Boglehead/Vanguard way to retire.

Found this re: Charles Ellis' suggested portfolios by age

Under 40 years old -- 100% in stocks
40 to 50 years old -- 90% in stocks; 10% in bonds
50 to 60 years old -- 80% in stocks; 20% in bonds
60 to 70 years old -- 60% in stocks; 40% in bonds
70 to 80 years old -- 50% in stocks; 50% in bonds

 

Yeah he says something similar in Elements of Investing. But then goes on to say it’s not what he does himself:

...


Ellis is being cautious in generalising the allocations you posted above. But he favours higher allocation to equities provided you can stomach the volatility. Bernstein says basically the same thing. Not many can live with near 100% equities though. I come close however I’ve been through market crashes and know my true risk tolerance. Plus the focus on dividends makes it easier for me to ignore volatility. As history has proven dividends are much less volatile than capital. That really helps my SANF.

 

Its a lot easier to be all equities when you have a massive portfolio. I don’t think there is any right or wrong here though - all situations are different, portfolio size, volatility and risk appetite, timeframe, tax considerations, SANF etc.

I can’t quite get my head around the criticism of MPT around here (viz Thornhill). It’s broadly right and works. Perhaps we are talking about different things? Or perhaps the view is that one only requires Australian stocks? Well that’s a view. Regardless those who are investing in diversified vehicles, be they LICs or ETFs are benefitting from one of Markowitz’s key findings...the benefit of diversification

 

Yes it should be noted that Ellis is wealthy and investing with his beneficiaries in mind rather than himself.

Of course diversification is important. Unlike Thornhill I personally believe in having exposure to International equities. What I do agree on with Thornhill though (and Ellis) is that provided you’ve got the risk tolerance (and most don’t) there’s really no need to be holding lots of bonds or any for that matter depending on your circumstances. Government guaranteed cash / TDs will suffice if used sensibly as a buffer.

But as stated it’s not black and white. Wealth, risk tolerance and stage of life etc all play an important role.

 

I think holding AAA/AA (say Australian Govts) or say a pile of cash really aren’t too far apart. The purpose is largely the same and often application is exactly
the same in times of trouble

I’d agree that the yield premium on corporates isn’t worth the bother due to higher stock correlation and preference is govt bonds of intermediate duration with some cash on the side....one can use laddered term deposits as well if the rates stack up. But straight cash high interest rate deposit accounts in individual name also has its benefits !

 

I was thinking yesterday about the traditional use of bonds and shares for the everyday investor as basically sources of income. Even Bogle recently stressed this. Bonds for their interest, shares for their dividends.

But somewhere along the line bonds rather than being held directly to the end of the term for the interest and a known level of capital started to be used as a volatility dampener to smooth overall portfolio capital value.

Of course in the past it has been very difficult for Australian retail investors to invest in direct bonds, still is, so I’m referring mainly to the US.

There are so many factors here which will determine what the investor chooses to do. Living on interest and dividends alone is well and good but the investor needs to have a sizable portfolio to be able to do this. Then of course there’s a whole host of behavioural factors involved as well.

But @Il Falco is correct in that cash and bonds fulfill similar roles. And rebalancing also applies even when using cash. If capital is needed it really is just as simple as taking it from that part of the portfolio (eg cash / bonds, ASX, International) that has done best at that time. And in the process rebalancing automatically occurs in a sense. This can sometimes get lost in the technicalities that often creep into the discussion. For Aussies the whole concept of Bonds confuses many.

Even us dividend investing nutters often choose to maintain a cash buffer of a few years living expenses. It’s still an asset allocation decision. If there’s a dividend shortfall and equities are performing badly we draw on cash. When dividends are doing well we top up the cash buffer back to our desired allocation. So in effect it’s a rebalancing decision.

We’re not all really that far about but I like to torment Bogleheads. And I knew any criticism of Bonds had a high probability of bringing @Il Falco out of hiding.

But seriously @Il Falco given you’re more well read than me when did Bonds make a substantial shift from being seen as a source of income (interest) and known return of capital at end of term to becoming primarily used as a volatility dampener?

 

Good stuff @Nodrog ....i think we should focus on what unites us rather than divides us

Well yeah, its hard to sell fixed interest yield (quality bonds that is) at record low interest rates

I cant really comment on how bonds are being used or what role people assume they have but it is clear they provide both regular income and *should* show negative correlation with stocks providing readily deployable capital when buying opportunities present, capital to draw on to meet expenses when dividend cuts occur or when timing is inopportune to sell stock holdings....a similar role to cash in a portfolio.

