Building a Share Portfolio for Income

Discussion in 'Share Investing Strategies, Theories & Education' started by sash, 28th Mar, 2016.

Join Australia's most dynamic and respected property investment community
  1. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,604
    Location:
    Sydney
    Hi All

    On the back of the link below shared by @Tim & Chrissy

    Retired in their early 30's and now travelling the world

    I too am in the process of building a share based portfolio with a reliable income stream. The primary reason is that whilst property income is brilliant...the income will vary from month to month...mine varies from 6k to 15k positive pm depending expenses. I feel that dividend income is more stable albeit dividends at times will also go down. In the longer term I would like to get say 120k net income based on 60k coming for a share portfolio and the remaining amounts coming from a property. I feel this is easily achievable for me as I could do this if I sold down 30% of my property portfolio but don't want to. Super will also come into play but that has a 10 year time frame..again this should give me another 45-60k. I also note that franking credits and depreciation will also assist with minimising tax but not entirely and assuming the govt does not make significant changes in the future.

    At this point I have about 110k worth of stock mostly:

    1. 4000 Telstra shares bought at $4.15
    2. 1000 Woolworths shares bought at $22.16
    3. 2000 Westpac shares bought at $23.35 some years ago

    My strategy is quite simple:

    1. Build up to a $1m portfolio outside of Super (also planning on $1m in super by 60)
    2. Use Warren Buffets philishophy of only buying stocks with solid track records and needed by consumers. Thus why the above stocks were bought...I also want to concentrate on the top 20 initially to reduce risk
    3. I plan to leverage via a margin loan...already have a facility with a $1m limit and have drawn down about 58k.
    4. I want use the current market correction to build the portfolio and see if grow over the next few years. I figure if I chucked another 100k in...I should be able to comfortable leverage another 250-300k...thus bringing the portfolio value to 500k
    5. I want reasonable dividends as this will be used to pay off the margin loan currently at 6.85%. The average divident is in the order of 6% so on 500k it will bring in 30k. Assuming 350k in borrowings....I will be paying about 24k in interest...but will pay off 6k in capital a year or about 2.2% of debt
    6. I am also focusing on buying the shares at near the bottom of the share price over the last 1 year. I figure if I do this...the chances of a significant drop is quite remote.

    The shares I am now looking at closely are:

    1. ANZ
    2. SunCorp
    3. QBE
    4. NAB
    5. Bank of Queensland
    6. Origin Energy
    7. Westfarmers

    Would love to hear peoples thoughts on my strategy. My plan is to have this up and going and paying say 30-40k in income in the next 3-4 years.
     
  2. KDP

    KDP Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    475
    Location:
    Melbourne
    Solid strategy @sash. I'd also look at the etf and LICs as well for diversification.

    Solid plan but your gearing is pretty aggressive, guess you have the income to back that up but 300k margin for a 500k portfolio doesn't leave much room for downward movement.
     
  3. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,604
    Location:
    Sydney
    Thanks mate. Yeah agree....about the aggressive ..do you think 60% gearing is too high a gearing given where the market is at. Another wards...do you think the probability of the market tanking 20% is high.

    Hang one...yes get what you mean..if it drops from 400k to 500k...that would me at 75% LVR. They call the margin once it get part 80%.

    What exactly are ETFs and LICS? New to this...all I know is about specific shares. I also was thinking about writing naked puts with a view to buying the individual shares if they are called.
     
  4. Steven Ryan

    Steven Ryan Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,656
    Just curious, any reason for ASX only e.g. avoid currency risk, know local market better etc?
     
  5. Skilled_Migrant

    Skilled_Migrant Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    796
    Location:
    Melbourne
    Margin will be called only if you borrow against the shares. You can still have the same LVRs but borrow against property.
    IMHO too much exposure to banks (and therefore indirectly to property) and then there is uncertainty of APRA
     
    Terry_w likes this.
  6. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,604
    Location:
    Sydney
    Both of what you said and keep is KIS (Keep It Simple)
    Yes..I am borrowing against shares...I feel that on some stocks the market has dropped it has dropped already 50%...could it do it again possibly...but that would be also affect the economy. Have avoided the more volatile shares...only want stuff critical essential needs of Aussies - i.e. Banks, Retailers, Telstra, Origin Energy etc. Holding for longer term and most interested in income to pay off the margin loan.
     
