ASX Shares Newbie moving back into ASX - pick thoughts?

Those who know me, know that we're reaching retirement so want to remain conservative. Sadly, bank interest rates are pretty rotten, but want to keep the spare cash liquid to pay out some debt once that big "60" hits (yes hubby born before 30/6/60) in two years ... so time to re-dip the toe into the ASX.

Looking for high dividends for reinvesting, stability and potential growth. These are my top 6 choices:

FMG
WES
NAB
MFG
WOW (now that's it's divested Masters)
CBA or WBC (don't want to be bank heavy)

Others on my consideration list are:

COH - still growing strong and I think their innovation will keep them as market leaders
AHG - recommended but unsure due to uncertainty in future automotive direction

Don't think I want:
Insurance - climate change is going to potentially create some interesting havoc
BHP/RIO - just a gut feeling

I'm open to other suggestions but, as mentioned, looking at conservative growth rather than speculative.

 

Why don't you consider LIC? Do you have a specific yield figure in mind. You can get somewhere in region of 5.5%-6% gross yield at today's prices and portfolio is professionally managed with proven track record.

But if I were to pick individual stocks as a diversified portfolio for the long term this would be my pick

1) CBA - 5%
2) SOL - 5%
3) WBC - 4%
4) NAB - 4%
5) ANZ - 4%
6) CSL - 4%
7) WES - 3%
8) BHP - 3%
9) RHC - 3%
10) SHL - 3%
11) RIO - 2%
12) WPL - 2%
13) ARB - 2%
14) DLX - 2%
15) REH - 2%
16) ORA - 2%
17) AZJ - 2%
18) APE - 2%
19) MQG - 2%
20) EVT - 2%
21) DMP - 2%
22) APA - 2%
23) REA - 2%
24) RMD - 2%
25) NHF - 2%
26) SYD - 2%
27) TCL - 2%
28) WOW - 2%
29) COH - 2%

= 76% Australian

Some international diversification

VGS = 15%
VAE = 5%

= 20% International

Cash = 4%

Why so many shares. You need diversification to capture various sectors and good mix of shares that have good yield and shares with good capital growth.

Not advice, I use combination of LICs, ETFs and individual shares for my own portfolio.

Cheers,
Oracle.

 

Hmmm - hadn't thought of CSL.

Wondering about adding a small portion of PLS too

So ... for a rounded portfolio (and I like to buy/watch/sell myself):

CBA - bank
WBC - bank
NAB - bank
CSL - health
COH - health
WES - food (coles)
WOW - food (wollies)
BHP - mining
PLS - mining
FMG - mining

I'm shying away from transport/parking, entertainment and fuel during these changing times - as change, when it comes, will come very quickly

 

Fair enough if you want to try to manage the portfolio yourself but below is the top 25 holdings of the largest LIC (AFI). Rediculously low fee of 0.14%:

 

Yep, let LIC managers do the picking and heavy lifting for you. It's set and forget time for me. (I have previously held shares in a well known company and when I saw the share price go down a few times on the nightly news finance section, I had a mild panic - knowing that I can't play with the individual shares within the LIC keeps my hands away from the keyboard).

 

Just curious, why do you favour FMG over BHP or RIO? They have a higher cost of production and are not as diversified into other commodities outside of Iron ore.

 

LIC - If we know the exact composition of each stock, then why can't we simply buy them individually? At least, if we need the cash, then we can time the stock a little.

 

Index.

 

FMG would certainly not be high on my list of direct shares to own especially if one is seeking more reliable income in retirement.

Although I mentioned AFI in my previous post simply buying the index will likely outperform one’s attempt to DIY. Simple law of averages. Plus nothing to do. The index is essentially “self-cleansing”. It reflects what’s happening in the economy, the irrelevant / duds get automatically replaced by the relevant / best performers. Bubbles can develop at times but that’s simply a matter of recognising such and adapting one’s buying accordingly.

Here’s the top holdings of Vanguards Index ETF (VAS) representing the ASX top 300. Despite the concentration it’s likely still more diversified than your intended purchases. And with a very low fee. Probably less than the Transactions costs you’ll incurr buying multiple direct shares. Here’s its top holdings:



Unlike LICs with their company structure enabling them to smooth dividends, ETFs with their trust structure must distribute all capital gains and income. So an index ETF will have more volatile distributions. No big deal, easily fixed by simply using a cash buffer to smooth distributions yourself.

I tend to buy LICs when at a discount / fair value otherwise an index ETF.

 

Now that’s what I call concise and straight to the point.

Got interrupted whilst typing last post. But in support of same.

 

Best to listen to @Nodrog and @The Falcon

It is tempting to think you will do better trying to make all the ongoing decisions yourself and 'save paying the fees'.

It's a false economy and can lead to massive headaches. Most people I speak with have busy enough lives already with work and family, the goal is to be free of the 'daily grind' not create more of it for themselves!

