Asset Allocation

Thinking about this, in a cap weighted vehicle GM dividends are reinvested across the entire portfolio, not reinvested into GM stock (which goes to zero) as is assumed....as GM share price declines, less income is reinvested into GM in line with its reducing capitalisation.The beautiful simplicity of the cap weighted index at work.

 

On the topic of sector allocations:

https://www.credit-suisse.com/media...s/global-investment-returns-yearbook-2015.pdf

 

This was an interesting read, Australia mentioned and pictured

FOR INVESTORS, A LITTLE HOME COUNTRY BIAS GOES A LONG WAY



The Benefits of Global Diversification
There are strong, logical arguments in favour of building a globally diversified portfolio. To name a few:

• There’s a World of Opportunity. First, global diversification offers access to economies outside of your home country. This can be particularly important over the long-term. Fund manager AQR published a 2011 paper in the Financial Analysts Journal, the authors explained that country-specific economic performance drives long-term stock returns. In contrast, investing in a single country that happens to have poor long-term economic performance could be disastrous for the investor. No problem: Diversify globally.
  
• Returns Are Like Lightning Strikes. Similarly, we know most of the global market’s stock returns come from a tiny subset of stocks. Authors of the 2019 paper Do Global Stocks Outperform US Treasury Bills? found that a mere 1.3% of global stocks explained the net wealth creation in global stock markets from 1990–2018. The problem is, we never know ahead of time which stocks those will be, or which countries they will come from. Again, the solution is clear: Diversify globally.
  
• The Whole Is Stronger Than Its Parts. Adding international equities to a portfolio tends to decrease volatility risk and increase expected returns. In Vanguard’s 2019 paper, Global equity investing: The benefits of diversification and sizing your allocation, the authors showed that adding global stocks to a domestic equity portfolio decreased portfolio volatility.
  

 

From the snippets posted I'll have a guess the article focuses on price appreciation and not income.

For the purposes of balance (segue, Exit stage right).

The Critical Role of Dividends in Stocks' Long-Term Total Return

 

Notes:

• Happy with the progress
  
• All good work wise
  
• I allowed myself to cheat a bit when it came to currency and re-balancing...
  
• Re-balanced Australian equities & extra cash into International (hedged) when the AUD was down in March
• Re-balanced Australian & International equities within super to International (hedged)
• Will probably re-balance out of IHWL after a year has passed and if AUD stays relatively high
  
• Cheated again and bought IJS when US large caps recovered but small caps didn't - it worked out quite well...

2021 plan:

• Continue to invest as much and as often as possible
• Make more money
• Salary sacrifice $1,000 a month
  
• Venture further into Small Cap Value (likely via AVUV/AVDV); but need to analyse this further and consider tax, costs, etc.
• Perhaps leverage via NAB Equity Builder (likely in the 30-50% LVR range)

 

My Asset Allocation at end of 2020


Where I think I'm heading by end of 2030


Full exposure to equities remains the same but passive/active weightings change. The plan for re-weighting is pretty much all about reducing the risk I pose to the portfolio by the time I reach 60.

 

@dunno what are those in terms of percentages? Im fairly similar - just no direct shares.

 

Updating SAA (80/20) that is used in 2 of 3 listed portfolios, the other is SMSF running 90/10 with allocation based on the 80/20. Have added International Value exposure recently, and reweighted to slight International bias, this is all being done with new funds as we still DCA with both income and new funds.

Fixed Interest/Cash (20%)
3% AU Cash
17% International Fixed Interest

Australia (36%)
29% ASX300 Cap weight
7% ASX Small / Microcap active

International (44%)
9% International Developed cap weight
9% International Developed cap weight (h)
7% International Value (DFA)
7% Global Property (50% h)
6% International Small Cap (DFA)
6% Emerging Markets cap weight

Additionally we have an existing large international single asset PE investment and a new small local single asset PE investment which is being funded now (I’ll soon be a “Pub Baron”). Over time I expect to look at these type of small deals where I know the originator, also keeping the door open for direct private company investment where I act as originator. Minimum IRR target on this type of stuff is 20%, and given the lumpy nature funds are redeployed into listed portfolios on realisation and fixed interest is drawn on to fund future private investment requirements as they arise.

 

Sorry missed your question at the time.

 

Looks like a good allocation. In fact I probably like it a bit too much.
Thou shalt not covet thy neighbour, yet yours looks appealing whilst I’m struggling with mine.

I think I am in need of a little pep talk as I have hit that point of passive is simple but not easy.

My problem is that on one hand my plan calls for direct to be reduced and passive to be increased. And the plan is good, I simply must put in more protection against myself before I lose enthusiasm or the plot.

On the other hand, all recent actions seem to require selling direct shares allocation that I have selected because I feel they are more resilient against the risks I perceive and making unthinking purchases into markets that clearly contain elements that I’m side stepping in my active judgments. Things also keep getting exacerbated by takeovers in the direct portfolio leading to lumpy re-allocations to passive rather than the smooth flow of purchases I would prefer. I have purposely given myself no flexible allocations so discretionary timing would be a fudge contrary to the plan.

