Can i do this?

Discussion in 'Investment Strategy' started by Cherrybomb, 6th Aug, 2019.

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  1. Hodor

    Hodor Well-Known Member

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    Perhaps it should be pointed out that the 4% rule is popular amongst FIRE enthusiasts/Bogleheads.
    A type Australian version of the portfolio is a mix of
    VAS - Australian market
    VGS - world developed
    VGB - Australian government bonds

    Probably won't achieve the yield you want. However selling off some each year to live off is a perfectly valid strategy and what Americans using the 4% commonly do and their portfolios often grow.
     
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  2. Hodor

    Hodor Well-Known Member

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    There is no definitive answer to the questions you are asking, you need to find what you are comfortable with. Your capital is around the required amount for what you say you need, you just have to accept that with any plan there is some risk that you have to be able to accept.
     
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  3. Cherrybomb

    Cherrybomb Member

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    Really?? My understanding is that 4% is conservative.
     
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  4. twisted strategies

    twisted strategies Well-Known Member

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    converting US share wisdom to Australian share wisdom , is not as simple as it seems

    Australian companies often like to pay regular dividends ( a quirk i like VERY much ) while US companies like to push the share price up ( often via share buy-backs ) meaning you crystalize capital gains ( and in Australia incur Capital Gains Tax ) for income .

    Australian companies often pay franking credits ( tax pre-paid by the company for you )

    arguably ( but by no means guaranteed ) you could live solely off the share dividends ( and franking credits ) provided you timed your buying reasonably well , and selected good quality shares ( which DOESN"T automatically mean the 20 biggest listed companies at the time you buy them )

    if your share portfolio pays 4% in dividends ( most of the time ) you might not need to sell any of your shares ( which is what i hope to do )

    HOWEVER if you do need to sell something .. a little education will be a big help ( on choosing what to slim down and when )
     
  5. twisted strategies

    twisted strategies Well-Known Member

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    *** Really?? My understanding is that 4% is conservative ***

    in the past YES !!

    but interest rates are heading toqards zero ( or even negative ) things might be very different this time ( and not in a nice way )

    if you follow a conventional allocation system of 40% in bonds now paying 3% ( or less ) those stocks are going to have to do some extra work , a share market crash is called that because share prices PLUMMET and some companies will fail completely ( a total capital loss there )

    so suddenly 4% of your portfolio can be thousands of dollars not tens of thousands of dollars , crashes of more than 40% are annoyingly common ( more than once every 20 years )

    History of the ASX
     
  6. twisted strategies

    twisted strategies Well-Known Member

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  7. Hodor

    Hodor Well-Known Member

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    Well it depends on your definition of conservative. Cash and bonds are generally considered the safest options and conservative. A conservative portfolio would be around 70% these types of assets with 30% stocks per financial planner type definitions. Long term inflation and draw downs may erode your capital.

    To get 4% + inflation you are going to likely need stocks at a higher level. With index funds you will be riding out market crashes/large drops in value and the returns make up for the risk/volatility long term. With individual stocks you can easily have companies go bust with 100% loss, it's a different game.

    Your risk is a 50% crash both in dividends and values in the first 5 to 10 years and you need to draw on the capital when the market is at a low. A good buffer or other plan should see you through this period until things recover.

    This will take discipline as the media etc will be saying it's different this time and you will lose everything if you don't sell your stocks, if you do this as the majority do, you miss the recovery.

    Easy to say you won't, difficult when you're in the hot seat with all your assets on the line.
     
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  8. twisted strategies

    twisted strategies Well-Known Member

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    *** Easy to say you won't, difficult when you're in the hot seat with all your assets on the line. ***

    +1

    also if you are novice ( still struggling to get an education ) during a big downturn ( as i was in 2011 ) it is very hard to make wise choices you don't know when a business is ACTUALLY cheap ( not just a 60% drop in share price ) and what is actually a good business ( not just a market darling )

    it is very likely you will be overwhelmed with choices ( and some will be better than others )
     

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