Ideal Passive Income Portfolio for Retirement - advice from forum experts

Discussion in 'Share Investing Strategies, Theories & Education' started by sash, 5th Jan, 2018.

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  1. ShireBoy

    ShireBoy Well-Known Member

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  2. Hodor

    Hodor Well-Known Member

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    LICs that avoid mining companies can have higher finance sector exposure than the index. If you are excluding miners from your index then you are increasing concentration in other areas, so concentration vs the index is a given in some areas.

    As for the index performance been a little flat vs LICs. It's very hard to say. I will make the prediction that the big 3 lics won't outperform the index over the next 30 years to the degree they have in the past 30 (if they manage to at all). I'm so confident that in 30 years if I'm wrong I'll buy you a coffee Frank.

    Warren's indexing approach is somewhat different to PTs.
     
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  3. oracle

    oracle Well-Known Member

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    One of the concepts about indexing that takes a bit of time to fully understand is when you go indexing you are actually not betting against anyone but instead accepting outcome of the bets everyone in the market is making. And who is this everyone? It is all individual/amateur investors and institutional investors (LICs included).

    So what that means is for every successful bet there has to be an opposite unsuccessful bet. You cannot have everyone making successful bets. That is not how the market works. So you will always have a scenario of some active managers/investors beating the market while the rest won't. And the most important part is the ones that beat the market in one period (say 5 years) are very rarely the same people who beat the market in the next period. There are some managers who are very good and can beat the market over the long term. But It is very very hard to know them in advance. Therefore, rather than trying to find a needle in the haystack just own the entire haystack.

    In short this is the claim made by proponents of index investing. Whether you like it or not statistical evidence from historical data proves their claim to be right!

    Cheers,
    Oracle.
     
  4. Zenith Chaos

    Zenith Chaos Well-Known Member

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    I'm starting to worry about the major LICs' long term performance. Firstly because of the potential changes to franking credits for my situation where I was relying on them for FIRE. Secondly because their capital gains status limits what they can and can not do. With the world changing so quickly having some agility will be advantageous, who knows how the banking and finance industries will change with the inevitable disruptions. Some of the bigger institutions could quickly face serious adversity; just consider Kodak except there will be many more disruptors. The big LICs may become a convoy of semi-trailers trying to do a three point turn on a single lane bridge.

    I won't sell the LICs, but I'm looking at putting more in VAS type ETFs and other RAFI alternatives such as QOZ/MVW.

    Definitely not advice
     
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  5. fpap

    fpap Active Member

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    Hi
    Can I ask why you want to do this? Not having a go but just wanting to understand.
    If you have a property that is unencumbered and is paying you rent and the yield is similar to the 5-7%, plus the added benefit of owing an appreciating asset, why sell down?
    Just curious.
     
  6. Anne11

    Anne11 Well-Known Member

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    I intend to also add EFTs as diversification, in addition to LICs.
     
  7. ShireBoy

    ShireBoy Well-Known Member

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    I can't remember where I saw this linked, but I watched it last week. Was very easy viewing for a noob. Features interviews with Jack Bogle, and other global financial leaders.
    "How to win the loser's game"
     
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  8. Hodor

    Hodor Well-Known Member

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    For stock allocation I have been speaking of starting with what I call the "50/50" portfolio in mind for a while (say VAS and VGS). Sure do what floats your boat, however, I like to compare what I am doing vs the pros and cons of the 50/50.

    Not convinced the CGT thing in itself is such a barrier. At 10% you can completely restructure your portfolio in 10 years, add in some added capital from SPP, better performance of the newer portfolio etc and the time could be much quicker. Remember these slow boats avoided some bubbles along the way. Making good decisions with the information available in the bigger risk IMO.

    MVW worries me as it catches knives, sells winners and creates churn.

    Most of these things I am still churning in my mind from time to time.
     
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  9. Anthony Brew

    Anthony Brew Well-Known Member

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    I'd love to know what property yields 6% after costs and before tax.
    6% after costs will require around 9% gross yield. Properties that offer 9% gross yield are either in small regional towns and the yield is high to make up for low growth, or else in commercial property where no income from multi-year vacancies are normal.

    Take someone with 2.5m equity in properties located in major cities.
    • A 2.5mil portfolio paid off at around 4% gross yield will leave you with 2.8% net yield which is 70/yr before tax (upside is you get continued growth of maybe 150k/yr but this does not help your income until you sell)
    • A 5mil portfolio at 50% leveraging paying 4% gross yield and 4.5% interest rate paying P&I will leave you with repayments of 150k/yr and net income is 140k/yr leaving you with 10k negative cash flow. You can not retire on a negative cash flow. (upside is you get continued growth of maybe 300k/yr but does not help your income until you sell)
    • A 2.5m portfolio of shares yielding 4% fully franked dividends will give you a cash income each year of about $140k before tax. (downside is your continued growth has a good chance of being lower than with 2.5m of property and definitely lower than 5m of property, but does it matter as long as it keeps up with inflation?)
     