Anyone who goes DIY needs a lot of spare time and some good stress management pills. If the portfolio has any decent size to it you will also suffer from transactional cost inefficiency as you will inevitably pay retail full cost of individual transactions instead of being part of bulk orders pooled with other investors at wholesale rates.

Add to this a lack of effective ongoing decisions around asset management due to lack of time, emotional stress which can cause costly mistakes, plus holding direct shares means you give your accountant a shoe box full of your paperwork once a year to sort through and this ain't gonna be cheap! All this could be avoided by using a professional manager where statistically your outcome is likely to be a whole lot better.

 

Alex, as a Professional advisor, knows more than I’ll ever know. What he says is spot on. Plus a $7 Billion LIC like AFI will get access to deals unavailable to retail investors.

Whether it’s an index ETF such as VAS and / or an LIC such as AFI at a rediculously low fee for both around 0.14% why would most investors even think of doing it themselves.

 

I fully understand what you are saying re LIC's - thanks for the advice but no thanks.

I do have the time - and patience - to set, watch, wait, adjust as required.

Last time I "played" in 2012-2014 I outstripped the LIC's by 100% - with CCL being my only bum buy. I am not given to panic selling, especially if the dividends and fundamentals are right. I don't speculate or listen to gossip.

Don't mean to sound arrogant or know-it-all. And doesn't mean I can repeat what happened in that period - as it was still recovering from the 2009 crash - but I am picky and optimistic and based in reality and don't "rush" into purchases once I've set my calculated buy price.

Off to do some 12 month cost averaging and set my buy levels - and wait

xx

 

Maybe this will help...

https://www.propertychat.com.au/community/threads/world-indices-roundup-jan-feb-2018-major-top.29199/


https://www.propertychat.com.au/community/threads/asx-stocks-leading-xjo.27717/


https://www.propertychat.com.au/community/threads/a-closer-look-at-the-big-4.28262/

 

I would say in 2012-2014 you were a "lucky idiot" (not my phrase, credit goes to Taleb).

In a bull market it's easy to feel like a genius. It's only when the tide goes out you discover who is swimming naked.

I think you have no idea what you're doing and you're better off buying the index, otherwise you may jeopardise your retirement plans.

You say you don't want bank interest, but you're considering Cochlear - the yield on Cochlear is circa ~2% based on $194m operating cash flow or $220m accounting profit a year from their HY results) which is the same as bank interest. Why would you invest in a company which is higher risk than a term deposit and not be compensated for it?

To me, it looks like stocks are just electronic pieces of paper you trade. There's no valuation or edge you have over the many analysts and fund managers who get paid to mange millions or billions of dollars. Why do you think you can beat them?

 

COH’s dividend may not be over high but I feel one is compensated with capital gains.

I started accumulating COH in May 2008 and stopped accumulating in September 2016. Over that time, capital gains have been 26% pa.

If one bought COH a year ago, the capital gains would have been 46%.

Even 6 months ago, the capital gain would have 19%.

For me personally, I feel I am being compensated. Will we be compensated in the future? Time will tell.

The above is not advice.

Disclosure:- we own LICs and direct shares, including COH as described above.

 

No probs - I probably haven't disclosed how thorough and knowledgeable I am.

If the fundamentals of a business are good, and their place in the rapidly changing world is sound, I simply don't analyse the pants off things before making decisions - whether it be real estate or shares - which makes me feel like a novice compared to some on here with their graphs and charts and projections.

The share holding are also only around 4% of our SMSF - so won't affect our retirement plans if catastrophe hits. Does make me more conscious of what is going on in the sector tho, and idiotic declarations which affects the sharemarket (and people's retirement funds) sector as a whole, and awareness is a good thing.

 

I think people usually focus on income or growth.

Why don’t we focus on income growth.

So rather than look at price growth, let’s look at income growth to compare it to bank interest.

In 1997, COH dividend was 12.5 cents per share. Last year it was 270 cents per share.
That’s compound growth of 16.6% per annum.

In 2007, their dividend was 125 cents per share. Last year it was 270 cents per share.
That’s compound growth of 8% per annum.

The problem comparing it to bank interest is that your income will increase and decrease with interest rates. It’ll be much more volatile. And worse, it will never sustainably increase.

Imagine getting a payrise like this each year, or the income from a rental property increasing like this over time - it just ain’t gonna happen.

What happens in the future with this company? I have absolutely no idea. But I think it’s very dangerous just to look at yield compared to bank interest.

I prefer to look at income growth as the driver of the asset value. If a house or a company is earning/paying much more cash in the future than today, then it’ll be worth much more.

Sure hunting for capital gain is nice, but with this approach there’s little need to focus on prices so much. Because eventually, prices/values will reflect the income anyway. So large capital gains will be made by focusing on income growth.

- I don’t own this stock, but I believe the LICs (which we own) do.

 

True. Currently enjoying the trading part of it.
I'll slowly go into the Index world.