I guess its possible to see the inclusion of listed bonds in a portfolio, say 20% of total assets as a very different thing to someone who is 100% stocks in listed portfolio but holds a multi year cash buffer outside of their portfolio and grows this over time. To me it is very similar, largely a matter of perception. Bonds are held for the same purpose as that cash, but have different characteristics depending on their quality that may be either advantageous or otherwise in comparison to cash depending on the circumstances.

I'd like to be clear that what i am talking about is high quality govt/semi govt bonds....not corporates or junk which personally I have no interest in.

 

Good to see @Il Falco back in the fold! I thought of him today as I purchased a few CCL.

 

Hi thefalcon,

Why would you choose to use VGS unhedged compared to the hedged etf?

Just curious

 

Enjoy

Does Market Timing Work?

 

A subject I think about at lot, I’ll be having to deploy large sums in coming years across markets and currencies and I’m leaning towards splitting entry across lump sum and DCA. The DCA part is ultimately downside risk management / regret avoidance !

 

Term Deposit Alternative - IPO Wealth Term Investments

60 Month term deposit at 6.45%. Would that not be a viable option of a retiree with the capital required to generate a sufficient income? $1m = $60k income.

Also I have just setup a trading account under a trust with SelfWealth.com.au

$9.90 flat fee. For people trading large amounts the savings are in the hundreds of dollars per trade. The platform and features are good also

 

Yes I am I’m the same boat. I just can’t commit to making one large investment and hem he market crashing next month, even though I know it will recover and the market always trends up. Just the psychological aspect of losing 50% capital of a one of large sum compared to DCA is to much to bare. I want to be in a position of financial independence within ten years and losing 50% capital would definitely ensure that was not the case. If I had the capital to invest this time 8 years ago I would be more than FI . So I can’t see the next 8 years returning the same as the past 8 years, which makes me think I need to adjust accordingly and Either DCA or look for under value markets so I can get an annual return of 7-9% to hit FI in ten years. I can’t see the US and AUS market doing this for me.

 

Hi John forgive me for not doing the research myself, but is this a real bank?
Thank you

 

Ok I am reading the fine print now

 

I have not done the research into myself either. But from what I could gather they are an investment firm based in Melbourne from memory. I came across them a few months ago.

 

Ok here is their disclaimer

Disclaimers

An investment in the IPO Wealth Fund (Fund) is not a bank deposit or liability of the issuer and is subject to a greater risk of loss of capital than a cash investment product. *Target returns only. Returns are not guaranteed and there is a risk of negative returns. The contents of this document are not intended as financial product advice and have been prepared without taking into account your investment objectives, financial circumstances or particular needs. You should read the Information Memorandum (IM) for the Fund in full to consider whether an investment is appropriate for you. The IM for the Fund is available at www.vascofm.com.


IPO Wealth Pty Ltd ACN 617 039 255 (IPO Wealth) is investment manager of the IPO Wealth Fund (Fund). IPO Wealth is authorised by D H Flinders Pty Ltd ABN 16 141 601 596 AFSL 353001 (D H Flinders) as a corporate authorised representative (No. 001253092) to provide investment management services in respect of the Fund and in no other capacity. Vasco Investment Managers Limited ACN 138 715 009 AFSL 344486 (Vasco) is trustee of the Fund and the issuer of the Fund’s Information Memorandum (IM).


IPO Wealth only provides its services in respect of the Fund to wholesale clients, as defined in s761G of the Corporations Act.


Neither IPO Wealth, D H Flinders, Vasco or any other party guarantees any income or capital return of the Fund. We strongly recommend that you seek your own professional financial and legal advice prior to any investment decisions.




Copyright © 2017 IPO Wealth Pty Ltd. All Rights Reserved.

†

Not a bank and no guarantees

 

As the saying goes “If it sounds to good to be true, it probably is”

 

I take a simple view. I separate assets into risk and risk free. It’s critical one understands the difference between the two. Too many investors misunderstand the true meaning of “risk free” in the hunt for yield!

Typically risk free assets come with a Gov’t guarantee.

 

100% , take risk on equity side, not fixed interest