ASX200 (XJO) 7000 here I come....

Fat checks to the ATO with love – such a worthy cause.

In reality, I think I’ve written about our failed adventure at a Private Ancillary Fund during attempts to find meaning in life. It ended up not being our thing. The funds can’t be withdrawn so were rolled into a Public AF and the staged gifting continues, in turn we get fat deductions. They largely keep Mr ATO at bay unless the capital gains get too chunky. Some of the active bets run their course and need to be realised, these along with directing investment income towards passive facilitate the conversion over time. Hopefully there won’t be the need for too much selling just to make the switch.

 

@dunno,​

From memory you’re taking advantage of maximum Concess Cont to SMSF each year. Not a huge help but it assists.

To speed up the closing of our Disc Trust a wee bit sooner we took advantage of Contribution Reserving to get $100k Concessional Contributions between us in a single year to offset CGT. Been reserving each year since to be able to continue with the normal $25k CC. Significant franking credits have been helpful. Some tax loss harvesting through ETF to LIC or vice versus with more recent investments during corrections. Wife retiring a few years ago also created greater opportunity to split. Still it’s taken a number of years to get assets out of the trust into own names whilst keeping CGT minimal. Last trust asset was sold in July, finally get to shut it down at EOFY, Woohoo.

 

Hi @dunno I've made what I believe are relatively conservative assumptions that will enable my wife and I to reach a particular financial goal in about a decade from now. We have a number of shorter term goals but this is a particularly important one for both of us. Of course there's a vast array of things that could happen that I haven't accounted for but we will just deal with them if/as they occur. With our current situation it is more likely than not that we will reach this goal before (possibly even well before) our target date. My cash/credit option (not buffer as I am fully prepared to invest "for ever" at the right opportunity) isn't factored into my plan, but provides the opportunity to exceed plan, through market timing. Of course I understand I could invest all of this immediately per my target allocation and also exceed plan, but markets don't travel in straight lines. I wouldn't suggest this is perfect or optimal.

And if that financial opportunity doesn't arrive in my target timeframe, there's plenty of other opportunities in life to vector that cash/credit option towards

 

Hi @ChrisP73

I think I can extract from your response that you are a lifelong investor and you don’t really have an explicit value for the optionality of cash.

It’s raining outside and I'm bored, so I will try and explain how I think about the option value of cash.(ps don’t forget to blame @Nodrog)

Let’s transport back to 1987. It’s a short period in time that most invested fear and most sitting on the sidelines would hope for.

We have three investors;

Firstly, Mr dumb arse, as I have done more dumb stuff than anybody else I know, I will call him Dunno, he has the worst timing.

Mr perfection, he can predict the market and move with perfect timing – I will call him Elliot.

And Mrs no nothing. But she is smart enough to know she knows nothing about the future so I will call her Mrs Wiley (nee pippen)

This chart covers one year – a time frame that pretty strongly impacts the psychology of us humans that aren’t really wired for long term thinking.




Dunno is the white line, his return over 12 months is about a 31.5% capital loss.

Mr Elliot is the Blue line; his return is about a gain of 40%.

Mrs Wiley, by just investing regularly each month achieves about a gain of 14%.

Add to each of their returns about 4% cash yield and franking credits of 1.2%.

So if you have a pretty short time frame AND can predict the market there is a reasonable justification for allocating a decent option value to holding cash. Mr Elliot kicks Mrs wiley’s butt to the tune of 26%. Dunno is just a dumb **** loser, we won’t even mention his comparison.


This chart extends the previous chart until today – A lifetime investor type time scale.



On this time scale Dunno with his **** timing achieves 3.5% CAGR for capital gains plus 4% income and 1.2% franking for a grand total of 8.7% CAGR.

Mrs Wiley achieves 5.1% capital growth and 10.3% total return

Mr Elliot achieves 5.7% capital growth and 10.9% total return.

So if you are a life time investor and you get regular 1987 type events which you can nail perfectly each time then you can justify a 0.6% option premium for cash over Mrs Wiley and a 2.2% cash option premium over Dunno.

Dunno the dummy with his sh1thouse timing is still enjoying long term returns of 8.7%. Adding your justified 2.2% option value over him to your actual cash return of what 2%, how quickly does a bear have to come along and you have to nail it (hint: about every 6 months) , before Dummy Dunno doesn’t outperform you?

Don’t even contemplate working out how perfectly things have to work out, so Mrs Wiley doesn’t school you on long term opportunity cost.


Short term thinking drives the desire to time, long term thinking drives wealth creation.

 

Sounds better than what we have here will raging bushfires in surrounding regions. Terribly dry, strong winds with smoke, haze everywhere. So I’m also inside and bored.

Hey back off, that’s my role and no one does it better. Keep this up and there’ll be a demarcation dispute.

