is price of the latter not bid up to a level that negates the apparent no brainer choice? With the 10,000 plus CFAs out there you would think they would have worked this out.

 

I suppose to satisfy the low-risk profile of their clients.
And what about the risk of Australia stagnating like Japan? More money printing and less economic output, if the rate of things continue to prolong, could lead to flat growth for some time.

 

Doesn’t make sense. How is a “low growth” market “low risk” ? These aren’t bonds. These are companies operating in competitive markets subject to the normal vicissitudes of business. You need to do some homework here. The hint is that its all in the valuation. Anyone starting out with Ben Graham should get the concept. You don’t need a high growth rate if price is commensurate. Global markets are pretty efficient, and priced to expectation. Capital has no borders and hedging is easy and cheap for Instos.

First level thinking overlooks this and doesn’t ponder the underlying question; what am I missing? The classic Howard Marks line “who doesn’t know that?”. It’s like your thread on high quality large cap companies....high quality companies are expensive. Everyone knows they are high quality with reliable
earnings, hence stock is priced accordingly...You’d need to have an insight on why the market has undervalued these businesses and the numbers to support otherwise you are just following a well known story. The question is what unique insight do you have that the market does not?

To your point, yes absolutely that could happen. As can any number of possibilities in other markets that you may not conceive. Largely, the market knows this and is factored into the price. Diversification is important.

 

And although there may be many guesses we don't actually know what the landscape will look like. What it will be in two, three or five years time may not be what was six months ago. This to my mind is where diversification will play a part. Up to each person to define diversification and the extent of it for their purposes.

 

This is my best effort at a 100% equities, global market cap weighted portfolio, with currency weighting 50% AUD.
Median market cap based on the fact sheet for each ETF


Criticisms please

 

Might be missing something but I'm confused. If its Global Cap weight you are after wouldnt you weight your index exposures by total world market cap ?

Check the exposure breakdown here ; iShares MSCI ACWI ETF | ACWI

 

Didn't take long.

 

Thanks @The Falcon, however two questions:
1) That appears to be a US ETF - Ideally would like something Australian domiciled.
2) Target is 50% currency exposure - I cannot find an AUD hedged version of this.