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  10. ellejay

    ellejay Well-Known Member

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    I don' t know why people keep on saying that higher yield properties in regional areas don' t get good growth. I've mentioned several times before that I bought several in regional NZ over the last few years. In the last couple of years we have a ripple down from Auckland and got the following growth without any work:

    South Island (not major city):
    Bought $200k sold $265
    Bought $200k valued $310
    Bought $395k valued $500
    Bought $170k valued $275
    Bought $130k valued $280
    2x unit block bought $130k each valued $170 each.
    All but one of these was above 8% gross yield on purchase and I know several people who did the same and better.
     
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  11. sash

    sash Well-Known Member

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    Because people under estimate the cost of golding property typically a major reno is required every 7 to 10 years

     
  12. skater

    skater Capitalist -- www.skatepro.com.au Premium Member

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    Gee @sash you must be very wealthy to gold your IPs
     
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  13. sash

    sash Well-Known Member

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    Watcha mean i an a mere a poor minstrel from the Druie. Anything more than 5k is a major reno
     
  14. Anthony Brew

    Anthony Brew Well-Known Member

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    Australia has very high transaction costs which NZ doesn't, which is why buy and hold is more attractive in Australia and you lose a lot of profit from flipping. So if you bought and held these regional properties for the long term, say 20 years, how would they have compared to Auckland?

    I also doubt that too many people can time the market as well as you. Since most people buy towards the peak of the cycle, if they held on for a cycle in Auckland vs holding on for a cycle in a regional town, how would they have fared?

    townsville has had massive booms where equity grew quickly, but in the long run you can see how it compares. If you can time the market, then well done, but I can't time it to that kind of accuracy.
     
    Last edited: 9th Apr, 2018
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  15. ellejay

    ellejay Well-Known Member

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    I could see if I can pull a graph that compares Auckland long term to regional but I' m heading off on hols to the US shortly. It evens out, but I don' t really care though to be honest. I think money can be made or lost anywhere and regardless of a rising market. I was simply commenting on your point that investing in high yield properties automatically means low growth. It doesn't and buying cheaper higher yields means you have more chance of being able to continue buying, accessing more markets and more growth.

    I agree stamps and other costs are a pain in Aus and that' s why I also like to look elsewhere but if you make a profit on property in Aus and want to sell to put the money elsewhere then so what if some of that goes in tax? You still made money.

    Anyway, off topic back to shares :)
     
    Last edited: 9th Apr, 2018
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  16. Jingo

    Jingo Well-Known Member

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    Thanks for posting this ShireBoy. A well constructed documentary which was informative and easy to understand. My take home points from watching this were:

    1) Choose a Strategy and stick to it. (Whether it be value investing, dividend investing, index investing). Stay the course.

    2) Keep costs down on your portfolio. Active is more costly over the long term than passive.

    3) An adviser can be useful to keep you on track and stop you changing course. Perhaps a mentor could do the same thing.

    4) Learnt about smart beta funds which use rules-based indexes and can be used to help avoid concentration on a certain sector in an index. I wasn't aware of this before. Was interesting to see the Vanguard managers views on these - saying they aren't necessary and can lead to confusion. I guess, use them if you have the knowledge/confidence to do so.

    Kind regards

    Jason.
     
  17. JohnG 156

    JohnG 156 Active Member

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    Hi Oracle,

    Do you hold any bonds?

    Cheers
    Anthony
     
  18. oracle

    oracle Well-Known Member

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    No bonds as off now. Keeping cash buffer. I could buy bonds in future but just not now.

    Cheers
    Oracle.
     
  19. DoggaPP

    DoggaPP Well-Known Member

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    Barefoot Investor states not to hold LIC's or Index ETF's inside Choiceplus as this would double up on fees. Not sure I really understand as the franking credits on full franked LIC's are immediately 1/2 refunded to you on the spot which more than covers the miniscule costs of having a Choiceplus account in accumulation ($15 a month flat rate). Am I missing something?
    Just FYI - UI only ever held international ETF's in my choice plus but have started also adding LIC's ARG, AFI, MLT as proxy bonds.
     
  20. Ynot

    Ynot Well-Known Member

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    I looked at using Choiceplus in my Hostplus super accounts (accum & pension) as I'm over 65 but still employed part-time. Hostplus seemed to be achieving twice the return from its Balanced Account than I could achieve from dividends alone by investing in LICs using Choiceplus. I can't remember the exact figures but I think AFI, ARG, MLT dividends were around 4% and Balanced option was achieving about 9-10%. (Of course this raises the question of what Hostplus invest in for their Balanced option compared to other similar options in other funds.) There were other limitations such as the LICs offered (this was 2 years ago) and they were limited to about 3 LIcs but this might have changed, the increased cost from using Choiceplus (compared to just selecting Balanced option), etc. In the end I just went for the Balanced option and invested in LIC's, ETFs outside super.
    Barefoot pushes investing in the Hostplus Indexed Balanced option that Hostplus has due to its low fees, however the after-fee returns from their Balanced option always appears slightly higher than the after fees returns from their Indexed Balanced option - so why would he recommend a lesser performing investment option based solely on lower fees?
     
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