 

Hey @dunno, do you still use leverage at all or if not would you consider using it in the future under particular circumstances?

 

c'mon Nodrog, from what I know of you....... are you seriously contemplating taking on any unnecessary risk, hassle and giving somebody else the right to poke their nose into your business, to make more of what you don't need?


Go get your wife to give you a slap…..


It is not as though we are anywhere near a suitable deviation on the fear & greed or anywhere near that mark on any measure for that matter and even if we were why take the risk if you don’t need too?


Before you even get to debt, why would you spend the SOR safety net at the first sign of a dip when it’s meant to be there to carry you through the once in a lifetime.....


Get her to give you two slaps….

And don't ask a fellow addict what they do.

 

. Thank you, I needed that talking to.

Only just finished looking at some leverage options (very conservative) with no intention of using it unless the market experienced an extreme event like I’ve done in the past. Same rule applies to SORR cash. Then all of a sudden I though to myself why in the hell after simplifying our investments would I want to go and do that? Damn greed and addiction is all it is.

So yes I had already decided a few slaps were in order. However the wife told me to get stuffed, go slap yourself.

Gee I hope the air clears outside tomorrow. Boredom can be dangerous to one’s financial health.

 

Great banter guys. Raising some very interesting points.

I wonder how much of this constant analysis and back and forth over the best strategy / timing is just a result of boredom.
Well educated people who have an interest in investing and have a analytic mindset doing what many of us on here do because we are bored.

I notice when I am flat out with work I don’t think to much about chopping or changing my investments. Work is steady and just plotting along I start to review / analysis the portfolio and start to question if I could be doing better.

 

All of humanity's problems stem from man's inability to sit quietly in a room alone," wrote the French philosopher Blaise Pascal

 

@dunno your posts are both terrifying and exhilarating at the same time! Even though I do consider myself a lifelong investor I can see from your analysis that my short term (10 year) thinking is leading me to put an implicit value on the option of cash which in all likelihood exceeds my abilities to actually realise.

More for me to think about....

 

Well said.

@dunno ‘s response to your post highlighted some of my stupidity in dealing with cash. I love how he’s always able to support his views with data.

After the GFC and subsequent bear market I sat on the sidelines for a long time because after getting shares so cheap I had trouble bringing myself to buy them again as they returned to fair value and the market in general recovered. It’s almost as if I was expecting another GFC. DCA would have seen me far better off.

Even now my behaviour with cash exhibits a degree of stupidity. It appears I’m still in some regards waiting for another GFC.

I have no shortage of behavioural weaknesses unfortunately. I’ve continued to improve over time but gee it’s an ongoing battle.

 

Excellent post on the sirens call of market timing. Brilliant.

 

Good insight. I have come to the same hence less participation around here and a move to outsourcing admin / portfolio management. Those that are operating enterprises would be far far better just concentrating on that. Those that aren’t would be better off doing what they can to increase their earning power.

This is all just shuffling deck chairs. It’s interesting and for some of us “fun” but ultimately unproductive and likely damaging to our terminal portfolio value !

 

All of humanity's problems stem from man's inability to sit quietly in a room alone (surrounded by LICs and ETFs).

 

So true.

However as a retiree with no need to be concerned any longer with having to work for a living looking back the investing journey has been / is an absolute joy despite the pain of mistakes at times. Yes mistakes were made and albeit less frequent they continue to be made. Fortunately nowadays most mistakes have been fairly profitable ones if tinkering got the better of me. Perhaps overall not as profitable as if left well alone but at least headed in the right direction.

Despite this I could never “again” hand over portfolio management to an outsider. Tried that twice in my life, never again. Perhaps unlucky. I’m very untrusting nowadays. And like professionals in general whenever I found a good one they end up retiring, dropping dead or taking off for some reason. The replacement generally turned out to be a disappointment or worse.

Unfortunately (or perhaps fortunately when I look at our retirement income nowadays) I found that once investing / desire for control was in my blood no matter what I tried to do to remove myself from the process whether that be unlisted Funds (including illiquid ones), advisor portfolio management or whatever it didn’t prevent me from taking back control.

In some ways this interest in investing is a curse. That said, I wouldn’t have had it any other way. I believe the benefits overall from personal management of our finances have far outweighed the negatives.

 

There are several other short-term areas that you never be bored with

Quote..
It is not as though we are anywhere near a suitable deviation on the fear & greed or anywhere near that mark on any measure for that matter and even if we were why take the risk if you don’t need too?


For some the terrors of the GFC have never faded into history when one looks at their own personal barometer..

 

Reminds me of..

like Buffett’s

 

@Nodrog

How does the below work?

 

To save me typing this should help. Pretty easy to do but good doco important and understanding if the deed allows it, most should:

contributions reserving – The SMSF Coach