Asset Allocation

@Islay, is that your real name or are you simply a fan of Islay whiskey? Every time I see a post from you I want to run out to the top shelf of our liquor cabinet and grab a nip of Ardbeg. You’re a bad influence.

 

This deserves a dedicated blog post @Snowball

 

it is a pseudonym and no I am not a whiskey fan either

 

It’s getting one but I thought it only fair to share here too since other folks are kind enough to. Besides, some folks probably have better things to do than read my blog

 

Haha damn!

There’ll be plenty more juicy detail in the post of course. (I gotta say that so people still read it!)

Number of holdings has been reduced quite a bit in the last 6 months after catching the simplicity bug (realising the pointlessness in complexity). But it’s so enjoyable I’m afraid that soon I might have no holdings left!

 

Howdy.

2 IPs about to sell one. Growth is gone and tired of the hassle.

Shares:

Oz 40%
MLT AFIC ARG VAS QVE VSO
couple of direct holdings RHC SOL RMD JBH
Did have big 4 banks ( my first purchases started 10 years ago) but sold them 2-3 years ago. When realised I was overlapping with increasing use of index’s and LICs.
With CBA at 90 it seemed like a good idea to cash them into super just before the reduction in 3 year cap came in.

Global inc US 40%
UNhedged.
IXI IXJ VOO VTS and some direct holdings on S&P inc Berk
Direct. Paypal. MKL Was Netflix, shouldn’t have sold. MC, Nike.

5% emerging markets VGE and

5% flutter on stocks. For fun.
I usually don’t do well on these and this reminds me that I should stick to passive investing.

I have all my major purchases now. So I just save up a set amount then top up whichever is lowest. keeping the proportions roughly equal to above plan.

I started just before the GFC where my total equity was low so the crash didn’t bother me. It will bother me now so I try to keep telling myself to look at the total units and yield, let’s see iF it works when th next crash comes! Theses minor market movements I’m ok with so far.

 

You can change time frames etc, but this was interesting as a snapshot over the period below, a good reason to diversify.

November 2017 to Dec 2018 cash beat Australian shares and property

View attachment 29755

 

I use cash as my bond proxy but if someone can explain why I need bonds, I'll think about it.

Are 2 and 3 VGS without being able to overweight one over the other?

You mean balance?

I think that strategy will beat most and certainly there will be better performers, but what of the risk they took to achieve the result?

When someone tells me how they made money on bitcoin I get no hint of jealousy, more pity for when their run of speculation ends in flames.

 

Interesting article.

Because we can't predict market (1) we should not change strategy based on market climate (2). By deduction we can only change strategy based on personal circumstances (3). Sequence of return risk by definition impacts retirees (4). Maximum risk is on the day of retirement on a bell curve that is right skewed (more risk after retirement) (5) because after retirement there is no more work income (6). Therefore, offsetting the risk on the bell curve by allocating to low risk vehicles (bond tent) should mitigate the risk (7). The bell curve can be approximated by considering age at retirement, expected retirement income, expected length of retirement, expected final balance and expected retuen of investments.

In short, maximise cash / bond allocation on day of retirement, but not by selling off the portfolio on the day before retirement (very high risk if market crashes) but by gradually increasing allocation. Even more slowly reduce this allocation after retirement. The amount of cash available on the day of retirement should cover your expected retirement income over a back tested period.

Not advice, just how my current plan looks.

 

Why didn't you sell everything you had and then borrow all you could to buy PME?

 

This thread appears to have morphed into a combinations of current asset allocation, allocation at retirement and sufficient funds post retirement when things go pear shaped - as they do and will.

While most are unlikely or able to adopt this particular approach, there were a couple of my former work colleagues who were very switched on. I consider they were in a tiny minority. One was with the now closed CSS.* He was smart and realised a number of years before he exited the fund (under the usual 54/11 stuff) his income would drop dramatically and it could be difficult to adjust.

He assessed the possible pension he'd receive using the calculators provided by the CSS and gradually reduced his take home pay to what he'd get once he left. Salary sacrificed the difference. Met up with him a couple of years after and he said it was easy as he and his wife were already used to living, quite well too it appeared, on the reduced income plus now they had an additional source (super) and the combined income was larger than his salary. He was very open and said the starting pension was $54k pa.

I suppose my late wife and I did something similar but without the backing of corporate super or really determining an income target. We both knew a darn good income from working was not going to be forever and we had to prepare. Nothing grand such as overseas trips, business class or otherwise. Just when we needed above and beyond the basics. Frankly, we struck it lucky. I put it down to nothing more than that really.

I do think there is only so much you can plan for and aiming at specific targets may be next to useless. Too many variables involved including adverse life events.

* The CSS, and I guess the now closed PSS, is costing heaps as there is no longer any fresh money going through new members. I also wonder if some of public offer funds have a larger proportion of members in retirement phase than accumulation and what the impact of that could be. May be something I need to explore if I consider moving the SMSF. No idea how to do that however. Has to be some way of doing it. Or possibly I'm freaking out for no good reason.

 

However unlike a Defined Benefits Scheme money invested in accumulation funds upon death of a couple goes to the estate. In the case of Defined Benefits schemes upon death of one of the couple 2/3s of the pension goes to the surviving partner. Upon the death of that individual the benefit ceases to exist.

Hence as members of these schemes, closed to new members many years ago, die off the Gov’t Liability will continue to reduce over time.

Well I think that’s how it works from memory.

 

Oooooooo spooky

The S&P 500 touched 666 on Friday afternoon, March 6 2009.

“No one may buy or sell except one who has the mark or name of the beast, or the number of his name, and his number is 666” Revelation 13:17-18

 

Because that would be stupid and risky, there were plenty of other shares with potential that had done just as well and there would be no balance, The other shares I bought some of which I suggested on sommersoft , and again 2 years ago here, too show how bad LIC's are and to prove a point that investing for growth is way better than investing for dividends Some of those other are up 7x, my portfolio of those shares is up 75% just since the end of the 2017 year, gained 50% the year before that. It would have been silly not to take positions in ALL, A2M,ALU APX BAP WTC XRO NAN NEA. It would also be stupid not to leave funds available for living expenses and opportunity and too risk all previous profit. I don't fancy having to work anymore. I have extended overdraughts in the past and bought stocks for 5c than more at 25c and sold at $17.00 and $12,00. It is how I bought my first properties.

 

My response was triggered when you said "it was a no brainer". Rather it was research, analysis, knowledge and managing risk.

Here"s an interesting take on allocation How to create a yearly income of $100,000 in dividends | Motley Fool Australia

Firstly, choosing only international shares for income and diversification is unusual for the Australian investor, although I agree with those choices for international allocation.

Secondly, author speaks with authority about the future of ALU, WMI, CGC and REA. There's a disclaimer at the end but I feel author should be clearer as some readers may buy only those shares without understanding risks.

Finally, in 27 years what will an income of $100k buy?

 

Really the only issue here is being able to consistently identify these stocks in advance. For sure if one is able to do so, then the rewards surely blow LICs out of the water.

 

I'm always surprised that the professionals who spend their entire working life can't seem to consistently do this but so many random posters on internet forum boards seem to do it with ease.

 

Not really to some extent. Same concept of one person winning Tattslotto more than once. So many attempt to win once, the chances of someone jagging it multiple times isn't really surprising. It has to happen.

However, with share selections there is also an element of analysis behind it but it can go horribly wrong. The thing is to separate any portion of luck from the decision - which can include management failure within the company. So many variables. Which is why I don't attempt it. And I packed away the dart board many years ago.