Asset Allocation

He he, yes.

Spent years in my younger days trying such things. Based on personal experience, knowing many others who have tried and the law of averages (less costs) for the vast majority it’s a mug’s game.

As for many of those thinking they’re successful traders “post GFC” there’s an old saying “a rising tide lifts all boats .... .”

If one is going to have a crack at speculative trading then I’d strongly suggest do it whilst younger. It can become addictive like all speculation with very high chance of significant loss. Best to get it out of your system when younger so one has time on their side to recover from the losses. If one tries this close to or in retirement and it goes pear shaped then you’re stuffed. Capital down the drain and the most valuable asset you had is no longer available to you, that is TIME.

 

Something never written on an internet forum:

"I remember the time I put 6 months salary on Enron because it was going gangbusters, and then it went to zero. That really sucked. Then I got into Kodak when it was about to monopolise the camera film industry, then digital came and.... you get the picture, no pun intended."

 

RCR Tomlinson has a great future and is a fabulous growth share.......... strong balance sheet, sound management, etc.

 

Bit late to the party. Mostly because I still can't come to peace with the allocation I would be happy with. My current allocation is very close to below except couple of individual shares needs to be sold. Once sold and replaced with ETF's below the allocation should match below figures. This includes portfolio in personal and trust combined.




VAE, IJR and IVV have DRP ticked so their allocations should keep increasing over time.

I haven't included super. But super portfolio looks like

VAS 87% DRP ticked
IVV 13% DRP ticked

All new funds in super are going towards buying IVV and increasing it's allocation. Have more than 20 years still before I can access super so plenty of time.

There you go nothing fancy and pretty boring portfolio if you ask me

Cheers,
Oracle.

 

thanks for sharing @oracle

We all face this. It’s the essence of investing.

We have to do something today without knowing what will be best in the future.

It’s a good thing that the uncertainty exists or there would be no risk premium available.

What do we do in the face of uncertainty? Do nothing...... Nup, that don't work!!!

Do something even though it might not turn out to be best ........Yep, at least you give yourself a chance.

There are tons of ways you can approach what "something" is, some much riskier (wider range of potential outcomes) than others.

If your "something" is a passive approach of keeping costs low, diversifying across company, industry, currency, country risks and diversifying across time by saving and buying regularly, I reckon you have a better than even shot of harvesting an acceptable risk premium on any savings you manage to put aside for a rainy day. Pretty simple but probably not always psychologically comfortable. The unknowingness of the future and to some extent the certainty of the past, will always nor away at our comfort when assessing asset allocations in the present.

The above is not telling you how to suck eggs @oracle, Just a ramble trigged by the very powerful sentence in your post.

 

Provided you don’t mind sharing what are the areas of concern?

 

It's just how much should the portfolio be in high income vs high growth ETFs.

Since, I am still working full time and in accumulation stage so want to have a good balance between the two so I don't end up paying most of investment income in taxes.

Finally, it's also about reasonable diversification. What percentage local vs overseas.

I have also purposely not included cash component as it's something I haven't thought about since I think it's only going to be important when I decide to retire from full time work. And I don't see that happening for atleast another 5-8 years.

Cheers,
Oracle.

 

I suppose what I try to do is hold assets in the structure most suited to their tax liability. Super will be better suited to certain assets as opposed to holding them in personal / coy / trust etc. This can change depending on stage of life.

High growth, lower income in your circumstance would likely be better suited to being held outside Super. But then there’s the issue of when you are considering retiring. And how does your partner factor into all of this? A trust / company might allow greater flexibility.

In hindsight I’d likely place more importance on having a sensible level of diversification. Then I’d hold those assets in the structure that makes most sense from a tax perspective. I wouldn’t sacrifice diversification to minimise tax,

The problem with Super is the age it can be accessed. So if higher yielding assets are held in Super there may need to be a plan for the period when one retires until he / she can access Super. If the period is not too great some simply accumulate enough cash close to retirement to supplement the lower yield from high growth assets outside Super until Super can be accessed. There is no shortage of strategies.

As for local vs international split I personally would favour greater exposure to international further out from retirement. As one approaches or is in retirement and given that retirement living expenses will most likely be in local currency I’d then reduce international exposure somewhat.

Just my thoughts of course and none of it may be new to you. There could be any number of strategies that will vary greatly depending on one’s circumstances.

 

I'm currently a long way from super (35+ years away) and have many years of accumulating left.
Haven't decided on a precise asset allocation as I think it will likely morph with time as my thinking change. Currently work as a sole trader and do not put any in super (I understand the tax advantage but I would like to retire before preservation age).

Currently have 50% VGS and 50% VAS (sold all my direct stocks last week woo). I have strongly considered VAE but felt I would like to grow VGS and VAS to a larger asset base before including EM/Asian tilt. Things like value tilt, mid/small cap tilt, other asset type diversification (property etc) is still something I have not made up my mind yet so will not rush into investing. Not keen on bonds so hold a fair amount of cash in a high interest savings account for emergency use.

Originally was tossing up between IVV ad VGS but felt ultimately VGS gave more country diversification and least route to regret. I only wanted a set and forget portfolio until retirement so chopping and changing is a big no no.

Glad to see other people's allocation as it does give provide me a lot of with insight.

 

Such a powerful point.

As it looks now the US might appear to have more going for it compared to other developed economies. But you just never know what will happen in the future. I choose greater diversification and reduced risk over the “possibility” of greater growth.

 

Our asset allocation across all entities (personal names, SMSF, trusts, etc) is:

Property: 66.4% (PPOR 19.8%, IPs 46.6%)
Shares: 21.8% (Australian 14.1%, LICs 2.1%, REIT 0.9%, International 4,7%)
Cash: 10.5% (Cash Accounts 3.2%, Offsets 4.6%, Fixed Interest 2.8%)
Toys: 1.3% (Cars, Wine, Artworks, ...)

With regards to our debt (only used to purchase IPs), our Loan Portfolio equates to:

• 64.3% of our Investment Property Portfolio
• 45.1% of our Total Property Portfolio
• 30.0% of our Total Assets

The split based on Net Worth is:

Property: 52.0%
Shares: 31.2%
Cash: 15.0%
Toys: 1.8%

Final statistic: our cash holdings equate to 35.1% of our Loan Portfolio.

Thoughts?

 

I think you’re quite a bit further along than me, so my only question is, wanna swap?

 

What are folks thoughts on diversifying further with different ETFs?
Let's say you wanted an ETF portfolio consisting of Australian and Global equities. Would you be comfortable holding all in one provider, such as VAS and VGS, or would the preference be to diversify further and perhaps go for VAS and IOO as a simplistic example?

 

Ha! Ha!!

In a word, the answer is NO .

That is the result of 40 years of education, 40 years of mistakes, 40 years of hard work, 40 years of delayed gratification, ...

It is also the result of 40 years of coming up with s strategy that worked for us, namely:

1. Buy good (investment) property for growth, using debt to maximise it, run them like a business and the right entities to minimise taxes (eg trusts).

2. Buy good shares for growth initially but ultimately for (retirement) income, using cash for purchases to minimise risk and the right entities to minimise taxes (eg SMSF).

3. Keep the right amount of cash at each stage of the journey to handle all expected risk and ultimately to live In retirement.

4. And finally, enjoy the journey.

 

And 40 years of too much alcohol consumption.

 

That is what caused Item 4 in my post .

 

5. Stay single or don't get divorced

 

Probably the above will cause this:

 

Part of my asset allocation

 

so funny!