“Build a portfolio that returns 7-8% p.a”

Hi People

“Build a share portfolio that return 7-8%” this is often what blogposts and people on youtube talk about. What exactly does that entail though?

Does it mean you can select a few companies on the ASX that individually return 3-5% or around that and those companies cumulatively should return 7-8% + p.a.???

Obviously these could be ETFs as well but I’m specifically sticking to whats available kn the ASX.

Thanks!!!

 

It usually means the total return ( dividend + capital growth) over the long term would be at this range.

there are a number of ways:
Direct shares: selecting individual stocks
Index funds /LICs/EFTs

 

e.g. i was just think about investing in a bank or two, BHP and a few others which would altogether return 8% and just consistently buying into those companies.

would this be worthwhile in terms of creating a portfolio to retire on in 30-40 years.

 

I am not qualified to advise. Some people follow the direct shares path, others follow a passive approach. There are multiple threads on this topic here you can read and then form your own opinion on what’s best for you.
Shares & Funds

 

This thread has some great discussions of strategies.

Starting my share journey

 

thankyou, will have a look

 

Here's an example comparing the growth of $10,000 invested in major asset classes over the last 20 odd years @twix11 (January 2000 to the end of May 2021)

 

I should add - the following are worth a read. A Dividend Aristocrat is simply a company the consistently grows dividends over time.

Ideally the rate of growth of dividends should outpace inflation since that will mean that passive dividend income will outpace inflation.

The second article below recommends reading the first article first, hence I have provided them in this order.

A Fully Franked Australian Dividend Aristocrat Analysis

Australian Dividend Aristocrats on the ASX | Capitalistic Man

I also suggest that you do some goal setting. Rather than saying I just want to invest $X in investments A, B and C - come up with a plan for what you will start with and how often you will increase the amount of capital invested. Play around with this compound interest calculator. You will soon see how dramatically a regular top-up can affect the outcome.

Free Compound Interest Calculator | Noel Whittaker

 

Someone asks a simple question and then things get

 

FYI, if you buy two companies that each return 3%pa. Your total return is not 6%, it’s 3%. In case that is a but of confusion.

 

Hi Ryan

this is actually what i was talking about. Why is it only 3%? Not 6%

 

Because maths.

 

Assuming a 50/50 split between the two holdings

50% x 3% + 50% x 3% = 1.5% + 1.5% = 3%

 

Tyvm this makes sense

 

The recommendation is based on diversification. Historically the entire sharemarket has returned 7-8% over the long term

Some companies will return way more than 7%. More will return way less. I can't recall the exact figures, but it is something like 10% of companies are responsible for 90% of growth.

So if you pick 'a few' companies you are betting you have picked the right ones. Vast amounts of research show that even the cleverest professional fund managers (over the long term) fail this test.

Thus the recommendation is to not try and pick winners, but invest in the market as whole via indexed ETFs, LICs or managed funds.

Some stock pickers get lucky. Most don't.

If I wanted to base my financial future on luck I'd haunt casinos.

I wish I'd listened to folk here and elsewhere and just chucked everything into VDHG (or equivalent) from the start. Instead I tried to be clever. I didn't lose money because I still chose diversified funds. But I was lucky and still didn't earn any more than I would have with plonking the lot into VDHG and ignoring it.

 

Really good article link about Aristocrat Analysis. Thank you. It would be good to get revised one on similar theme to see how many of those business continued paying dividend through Covid and can certainly considered as better stock to invest... IMO.

WHF is in there but AFI and ARG is missing in the list which makes me wonder why people invest in LIC... !

 

Great post @twix11.

I am also interested in passive approach to share investing.

So far I have parked money in VDHG.

@The Falcon

any other suggestions for long term share investing. US and ASX based.

 

Why is that? What has happened in the next 20 years which makes you think that?

Why is that? What has happened in the next 20 years which makes you think that?

 

Yield is a function of share price and earnings. For example take 2 insurance companies QBE and AUB 10 years ago both $10, both had dividend yields of 4.5%. QBE has had volatile but falling earnings, AUB has had steadily rising earnings, both have a yield of about 2% now. But AUB is a much more rewarding company as it gives a yield of 8% on purchase price while QBE Is less than 2%. AUB may well continue to yield less than QBE while making multiples more than QBE, QBE underwrites it doesnt know if what it is earning now will cost them money in five years. AUB just takes commisions, is growing acquiring new companies, just acquired a fintech, as premium rises organically makes more money. The capital growth of AUB is way more than QBE pays in dividends. There is an inverse relationship between yield and earnings, as earnings push up price, prices will follow earnings reducing current yield.