  7. KDP

    KDP Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    475
    Location:
    Melbourne
    Gearing level is whatever you're comfortable with. 60% LVR to me is pretty high though, it doesn't take much for you to get called. As others have said though, if using property equity then it's a different story.

    Have a read at the other threads on the forum. Posters like the Falcon and austini have explained LICs and ETFs much better than I can. In short they give you diversification at a low cost.

    ETFs are exchange traded funds which generally tracks an index so gives you diversification without the need for you to buy every single stock in that index. The most common ones for Australian and probably most relevant for yourself are VAS which follows the ASX 200 and VHY which focuses a bit more on yield.

    LICs are listed investment companies. Established LICs on the ASX are MLT, AFI and ARG. The management fees for these LICs are very low and the managers have a good track record of performance over many years.
     
  8. The Falcon

    The Falcon Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,423
    Location:
    AU
    60% LVR callable debt for long term investing = use extreme caution.
     
  9. The Falcon

    The Falcon Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,423
    Location:
    AU
    And that margin rate sucks. A real joke for a $1m facility.The interest will kill it. Search around, below 5% is available for that size.
     
  10. Kate Moloney

    Kate Moloney Well-Known Member

    Joined:
    10th Dec, 2015
    Posts:
    443
    Location:
    Australia
    Good on you. Do you have a strategy for how much you put into each stock?
     
  11. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,604
    Location:
    Sydney
    The drawn down amount is only 58k at the moment with leverage @ 6.85%

    Who else offers lower....will review the 60% LVR...what would be the ideal one in your opinion.

    Any ideas LICs and ETFs ..which ones. Are ready materials on getting an understanding on these?

     
  12. Blacky

    Blacky Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    2,066
    Location:
    Bali
    Falcon
    I would be interested to know more on this. I have recently been looking and the best I could find was about the 7% for borrowing in trust with pty ltd trustee.
    Smaller facility than $1mil though.

    I could get closer to home loan rates for loans up to $500k in individual borrower names. But nothing close for trusts/company.

    Blacky
     
  13. Kate Moloney

    Kate Moloney Well-Known Member

    Joined:
    10th Dec, 2015
    Posts:
    443
    Location:
    Australia
    Do you do technical analysis or fundamentals or both?

    Remember learning about candle stick charts a few years ago, was fun to learn about it and really helps give a perspective on trends.
     
  14. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,604
    Location:
    Sydney
    Kind of figuring this out as I go along. Thus why I want to be reasonably conservative. But if I had $1m invested in the market...I would not want more than 7% in any one stock and if it was that high I would have to be on the ASX top 10...and not volatile stocks like mining ones.
     
    Kate Moloney likes this.
  15. Blacky

    Blacky Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    2,066
    Location:
    Bali
    @sash - I have been looking at the Vanguard ETF's. I don't know a lot about this kind of stuff, but like what I see with these.

    VAS, VHY, VGS, VTS, VTI to name a few. Exposures to different markets.

    Mayby have a look at some of these. Like I say, I don't know much, so do your own DD.

    Blacky
     
    Perthguy and Terry_w like this.
  16. Xenia

    Xenia Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    3,863
    Great plan Sash
    you can certainly teach me a thing or two about shares.
     
  17. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,604
    Location:
    Sydney
    Keeping it really simple...I bought Telstra and Woolworths because they were near the 1 year lows. Since then ...they have bounced back...to $4.25 and $22.45. Just need to keep fine tuning and taking quality stocks when they drop a lot.
     
    Hidare and Kate Moloney like this.
  18. Kate Moloney

    Kate Moloney Well-Known Member

    Joined:
    10th Dec, 2015
    Posts:
    443
    Location:
    Australia
    Yeah good idea. How come your not so diversified now then? Is it just because you are starting out.

    Have heard about index funds which track ASX200 etc and can be lower cost than EFTs and with index fund you get exposure to the biggest companies. Good time to buy when the share market is trading below the mean.
     
  19. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,604
    Location:
    Sydney
    Thanks Blacky will have a look. Appreciate the heads up and will do my own DD. :)

    Cheers

    Thanks Xenia...just a beginner at the moment....but getting my head around things whilst the market is low. I think there is a great counter cyclical play here.....
     
    Xenia likes this.
  20. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,673
    Location:
    Perth WA + Buderim Qld
    upload_2016-3-28_14-14-30.png
    upload_2016-3-28_14-15-17.png

    It's a bit early to buy banks for me - more losses to come I believe.
     
    Kate Moloney likes this.

Buy Property Interstate WITHOUT Dropping $15k On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia