DIY shares, Active & Passive funds, ETFS - COVID19 crossroads

How did you go with finding a financial adviser, @Sick_of_scams? There will be some really tough times in the short to medium term and more than ever, it's very important to surround yourself with great people who can provide you with quality advice.

 

Thanks RiMo. Kind of you to ask. I sent message to a couple and no luck probably due to everything being shutdown. I've been sitting on a portfolio that rebounded a bit but is heading south now and seeing tonight's DOW & S&P 500, out ASX Futures show the ASX is going to get hit bad this morning.
The DIY platform I signed up with, they have advisers relating to stock management but a lot of it all falls on you to decide and I still cannot work out prudent exit strategies, when to keep holding, whether the buy/hold the long term is wise. The mantra is to feed money in as the shares fall and skim profits if they get to something like 50% up. I have none that high and half in the red already. A few down days like this and I will be totally in the red again.

Not that I have been able to find anyone to help me, but I sometimes wish I just had something like an ETF or 2 that would never fail and live off dividends. Something stress free and simple and then I could get on with doing other stuff in life like learn a language, meditate, go to a temple, anything. Not stcuk in front of a screen all day and night watching markets and trying to work out how to save my money

 

No mention of superannuation but depending on your age an industry balanced fund in pension mode does a lot of the heavy lifting. But a financial advisor as recommended sounds like the go, good luck.

 

That was a big material loss. I truly hope you have regained that back either through capital and/or knowledge. Really sorry about that.
Yes, definitely I would not personally touch options with a ten foot pole. I am not a professional trader with play money. I am forced medical retirement with a set amount. The only reason I mentioned options was because another old friend of mine I saw a year ago told me he was using a broker who he must have authorised to do trades on his behalf, would call him and let him know that he had just made $XYZ on various option trades. It seems it is only for wealthy investors though, which I am not.

yes not a great "option" for me.

 

Thanks. I had no Superannuation (I cashed it all out stupidly when I panicked over not having enough money to live off with just my Workers Comp lump sum). But I have restarted a new Super with Host Plus last year. I put in the maximum allowable $25,000 (which I hope to do yearly). I use that as well to claim against to reduce my income tax liability. So, it will not be anywhere enough to use in retirement and is mainly being used as a tax tool to write off income tax liability.

Oh, and BTW I am 51 years old. I was medically retired with Total Permanent Disability, so 9 years off being able to draw from the Super anyway if needed.

 

Totally agree with everything you say. Wise advice. I would much rather have been fit and able to keep working and focusing on that instead of having to money manage a lump sum so it does not fall below that dreaded 'base line' of expenditure/loss which is the point of no return and will deplete way before the average age lifespan of my eventual death. A wage and a Super/investment regular contribution means that if you stumble, there is still a salary coming in regardless.
I was just a police officer who was good at my job locking up the bad guys, but had absolutely no idea about finance. And suddenly being handed a lump sum, losing my job and told, "there you go, go and invest that and live off it". Like it was a walk in the park. LOL. NOT.

I saw an interesting YouTube video of a timeline of the S&P500 with all the crashes and if you erased the dips and just drew a line from last peak to the next, you see that over time, the index just keeps going up and up. Put some things in perspective. And very few can beat the performance of these main INDEXes. Thanks Y-man

 

You say you sold during the Covid slump at a capital loss. So you presumably still have the cash from that.

The worst thing you can do is sit on that cash until the market reaches some pre-determined high.

If you bought straight back in, you be buying at similar prices to what you sold at. There may even be a tax benefit (Google tax loss harvesting).

I also sold during the sell-off, but put it straight back in to re-allocate so my net position was the same, but with a big chunk of capital losses to offset the big chunks of capital gain I am due to pay tax on.

Personally, I would simply buy back in now, either at the basic VAS/VGS level or something trickier.

Or if you are the nervy type, Dollar Coat Average back in. There is a reasonable chance the markets will go lower than where they were when you sold, so you may actually come out ahead short term.

Don't despair.

 

An interesting thought. Knowing what you need is important, yet you need to acknowledge that the market gives what it gives and not what you need. Selecting an appropriate strategy for your risk profile and then seeing how it aligns with your needs and adjusting either your lifestyle or getting a bigger stash is more appropriate than adjusting strategy because you don't have enough without taking on additional risk which is flawed (IMO)

Yet what happened? These crazy markets never do what they are meant to

Never too late, you can start with small amounts and see if this is more palatable for you. There might be a few more lessons to learn before you can stomach all the cons of any strategy from what I can see. No offense intended, when things get hard don't give up.

 

I was referred to a company called 'Share Wealth Systems' owned by Gary Stone who is well known apparently. He has a couple of 'systems' that from his disclosed performance data reveal that he outperforms the main indexes both in the US and Australia.
The system from what i have read so far and from the graphs and the book, is that they have strict entry and exits, focus on a combo of a core ETF and a choice selection of around 10 stocks only. He shows how he has managed to evade the crashes of the past and COVID19 by instructing members to go to cash each time (not all at once, but with individual stock notifications). It seems to be very reliant on TA.
On face value it seems to be ideal. But my concern is that like anything, it comes down to picking the right stocks. A combo of certain stocks will not do as well as others. But he disasgrees with the buy/hold philosophy of fund mamagers and mentions reasons why fundies like to tout that method because they do not have the ability to go completely to cash as it would cause too much distortion in the market - when you are talking millions and billions in funds.

Thanks sfdoddsy. When I panic sold, it was 60% of my portfolio. I sat on it paralyzed from the usual shock of a massive loss and then floundering what to do. About 2 weeks later I decided to at least to put that cash into the hands of a managed fund, something I really did not want to do (had a really bad past experience with one in GFC and their high fees), but it is there now. Have had some gains over the recent rebound. Yes, I have a lot of Capital Losses to harvest from if I get back into in positive territory one day. I am near fully invested again. But very nervous in the current environment.
Sounds like you made a really smart move on the Capital loss harvest move as your portfolio had fallen anyway. Silver lining mentality!

 

How have you changed your behaviour so that you dont do the same thing next time the market corrects?

The problem seems to be that you cant handle corrections and panic.

But you are trying to avoid this by looking for some magical share investment or system that doesnt have corrections.

Shouldnt you be looking at either living with term deposit income, or literally removing yourself from decision making?

 

Kind of. I actually considered taking profits when the news of CV19 first broke, thinking it was worse than people were expecting, with the aim of buying back in if my fears were realised.

But as usual I delayed and then when it really started to drop I didn't want to lock in 5% loss, then a 10% one and then a 20% one etc.

Then I remembered I had six figure capital gains to pay from various ill-considered at the time (but which have since proved fortuitous) so I did sell a couple of funds I was either unhappy with or thought had a lesser chance of recovering (high yield funds, global property and small cap funds).

I then bought straight back into more mainstream positions (VDHG/VGS/VGAD). They had also dropped, albeit not by as much, but with the tax savings from tax loss harvesting my effective loss on the sales was reduced by half so it was a wash (although not a 'wash' sale.

The end result is that I have the same overall exposure to the market (but with slightly less potential for gain when it recovers), and have wiped out all the CGT I was expecting to pay.

I'm not doing as well as I would have if I had sold back in early Feb, but better than I would have done if I had just sat put.

That said, no-one knows for certain. High yield and property could come roaring back.

I'm also awfully I had a big chunk of the overall portfolio in Gov bonds and cash. They did what they are supposed to.

 

No offense taken. Appreciate your views.

 

Thanks Trainee.


The managed fund I am now in has removed a portion of my remaining funds away from me being the decision maker. The remainder were holdings that I retained on advice at the time as being defensive/rebound/opportunistic/COVID19 resistant stocks - by the same company that run the managed funds and DIY trading platform.

The recent suggestion by someone who was in this different share trading membership -it isn't magical of course. I have no illusions to that. They claim about 10-12% losses overall in last correction. I haven't signed up to anything and am only considering it, like anything else. But their mechanical system of buy/sell signals would better suit me to park cash in volatility as opposed to the buy/hold system I am in currently. They appear to be more conservative and pro-active in protecting capital.

"Shouldnt you be looking at either living with term deposit income, or literally removing yourself from decision making?"

This is the quandary I am in.
A: Yes. Ideally I would remove myself from deciding for myself on investing.
Problem is that my outgoing expenses are exceeding my income stream from investments. Term Deposits are at record lows with interest returns below inflation and putting my money into that will deplete my income stream further, eroding my capital base further and hence putting me into a downward exponential spiral of capital erosion to the point I will be poor.
I have done all the calculations. A financial adviser did the same years ago and told me in no uncertain terms, "If you do not make more money in investments, you will run out of money by this time". That was a massive wake up call to me that I needed to take on more risk.