I’m having trouble keeping active and passive separated. I keep wanting to change(complicate) my passive asset allocation like add value tilt etc or defer or change the rules of the timetable for re-allocation or just let the required planned actions ‘slip’ a bit to accommodate my gut.

I don’t know that I can stare my inadequacies as a passive investor in the face and stay on track whilst bombarding myself with information which I undoubtedly filter according to my biases. Think I might go sailing for a while and limit myself to a couple of minutes a day to action the plan. Directs can auto pilot for a while, it’s not really my environment for adding value in that pool at the moment either. I need some clear thinking time to get my **** into gear.

 

Right. Part of the reason for the discrete exposures in my SAA is to address this psychological trait of wanting to buy value - with fixed AA, new funds / income flows to the most unloved discrete exposures (underweight) first to return to policy SAA. I find that this scratches an itch that a more simple portfolio cannot for me. I’m actually going to write a detailed investment policy statement to deal with all of this stuff (rationale) to be consulted in future as a reminder.

I still find myself wrestling with adding a little leverage to the portfolio all the time.. feeling the interest rate arb opportunity too good to pass up (viz low leverage unlisted industrial prop)...I think I’ve got this urge controlled for now (today).

 

Interesting as always to see the asset breakdown of seasoned members such as @Falcon

In broad strokes you don't seem to be that far off an allocation somewhere between VDHG and VDGR, slight tilts into International Value and Property aside.

My core holdings are fairly similar, albeit with tilts to Oz and US Growth instead (whose prospects I'm dubious about in terms of continued outperformance but will not change due the vow of non-interference I took a while back and so far maintained).

I'm curious about your Fixed Interest component. There has been robust discussion here about holding significant allocations of cash/FI/bonds.

Do you see yours as a cushion, or dry powder in the event of nastiness?

 

Did you end up using AVUV/AVDV? I see Ben Felix is using them in his model portfolio

On the cost side, with AVUV and AVDV we have
Higher MER
85/15 VGS/VISM = 0.20%
60/40 AVUV/AVDV = 0.29% (or 0.36% including tax drag of AVDV)
So if I say replaced 17.5% of VGS/VISM with AVUV/AVDV, cost would be an additional 3 basis points of the whole portfolio.
0.195% A200/VGS/VISM/VAE 20/60/10/10
vs
0.224% A200/VGS/VISM/VAE/AVUV/AVDV 20/45/7.5/10/10/7.5
+20%/32% turnover in AVUV/AVDV respectively
+FX costs in trading eg 0.6% in SelfWealth.
Not entirely horrible if an investor believed in factor investing.

 

I was heavy STW initially, then VTS, VEU

When VAS came onto the market I added that for ASX300 vs ASX200 then they lowered their fees, some years later STW lowered their fees..bonus all round

When VGS started I added that to the mix also

I have some CBA with DRP set that continually rolls over unless I see a bargain i.e over the recent year under $65

VAF for bonds that got tagged to come into play twice during March 2020

 

What platform do you use to access DFA? Do you can to use an advisor?

 

BT Panorama - but I understand DFA is listing some ETFs in the states very shortly - this may be of interest.

 

I currently still hold a simple portfolio of:
40% VAS
40% VGS
10% VGAD
10% VAE

Have been thinking to add small caps but then probably not worth the effort. Not really any options to buy value either in Australia. Again maybe not worth the effort. I'm getting lazier and lazier over time and just add funds in blindly whenever I have enough for brokerage to be worth it. Suits me fine currently.

Have been trying to avoid talking about investing/shares to family members as all they talk about is direct shares or active funds. Lost interest in trying to give them my rationale as they just don't understand it. One of the reasons why I think passive will never take over the world. Even my 23 year old cousin thinks it's easy to make money from buying direct shares on the market. Or my aunt that's telling me she's making 30% on each active fund tradings.

 

I’ll need some time to properly step through my view on bonds - once a get to laptop I’ll expand on this - as a standalone asset, in the current environment bonds seem pretty pointless. But that isn’t my view.
I’ll give a a proper reply in a few days.

 

Not yet, will buy soon. Ben's model portfolios definitely confirmed my bias.

Indeed, you need some conviction to go ahead with it. Guaranteed higher costs and turnover without guaranteed higher returns. We'll see what happens, but if value doesn't recover now (considering the extremely low valuations vs. growth) then it probably never will.

I'm not going all in on SCV so it's fine. But it should improve the reliability of returns going forward, especially if we do see the mega caps slow down. Time will tell.

Side note, I'll likely be using Interactive Brokers. They do charge a US$10 monthly fee (for portfolios <US$100k), but I will be taking out a small margin loan with them as well just to dip my toes in. Their margin rates are around 1.6%, if we include the monthly fee it works out to something like 2.2% - which is still extremely low.

 

Wonderful portfolio. Great attitude. Love it. Well done.