My portfolio. Does this look ok?

I think Frank was more correct.
An ETF would hold stocks except for those that drop out of the index or get added to it.
The price changes of stocks keep them weighted as per the index.
What they would need to do is allocate new funds in the correct proportions, which I suggest is beyond the scope of Frank's comparison.

 

My understanding was they need to match the weighting that the index currently represents, so if they need to sell 2% of their portfolio in one share, to pick up 1% of two other shares to track the index weighting then all those trades incur fees and taxes.

Is this not the case?

 

If those shares were already in the index, then the same price changes that caused the weightings to change within the index would cause the same weighting change to the fund.

 

Ahh, thanks for highlighting that.

 

Its time! (excited)

I moved some funds over to my trading account today and plan to build a portfolio slowly over probably 6-8 months. Going to be doing some dollar cost averaging over this time.

I can't seem to decide on a few things and was hoping I could get some opinions? I've been researching and have come to a standstill with these below..

For an Australian allocation to start what would you say is best?

VAS 50% + MLT 50% ?
VAS 1 third + MLT 1 third + ARG 1 third ?
ARG 50% + MLT 50% ?

Or would you change the percentage of some of those combinations?

And how about International?

VTS 50% + VEU 50% ?
VGS 50% + PMC 50%?
VGS 50% + VGE 50% ?


-Frank

 

The best one is... the one you feel the most comfortable with

Ok I know you didn't want that answer, but really the choices aren't drastically different from each other.

I personally like LICs so I would go for one third in each of the Oz holdings you suggested. I feel they would compliment VAS a bit by providing a bit higher income. Even then theres not much difference just preferences.
ARG+MLT would be slightly higher income than including VAS. That may be important or not?

For international - number 2 choice would be higher income. Again depends how important that is?

If you wanted to keep it simple as possible then could just go with VGS. I'd be more than happy with just this for international.

Just a couple of thoughts and only my preferences, may not suit you for various reasons.

 

In my opinion you can’t really go too wrong with any of the options you have laid down, so that’s good.
Personally I would perhaps go with the second option for local and the second option for international, albeit with more weighting to VGS.

Either Way to get started, you can’t really go too wrong and you can also adjust the weightings as you go since you’ll be investing progressively.

But there is no need to rush, you can take your time to form your own decision, something you are comfortable and confident with.
This is so important: if you don’t have the conviction now, you aren’t gonna have it when the market tanks - an event certain to happen at some point.

 

Yeah the income is important but I somehow like and feel comfortable having VAS there.. I will adjust the amounts (weightings?) as time goes by I think.

No worries thanks for your opinion , its helpful to know what other people's preferences are..


-Frank

 

Yeah thats what I was thinking of doing.. Cool.

For some crazy reason I don't think I'm worried about the market going downhill at some point because thats just the way it goes. I'm more concerned about getting it as right as I can from the start because that way I've done the best I can and then if the market tanks which is beyond my control then so be it.. It will recover.


-Frank

 

Swuzz posted in another thread but I'm responding in this one because I don't want to sidetrack the other discussion..

Using ARG as an example..

ARG (and MLT for that matter) have both had the same share price over the last 10 years.. Why is it that this doesn't bother anyone? I know that with the PT approach that it doesn't matter what the share price is and that you shouldn't look at it or care.. Just care about the dividends and I do understand this.

But I can't seem to get this thinking around my head. 10 years is a long time.. If you invested $500k wouldn't you want that $500k initial capital to have grown over 10 years at least to have kept up with inflation? The dividends are another story..

So if you bought ARG 10 years ago then your shares cannot be sold for a profit. If you can't sell for a profit you are at the mercy of ARG aren't you? What if you want to sell and buy a house or a business or whatever? You won't be able to..

My point is shouldn't a diversified portfolio also target strong growth and not just dividend paying LICs?

Note: I'm not bagging ARG here.. In fact I'm buying ARG shares this Thursday as well as MLT shares.. I'm just using them as an example.



-Frank

 

Just the 10 year metric is a very narrow frame to look at considering it was the height of the Market before the GFC hit.

If you bought 5 years ago you would have earnt about 50% growth over that time.

How about you jump on Sharesight.com, start a free account and do some modeling with theoretical share purchases at varying times in the past to get an idea of what your money could've done.

I done this with $5k invested in AFI/ARG/MLT/WHI and found they were averaging out at about 12% growth over 12months to September 2017, 6% CG, 6% dividend. This is no doubt isolated also, but was interesting to see.

Disclaimer: past performance is no indication of future performance

 

Actually I might do that.. Good tip.


-Frank

 

I also think thats why DCA plays a part aswell frank. Your example goes off one lump sum buy with no more buys after that and no reinvestment of dividends.
Say you bought a parcel at the top of the market there in 2008 or whatever it was and was buying annually your next parcel would have been towards the bottom of the cycle.
Example:
First purchase Jan 2008: 50k @ $8 = 6250 shares
2nd purchase Jan 2009: 50k @ $5.50 = 9090 shares
You now have 15,340 shares for your 100k spend, gives you an average buy price of $6.51.
If thats all you did and the shares were back to $8 today your 100k would now be worth roughly $122k.
I think thats why regular buying and DCA is a good thing it smooths out those highs and lows.
Im just very new to this so anyone feel free to pull me up on numbers and what not but that was just a hypothetical.
Not advice and all that.

 

Yeah but my line of thought is that I shouldn't have to do that. I'm buying an asset and the asset price alone without further purchasing I would think should go up in value. I shouldn't have to keep adding money to this asset so that it grows.

Maybe lose value over 1 or 3 years but not 10 years. I know Archaon said that 10 years is a short timeframe but it's actually a long time in years in my opinion. Think back 10 years ago, feels like a lifetime.

What if one of us end up in a nursing home one day and our children are renting. We should be able to sell the shares for a huge profit and hand over the money so that they can buy a house at least. Not be in a situation where we put in $500k and still have $500k (because we lived off the dividends)

Again I'm just suggesting shouldn't we be targeting a percentage of our portfolio towards growth stocks?


-Frank

 

Not to many stocks grow in a financial crisis.....

 

Depends when and how much dividend income you think you need.
If you're not needing the income (to live off) for 10+ years, growth ought to be a much higher priority than if you need the income in year one

 

Well you do not have to do any of it, it really is up to you.
But you need to understand timeframes matter.
When looking 10 years back you are looking at the very top of the market preceding the GFC.
If you invested everything in a lump sum back then, then yes you would see sub-par results: as can be expected when investing at the top of any market whether shares or any other asset class, that is just what happens.
But dividends are an integral part of the overall return you get from your shares, especially since in the asx’s environment as opposed to what you get overseas, so a better metric would be to look at the accumulation.
But yes, timeframes do matter and when you buy at the top, then it can take a while to recover.

You could argue the asx presents good value compared to its overseas counterparts based on valuation alone.

 

US will fall more than Australia in next bust - Cuffelinks

 

Relative strength ARG vs XAO price chart over 25 Years.



Future capital gains are a combination of the underlying asset performance AND your purchase price valuation. Pay too much initially and it can take the underlying asset growth quite a while to extinguish the mistake.

 

Seems a high allocation to emerging markets from what I have read. How did you decide on this number?