Long Term Investing Valuation and Timing Strategies

Much more than I should. I'm greedy when exceptional opportunities arise. This is only likely to happen once or twice each decade.

But only because there is so much excess dividend income over what we need that the cash buffer is not really that critical for us and when drawn down it gets topped back up in a relatively short time frame.

So yes I'm bending the rules and it's not without some minor risk. As always greedy in crashes, fearful in booms.

 

Honestly given the time involved and transaction costs the tiny fee these older LICs charge is well worth it.

However if you were to take say their top 25 holdings then exclude Resources and property Trusts (Thornhill Industrials approach) then there is potential to outperform the LICs. But more time required once you get back into direct shares.

QVE / MIR more active so timing much more important.

 

For me bonds throw off some income as we move along and don't have the volatility of the share market, they act as a safety blanket and a war chest/cash reserve to tap into if the market nosedives below re-balancing bands, allowing me purchasing opportunities in the share market

They are about as exciting as watching paint dry, but I'm not buying them for their income but to stock the war chest. Cash doesn't fluctuate in price like bonds do, however with bond re-balancing, you'd be taking advantage of those fluctuating bond prices

See below example STW/ASX200 vs VGB/Vanguard Bonds





Its a couple of years old but...

-Since 1970 cash has returned 8.9% and Australian bonds 8.7% per annum.

-Since 1985 cash has returned 8.2%, Australian bonds 9.9% and International bonds 11%.

-Since 2000 cash has returned 5.5%, Australian bonds 6.8% and International bonds 8.1%

Since 1980, we have had 10 calendar years of negative performance in equities, in eight of these years Australian bonds have outperformed cash, and typically by a large margin

source: Vanguard

 

Hi @Redwing

Excellent post as always. Your asset allocation strategy is of course excellent for asset allocators. And your dedication to and ability to stick with the plan exemplary.

As stated before capital volatility is of no consequence to dividend investors so no need for bonds as a safety blanket.

In theory of course bonds have an inverse relationship with shares in terms of capital. But it doesn't always work and these are strange times with what looks like the end of the Incredible 30 year bond bullmarket.

When it comes to keeping a war chest for bargain hunting in the Share market cash is the only asset that I feel comfortable with. It's government guaranteed up to $250k per approved Deposit institution from memory and unlike bonds it's not likely to have lost capital value whilst waiting in the warchest.

Another very important point, there's a big difference between holding "direct bonds" and "bond funds".

But don't get me wrong there's nothing at all wrong with the asset allocation approach. Just as there's nothing wrong with the dividend approach. Just pick what lets you sleep best at night. For me that's dividend income. I would be worried if I was dependent on drawing down capital to live off. Others would be worried if all their money was in dividend shares.

Of course nothing to say you can't mix both.

Horses for courses.

PS: I'm assuming the bond / share performance chart doesn't include franking credits?

I must get onto Peter Thornhill to see if I can get the Industrials vs Bonds chart.

 

I am a big fan of asset allocation, and I do include bonds as one asset basket in my simple timing system mentioned in a previous post, however I think what is said above should be kept at the front of your mind when looking at the figures you quoted. It is virtually impossible that those bond returns will be replicated in the foreseeable future, given the 30y bullmarket we have just had.

 

Hi Austing

I like your strategy (Especially the "LIC's or ETF's when LIC's are expensive")

The system I'm using is pretty simple, but I need it to be, as I'm a simple fellow, I'm sure it could be better, but then again as they say "The perfect is the enemy of the good" . I have a small percentage in a direct share or two as well as a LIC

The strategy is a work in progress for me, I like its simplicity. No excitement, no need to stress about market news or moves...simple enough for a Second Grader to beat Wall Street

I agree 100% who knows what the future holds, though if they fall I'll be purchasing more for less, with an increased interest yield

Don't get me wrong Austing, I'd love to be in your position, But I'm still a far way off from there

Yes, the charts don't include interest rates for bonds or dividends for stocks

Agreed also re different types of Bonds available, the Index ETF I'm using has a mix of Government and Corporate

 

A new article from Ashley Owen with a familiar storyline:

The Dow hitting 20,000 and what it hides - Cuffelinks

 

@austing's Wealthy Pig Trading System

Ladies, gentlemen and home brew fanatics the world over here's the long term Trading System you've all been waiting for, guaranteed to make you a multi-millionaire. Discovered this morning whilst recovering from last night's home brew session. @austing's Home Brew, the secret to creative genius.

Simple rules:
1. Buy when price penetrates the upper band to the upside.
OR
1A. Anytime when price is above the upper band provided we're not in a frenzied buying, boom time market.
2. Sell when price forcibly penetrates the lower band to the downside.

Note minimal whip saws, only two sell signals over 25 years:


But this is top secret so don't tell anyone else about it or it will stop working.

Not liscenced to give advice.

 

Or just buy when price is at right hand side of chart, and review when entry is at left side of the chart. You wont be disappointed

 

Bugger, I knew someone would come up with a better system than mine. And here I was thinking I could make millions of dollars selling my system.

 

@austing

Sell...(Shocked face)

 

Sell, No no. I'd get kicked out of Divvy Investors Anonymous.

I had no intention of using it but I was going to sell it to foolhardy investors for a fortune so I could buy lots more LICs.

 

Looking Long Term

Why Panic? A Couple’s Nest Egg Better Left Alone

 

For someone with no clue looking to invest in ETFs such as VAS, VHY and VGS, any hints on when might be better times to find value? I have looked at all three now and it doesn't seem like a particularly good time to buy. That said, if I am planning to buy and never sell, does it matter that much?

 

It depends.

Are you investing a lump sum or just looking to invest regularly when cash is available?

Not a great fan of VHY.

Perhaps just use rebalancing as a timing strategy. Decide on asset allocation eg VAS (60%), VGS (30%), Cash (10%). To start put a bit in each. Then when new cash is available just add it where needed to maintain the balance.

@Redwing will hopefully chime in here. He has a very disciplined strategy along these lines. He prefers bonds to cash but given historically low interest rates I favour cash in the short to medium term .

 

Nope, if you did that would be attempting to time the markets

I've got no idea which way the markets will go, so I invest accordingly. in the long run (as Thornhills chart shows) the only way is up, baby (over the long term)




Nobody wants to begin investing right before a crash, but nobody knows when that crash will come either

 

Whatever happened to Oscar from Somersoft he was an avid buyer and holder of VHY for the long term

 

I like VHY

 

I find it interesting how manipulated we are in our property centric society.
Most are happy to pay a REA 3% and up for "selling" their property.
Yet come to a reasonable LIC with 50+ years of performance we um and ah at 0.3% fee and decry their outrageous fees....

Strange

 

Yes with property sale also throw in conveyancing costs, tidying up, repaint / minor Reno etc getting it ready for sale then the cost can rise substantially. Plus it can take weeks / months before you have a buyer and get your money. With shares it takes two days from instant online broker sale to get your cash.

As a very pro-Shares / LIC supporter it's not as if we have never owned property. We have owned a number of IPs over the years worth millions of dollars. So I've experienced ownership of both. And for me LICs are absolute bliss especially now as a retiree. Not a single hassle or worry in the world investing wise. True PASSIVE investing. IPs caused me immense stress and hassles at times. And the drain on cashflow with constant expenses (especially the major unexpected expenses) is a nightmare especially for retirees.