Building a Share Portfolio for Income

I like ALF (though it's trading quite a bit above NTA at the moment)

It's important to point out however, that it's investment strategy is long / short - a hedged structure of buying one company's stock and shorting another, usually involving pair trades, hoping to profit from one company out performing another. It's return comes entirely from it's stock selection, and generally doesn't just "go long" and benefit from the general stock market returns.

Only recently has it included some international exposure - and it's not a high level at this time. And it's once again involving long / short exposure, which is very different from broad "international exposure".

Just posting this to point out this strategy is very different from most LICs and completely different from ETFs. I think it's important for people to fully understand these nuances when investing.

Oh and I believe it's returns have been a bit more than reasonable historically! Can't speak for the future of course, but it seems like a good strategy. Key person risk might be something to be aware of.

Disclosure - i own WMK, which is run by the same people.

 

Great post sash and some really good replies coming through.
Bran l used to do the same with ip investing. Each strategy l would read l would think oh great and try to do the same, hence l ended up jumping all over the joint and not having a proper plan. Which inevitably leads to failure.
In the early 2000 l purchased managed funds which l thought was the smart way to invest. ( they knew better than l )Not so as l ended up loosing over $100k
So l decided to try and build myself an income producing portfolio, slow and steady. I really welcome comments on what l am doing, right or wrong.
Each year depending on projected income and commitments l asses my available funds. At this stage l am working on $80 to $100 k per year.
I have several Loc available so l use 1 of these accounts to purchase Australian dividend yielding shares. I may not purchase my entire allocated amount at once, depending on what l like and how the market is looking. I try not to always wait for the lowest point as l may be always waiting. Once l have made a purchase l also start making repayments to the Loc. l set myself a goal to repay the entire amount before the years end then l start all over again. Once the loc is all paid l then relax a bit and enjoy a bit of extra cash in hand.
If l can maintain the repayments on 80 to 100 k per year then in 10 years l will have a million dollar income producing portfolio fully paid for. I also reinvest the dividends which also grows the portfolio.
I do it this way so l am not leaving myself open to margin calls, if some unknown emergency pops up l can just put a hold on my buying but keep paying down my small loan. I feel as though l have good control dealing with unforeseen events . I have been left holding the ball too often when the market tanks,interest rates rise hard and fast.
I know this may not be the most tax affective for some but it's ok for me. I get to claim the interest on the loc.
It's just a nice and steady and safe way for me to invest in the share market.
Cheers
Offshore

 

Hi sash,

Welcome back. I just heard a podcast on Planet Money NPR, title #688 Brilliant vs Boring. About Warrent Buffet who made a bet 9 years ago, for $1M, that he could beat the high cost hedge funds. Buffet placed his bet on low cost index fund. The bet finishes next year, and Buffet is way ahead and looking to win this bet. I will start to look at index funds, once we get one more IP this year.

Cheers.

 

Marg[/QUOTE]

At a brief look, the composition looks ok - but how does one reconcile the results?? Are they simply referring to a dividend yield? We can forgive a poor 3 year performance with current markets, but the 10 year and since inception are dismal. How do we interpret these results and feel comfortable with such a product?

 

GFC. 10 years will be 05-15.

A Boglehead would just suck it up....after all, the fund is made from index holdings in line with Vanguards high growth portfolio model. VAS + VGS and some bonds over the same period would yield a very similar TSR.

 

Would something like this product suit Sash' strategy?

 

Different strategies. If borrowing in AUD I'd be sticking to AUD denominated stocks. And I wouldn't be using leverage for bonds/cash/reits that that product contains.

That product is more suited to long term, set and forget, auto bpay monthly type deal.

Edit; come to think of it, that or the growth option is very much a mr money mustache fan type product.

 

For the set and forget, or slightly less requiring buy-in type portfolios, how does one continue to contribute on a regular basis? Designate a proportion of funds for each of the components each purchase? Alternate/take turns? I imagine trying to pick the best value of the lot for the current purchase makes it challenging again

 

@sash - I'm diving into the vanguard suggestions on their mix of portfolios for income v growth and the allocations. Might be worth a look

 

I like it by market cap approach as it weight s to the larger companies. But yeah I get what you are saying.

 

Yes...know all about margin call..got called in the GFC...20% of stock but key 80%...was Westpac bought in the early 20s.

 

Send me the link...lot of reading....ta

OK will check it out...thanks for tips guys

 

Don't forget to incorporate shares into the debt recycling strategy. Pay down the non deductible debt and reborrow to buy shares - instead of just buying shares with cash.

 

Thanks. Agree about your assessment on miner...too volatile and don't like them much. If they were severely discounted further it would look in.

Agree about industrials. Sniffing around ANZ if it goes below 23.80 would consider it as that the low point in the last year or so.

 

This strategy I like...I am doing this as we speak. I like it as you are buying on value.

I plan to use dividends to pay down the margin loans but have money to cover a call if it eventuates. On the balance of probabilities...the probabilities does not favour another 20% drop but no one can be sure...so will have cash to cover the eventuality.

I am building this portfolio in a company structure. There is a method to this madness as it allows me to distribute dividends to people and given most are franked the 30% tax already paid will all have some tax advantage.

Looking at Vanguard. Will be interesting to see if they drop ex dividend.

 

If you are referring to the ETF, then yes, it will drop (plus / minus the changes in the index on the day). It isn't a possibility like with an LIC or a stock, it's a given. Vanguard acts as a market maker for your trades, and just like with a managed fund, the ex div price will be lower by exactly the dividend amount.

A vanguard ETF is simply a passively managed fund (index fund) which trades on the ASX, and is always at NTA.

 

Market Makers provide an important role in ensuring that buyers and sellers of ETPs can transact. They provide liquidity to the market by providing quotes through the trading day and update their prices to reflect changes in the underlying securities.

 

This exists in their lifecycle funds?

 

Checking it out! I think I'd rather concoct my own mixture, but might do the high risk I mean growth portfolio in my wifes name and dribble cash into it.

 

Added these in just for further discussion and to look at the shares initially mentioned, the ASX 200 (STreetracks) and then adding in Vanguards US and World (Ex US) funds.

1 year
2 year
5 year
5 year with VTS & VEU

If you were Re-balancing, Dollar Cost Averaging or Value Cost Averaging as you went along over the years it would also make a difference