My portfolio. Does this look ok?

Actually I have a quick question with a calculation just so I can make sure I understand this correctly.

Lets say for example I invest exactly $200k in each of those 3 companies right, totalling $600k whats an easy way to calculate the total dividend return in percentage?

It can't be 4% + 2.64% + 3.07% = 9.61%.

Is there a simple formula to calculate?


-Frank

 

No.

It would be (4%x200k) + (2.64%x200k) + (3.07%x200k) or ((4%+2.64%+3.07%) / 3) x 600k

 

How I wish I could get a 9% return on investments returning <4%

You need to do a weighted average of the percentages. The 200 next to the 4% represents the VAS parcel size and so on.

(200 * 4 + 200 * 3.07 + 200 * 2.64)/600=3.24%

I only mentioned VGB because bonds are a standard risk reducing vehicle. I don't and wouldn't invest in them at the moment. Invest in cash or something like VAF until you know what you want to do with the money. Keep a cash buffer too.

 

Well as a general rule how does someone go about choosing funds that will return roughly 5% per year on their money? Which is what I'm trying to achieve..

A 5% return which I didn't think was very high anyway in the share market.

Looks like if I invest in VAS, VGS and VAF I won't get anywhere near that return..

I thought that all I had to do was buy into a fund that follows an index will easily get me 5% Dividend return..


-Frank

 

Frank that's the limitation of these index tracking funds because they are weighed down by the dud performers. Compared to a LIC where they can evaluate their positions and attempt to outperform the indexes. But of course a LIC might get it wrong and under-perform too.
Or have a look at e.g. MVB which is an EFT of just the 7 big banks with a trailing yield of about 5.5%. So you're basically getting the average of the banks rather than trying to pick one or other.

Importantly you need to understand that "yield" you see listed for any share/fund is last year's, not next year's.
We won't know next year's performance until next year!

 

I of course am a fan of some of the LICs. But in defence of traditional index trackers the following article provides some compelling reasons why they can be a worthwhile addition to ones portfolio:

Lopsided Stocks and the Math Explaining Active Manager Futility

 

Interesting. I wonder how much it applies to the AU?
Also it seems to only consider managed funds to be in or out of a stock whereas they can of course be under or over-weight as well as varying their positions to take profits, stop-loss etc.
Having said that, I've just charted a bunch of LIC from my watchlist and only BKI & WAM seem have outperformed VAS over 3 & 5 years.

 

Just another researcher, nobody knows the future. Fees are the biggest drag on performance for most funds. The older style LICs have very low fees and broad diversification so I don't get too concerned. But I do hold a single index ETF for ASX and International in addition to our LICs.

 

1. Avoid VGB.
2. VAS is 4% but you haven't considered franking that will get about 5% grossed up.
3. Supplementing VAS and VGS with higher yielding LICs will get you closer to 5%. E.g. including back of napkin franking calculations:
Australia: VAS + MLT = 5%+6%
International: VGS + PMC = 3%+6.7%
With equal weightings you would be over 5%
4. Fixed interest: based on risk profile

That will get you close after franking.

 

1. Avoid VGB.
vs
4. Fixed interest: based on risk profile.

???

 

@Frank Manno

Consider both dividends and price appreciation

Shock and Horror, but some stocks also don't pay dividends. I know, cray, cray

 

I actually got an email today saying it will soft close at the end of September.

 

Hi frank.

If you read the LIC thread then it will spin your mind. It's long!!

Having said that I have directed several friends who are clueless to finance to it with a copy of Peter Thornhills book and the vanguard website. I have been investing simply in Old school LICS for ages and never regretted going the simple path. And you need super. As much as you can legally stash in this excellent tax haven.

Specifically read p29 of the LIC thread. A good summary of a working portfolio and ( just as important ) a great post on psychology of investing. P29 is gold and I have cut and pasted a copy to my files and re-read it occasionally.

Austing I always tell people to follow your great posts. I dips me lid sir. You are a legend and in my personal hall of fame.

