Conservative portfolios

Been through these same thought processes a number of times.

The most attractive attribute is the potential for different correlations between these and other asset classes. In normal times this might be useful in smoothing total returns / drawing down capital etc but in the worst of times when you need it most these correlation advantages generally disappear. And there can be nasty surprises when investing in individual sectors / asset classes as in Property Trusts during GFC where here the index fell 90%. Hence if an investor is reliant on drawing down capital across all market conditions to fund retirement then for more reliable correlation it really comes back to the age old equities vs bonds. In our case being fortunate to be able to live off yield alone the whole correlation / capital smoothing thing is irrelevant and definitely not worth the higher fees for the likes of property / infrastructure or even yield for that matter.

I decided to keep it simple given the main indexes already contain market weighting of property / infrastructure. Overweighting these sectors is relatively expensive fee wise especially globally so is any potential correlation / yield advantage going to outweigh higher fees. The theory behind indexing suggests likely not. Property in particular is well represented (around 8%) in ASX already unlike Globally where it’s around 3%. Many companies across other sectors will also have some ownership of property as part of their operations. So there’s indirect exposure there.

Others here no doubt will be able to put forward contrary views to mine so then it really comes back to the individual weighing same including the pros/ cons then making up their own mind. Such is the nature of investing.

 

Been reading "All About Asset Allocation" recently and the author recommends holding multiple different asset classes with lower correlation for the purpose of risk reduction and increase of total return through rebalancing (In fact he thinks up to 12 asset classes is OK! Makes me think of Paul Merriman), pushing the curve of the efficient frontier closer to the utopian north west corner. DJRE and IFRA that @The Falcon has makes sense for this purpose, and VVLU from @dunno . I find it interesting with so many different views about asset allocation and it all hammers home what you and @SatayKing often cites "it's all about me!".

Also about the topic of rebalancing, Ric Ferri recommends annually in his book but Bernstein recommends it to be done every 3-5 years due to the tendency of asset class returns to have "momentum". However, for most young Aussie FIRE accumulators it makes more sense to just rebalance with inflows to avoid a hefty tax bill. Although this will become harder and harder once your asset base grows to a point where your monthly inflows will not rebalance your portfolio completely. Then comes a point of more decisions.

Investing is really a fascinating topic.

 

You have wisely (imo) chosen government and not corporate bonds @Redwing. Also have bought or at least quoted a period of high capital return - this is unusual. The dividend however is still at 2.11% typically low. Each to their own and as you say, if you can time the market and pick the period of capital growth bonds will have their time in the sun.

 

Yeah, the fella is a selfish fiend. I'm nothing of the sort. From an investing perspective I'm as generous as the day is long. My day starts at Sundown.

 

I have this book by Ferri. If you follow Bogleheads forum you will find that Rick’s views have changed since writing that book. With age and experience he’s “personally” now much more of the view simpler is better and is a strong advocate of the simple three fund portfolio. Investors of course will demand all sorts of wants so advisors do what’s necessary to keep them happy and “generate business”. But personally from what I understand he’s much more of a fan of less is better nowadays where the addition of niche asset classes is of less importance and often detrimental not just financially but behaviourally.

This recent post from Rick Ferri might be of interest:

His new venture is Core-4 somewhat along the lines of his book and there’s other portfolios to make it look like there’s something worth paying for ie a three fund portfolio lacks excitement from a marketing perspective:

Portfolios - Core-4

Actually the most powerful thing ever written by Rick Ferri which encompasses his view nowadays and likely describes the evolution of many investors as knowledge and wisdom is gained is the following:

The first prize on this forum for being a long term adherent of simple passive index investing and a great poster who deserves far more credit is @Redwing. Verbal diarrhoea and quantity of posts as in my case might suggest some skill but are often of less value than posts from less frequent but exceptional other posters here.

PS: be wary of older material by authors whether in books, Internet or even here for that matter. Views can change over time as one continues to learn and evolve.

 

I suppose it depends on one’s level of wealth, circumstances and approach. Bonds due to their correlation can work well with equities to smooth volatility if reliant on drawing down capital to fund retirement. History suggests that although the correlation between equities and bonds works most of the time it’s not guaranteed. Then again I suppose nothing is.

I’m more a believer in and have the risk tolerance for higher equity exposure and can live off yield alone so I’m comfortable with cash holdings to supplement any shortfall in an extreme event. Cash (direct Gov’t Bonds too hard) is also a known quantity if we ever need it and unlike Bond “Funds” there are no surprises.

No right or wrong as usual just depends on circumstances and preference. Bonds or more importantly I should stress Bond “Funds” are just not my thing.

 

Thanks @Nodrog, one of the reasons I love this site! Still learning as always.

 

I guess I was trying to say if anyone was going to buy bonds or bond funds imo I prefer government bonds to corporate bonds in uncertain times. Corporate bonds can loose value very quickly in a market correction. Bonds only increase in capital value in uncertain times. My personal preference is still cash/TD but that doesn't make me right.

 

Thanks @Nodrog

I jut realized a long time ago that I'm crap at picking shares or timing the market, the pinnacle of my stock picking success is a speculative share in which my timing skills are unparalleled if you happen to turn the chart upside down, I challenge anyone else on the forum to pick the exact bottom (top) and when to inject funds

Let me also recount my Navra Fund days (though thank god no Grape Vine Investments) and a quick exit when it looked like they were afraid to re-enter the market

I've had wins and losses stock picking over the years, wins blur the distinction between "skill" and "luck", I have to say I'm now happy with my dispassionate view of stock market movements, which coincidentally seem to align with long term LIC investors, I've also learnt a lot from valued posters on this forum, whilst it's a property forum overall it's a more 'balanced' approach, you don't seem to get the pump and dump and of share market forums..There's a long list of SS and PC members I can thank for this

Over the past decade, I've made significant profits by dispassionately re-balancing my portfolio, it would seem that if you stick to a disciplined allocation between stocks and bonds you can do well in a volatile market.

As Rick Ferri says...

Par is a term used to indicate the number of strokes that an excellent golfer would take to complete 18 holes. Golf is a tough game, and shooting par is extremely difficult. Most golfers never reach this level. Probably less than 1 percent of all golf enthusiasts ever shot par.

In contrast, index funds shoot par every day. They deliver consistent market returns, year after year.

That’s significantly better performance than most actively-managed mutual funds that are trying beat the market and shoot worse than par.

Only a handful of managers outperform index funds after fees and risk adjustments, and, like every golfer knows, no one can tell you beforehand who is going to win and who will end up in the rough.