I need to stay above the 'line' of spending below my income stream. I already live frugally and stay mostly in 3rd world/developing countries (except for now stuck in Oz in a tiny borrowed room as COVID19 has locked me out from returning) and am a minimalist to save as much as I can. I have no car, no large ticket items, just investments. I own a couple of suitcases, a laptop, a mobile phone and a cheap scooter overseas! Cannot get too much more frugal unless I live on the street almost!

Bottom line is I must invest where returns are higher. The only way I could move to low risk investments like term deposits is if my capital base was way higher. That will never happen unless term deposit interest rates were able to jump up to something like 9-10% returns!

 

It is at least comforting to know that my reaction to what happened during COVID19 March crash and all the other major corrections, is not unique. What we did of course prevented capital protection. And capital gains, even with taxes are better than losses.

My psychology in the drop was the same, a tranche of 5% drop, I would be told by my relationship manager (with the DIY platform I subscribe to) that I could be the "nervous Nelly" and sell or wait and see as it may just be a small correction and then I will miss on the rebound. It fell again, each time seemingly larger % tranches of losses and more phone calls being made, getting the to the point I was now in the red and if I sold "now" I would be crystalizing losses.

But the bombardment of negative news headlines of falls way more than the GFC and decades of recovery meant I either just tried not being the "Nervous Nelly" and hold until the dear end or cut my losses. When you have analysts with the backing of their credentials and belonging to large investment firms, are Professors, etc, then this all just compounds the confusion and indecision.

Fearing we were not even halfway down the hole I sold. I would make textbook case of the investor selling at the absolute bottom when fear was at its very peak. And three days later the market rallied. GFC got me and so did COVID19, even though I had this time employed the use of this company to help me pick stocks and have a 'strategy'. Psychology is probably the most important part of share investing but none of these DIY systems protect you from emotions. And how do we sift from news that is right or wrong? We cannot. Because there are right and wrong comments.

That said, no-one knows for certain. High yield and property could come roaring back.

I'm also awfully I had a big chunk of the overall portfolio in Gov bonds and cash. They did what they are supposed to.

I don't have bonds and went instead into a P2P lendng platform that was yielding on average 7%, but part of that are in higher risk 5 year loans. Now that job losses are rampant and defaults from borrowers, I am exposed to more losses. Luckily I spread my loans out to hundreds of tiny individual ones, but diluting that way may also go against me if percentage of defaulters increase - in this environment. Wish I had gone into bonds but was chasing the yield.

 

From what I can understand, you sold your funds around the current market bottom (March 23), then bought back into an active managed fund after the market had gone up a bit.

If that is the case you may be down a bit compared to where you'd be if you hadn't sold, but not as much as if you'd sold and waited to buy back in at the current higher prices.

The worst thing you could do is sell again to chase higher returns. Higher returns always mean higher risk.

The exception to the above thinking is your P2P portfolio. Were they mine, I'd take the current hit and sell the lot. Ratesetter is advertising a rate 3 times higher than banks. That's awfully risky.

Not advice etc etc.

 

Thanks again. Ratesetter loans are locked in and cannot be fully redeemed before the end of the loan term except for certain conditions which I don't qualify. Ratesetter Australia thankfully have a provisional fund for defaulters and currently they have a handle on it. I have been in contact with them and the CEO is updating lenders and they allow access to their data. Cannot do anything about this exposure at the moment. Considering the current environment there are still investors and borrowers doing business albeit much lower volumes.

 

You need help way beyond what you'll find on this forum. You need tax structuring help (special disabilty trust?), guidance on what government support/pensions you are entitled to (disabilty support pension), mental health support and the list goes on. You say you are ex-police? Look into this:

Beyond Blue

Get off this and any other forums and stop thinking about investments until you sort all of this out.

 

Right, and re Super it’s not 25k max annual contribution, it’s 25k concessional and 100k non concessional with 3 year bring forward. I’m gathering we aren’t dealing with massive sums and also there is a fair degree of complexity here as Ross36 mentions. The problem is with advice often the people who need it most can’t afford it or balance not big enough for really good advisors to be interested.

You absolutely need advice here. You need to get miles away from all this share trading system (scam) nonsense. You need help with modeling, planning, structuring and choosing suitable investments.

My parents have a fairly humble super balance and I have met their advisor in social circles, he strikes me as competent and straight forward. I’ll PM you his details. You need to start talking to people who can assist with realistic advice and tell you how it is, not what you want to hear. Not advice.