Your fondness for home brew catapults you to god status!

 

He he yes I'm the honest John of the investing world. You'll recognise my photo:

 

Bonds
Vs
Cash (fixed interest was the wrong terminology but I meant cash/term deposits)

 

Yes I am reading the book. I'm about half way through it.. Love it !

I will have a good read of the LIC thread as well especially Page 29.. Thanks

Is that your portfolio on Page29 there @austing ?
Listed Investment Companies (LICs)

What sort of return / percentage in dividends would you say you get per year with that?


-Frank

 

Close enough but I no longer hold ALF and DJW.

 

My portfolio is based on
"A random walk down wall street. 10th Ed"
Chapter 14 and 15 is interesting in terms of asset allocation to investment lifecycle.

It was after reading that book I realised the perfect portfolio is fluid depending on where your life stage is.

Random walk is about the US centric investor and outlines the specific index fund portfolio of the ageing US baby Boomer:

index funds roughly in the following areas and proportions using ETF/Mfs
-Cash 5%
Bonds 27.5%
RE Equities 12.5
Stocks 55%
- US total stock 27%
- developed markets 14%
- emerging markets 14%

If he is talking about exposure to other areas in the above ratio when the US makes 40% of the world markets it is interesting to speculate what he would make of the Oz investors who are playing in a 2% of the world market pond.


if you exclude bond/ RE and cash then of the 100% he sinks into the markets (as opposed to 55% of the whole portfolio) the breakdown is:

US 50%
developed 25% (insert ASX here)
emerging 25

BUT
I don't think this will work in Oz we have too many banks and miners in the mix for broad diversification with indexes as a sole vehicle.


As I head towards retirement in 15 or so years I'm going to be loving franking credits and Aus stocks but for now my mix is

Oz 40%
WHF AFIC ARG MLT VAS QVE A couple of direct holdings RHC SOL RMD CSL etc (I like health stocks)
Global inc US 40%
IXI IXJ VOO VTS and some direct holdings on S&P inc BRK MA NLFX MKL
5% emerging markets and 5% flutter on stocks.


A lot of holdings ATM. I will shift out of direct stocks and growth low div stocks later but I won't retire for 10 years so happy to hold them for some extra growth.

I will be solely LICS and indexs pre retirement most likely.
Im estimating a 4% yield. by my calcs I should be able to live on divs without capital inroads when I retire. Thats the plan anyway!!

 

I'm been reading Motivated Money and really like how Peter Thornhill invests.

Am I right in saying that his method is to invest in dividend paying industrials in the form of funds Be it ETF's LIC's, but not so much in direct shares.. is this what he does? I assume so. Please correct me if I'm wrong.

I went to see another financial advisor the other day who says he knows Peter Thornhill very well and he was excited that I knew of him. He said he can set me in a similar fashion that Peter uses..

BUT, and here's the 'but'..

He also recommended that I put some funds into direct shares to trade. Good shares like the banks, Westfield, a small bunch of Australian stocks, whatever.

Am can't help being curious as to whats the point of trading direct shares? I asked him this question and he said 'Well why not put a small percentage of your money into trading direct shares and try to make some extra money?

Anyway I left it at that but again I can't help wondering well why not just buy into an index and forget about it rather than mess around with direct shares?

Now this advisor's fees are not high so I can't say that his interest is to 'lock me in' because in fact he is very flexible with prices.. But it's more about his recommendation that got me curious.

Could some of you hear enlighten me, am I right in thinking that there's no use in investing in direct shares even if it's a smaller percentage of my total investment?

Do the majority of you just buy into LIC's ETF's and funds that follow an index and thats it or do you also trade in blue chip shares as well? Should I totally avoid direct shares?


-Frank

 

Thornhill owns ARG, BKI, MLT and WHF. Yes he does own direct shares also but from what I understand his preference is more and more for the above LICs due to simplicity and so investors can get on with more important things in life.

Read an extensive interview with him here:
Peter Thornhill - interview with an investing genius