Questions for Thornhill (Advanced)

Woo hoo! Yes

If you get thIs answer I don't need to go.

And I would like a guarantee by Thornhill that the forecast will be met. That will be nice at the same time.

And a tv. And maybe a new drill - mine is broken.

And a basketball hoop for my son. He is not big enough but soon will be.

And we have a holiday home down south - the BBQ down there is so skanky that we don't use it. Full of rust. So a new BBQ by Peter would be good.

Thanks!

 

Tyhe book:
Welcome - Motivated Money

 

Not a crystal ball but the below will give you an indication of how they might perform under different market conditions.

Note the income performance:

• Income 1 year: 6.15% pa
• Income 2 years: 5.75% pa
• Income 5 years: 8.65% pa
• Income 12 years: 7.35% pa ( this period includes the GFC and net effect is a 10.31% pa total return )

This financial year

Last 2 years

Last 5 years


Last 12 years ( includes GFC )


( This backtest was setup by assuming $10k invested in each of the 4 LICs on 19 June 2005. For consistency of results I disabled dividend reinvestment. )

This is the complete backtest and I included CBA and WES for comparison. Again, dividend reinvestment is switched off for consistency of results.

 

Thanks for that... obvious from your numbers, returns will vary a lot over the short term but that's true for property too.



RE: Investing for late starters @b0b555.

Good question! I was reading this month's Money Magazine and it reckons if you have 275k as a single or 400k in assets (eg. Super), you'll be just as well off as if you had 700k as a single or 1m as a couple.
Why? Access to the pension...

 

Yes. Saw that. Interesting isn't it. But of course all articles like this use an income rate of 4%. I'd hope we would be earning much higher than that in retirement. We are well over that rate now.

 

Imagine in retirement.... i've gone by the principle that if you work off a 3% inflation rate and a 4% withdrawal rate, it's a safe bet and by using that rule of thumb, you'll never outlive your money.

 

That's the plan..!!

 

Nice piece of software

 

A couple of things I don't understand here, and maybe someone can help me out/clarify?

1. Capital gain column: Is that capital gain per year? ie BKI has achieved a share price growth of 3.39% per year? Same thing I presume for total return, ie year on year?

2 ARG has had a 12 year capital gain of 2.8%. In 2005, ARG share price was $5.7. In 2007, the SP peaked at $8.88, and since then you've had the GFC and a few other ups and downs to a current SP of $7.60. So, long term the shares haven't done much in terms of capital growth/ remained flat. Do many of you see this as a concern? or a concern relative to investing in say property?

 

I was discussing with my friend about this...seems like to achieve a $40,000 return a year, I will need a million invested in LICs because of average 4% returns. Am I looking at it wrongly?

 

21.83% total return p.a. for CBA over the last 12 years. Wow! That's just crazy!

 

Yes - these are the 12 year figures broken down on a per-annum basis. Don't forget the income which gives the total return on a year-by-year basis of 9.6% pa for ARG and 11.53% pa for BKI. Quite spectacular returns year on year given that we had the GFC in this period.

These are long-term set / forget investments. The assumption is that when you are accumulating, you are reinvesting all of the income. You enhance this by reinvesting all the income to snowball growth of your asset base and hence its ability to generate even more income.

@larrylarry, as above you are missing the key point which is the focus is on quality income-producing assets that produce a consistent and ideally a growing income over time.

I have generated an "all-income" report from sharesight. These are the year-by-year figures for income.

• 2005 and 2017 are half-years
• Blue bars are the raw dividend income
• Orange bars are the gross income with franking credit incorporated
• Note the growth in the income, even in the GFC the income did not drop significantly.

No additional shares have been purchased and income has still grown. This is for the total portfolio above consisting of the 4 x LICs, CBA and WES ( $10k invested in each at June 2005, no further purchases ). Edit - includes CSL

You could improve the outcome by reinvesting all the dividend income each year.



I have attached the spreadsheet if you want to look at the raw figures. I have just added columns E, F, G and the chart. Otherwise this is the raw output from sharesight "all income report".

In a nutshell, invest in quality income-producing assets that show consistent results in terms of growing income. Capital growth is a bonus, particularly if you pick the odd star-performer like CBA or CSL. The strategy pointed out to us by Thornhill is a no-brainer. He has done the hard yards of pointing out the obvious - quality and consistency of asset. It might be boring but it works.

 

I think it would be great if you do a presentation...

 

There is no short without taking on more risk in one way or another. The advice should be the same, get started ASAP and allow as much time as possible. I would hope Peter is stubborn enough to not change his method.

Obviously not a popular point of view to sell and why get rich quick does so well.

 

Yes, how quickly I forget about the yield trap.

 

@wombat777 said:

I was an early investor in BKI. Before you all get too excited I'd suggest that readers look into the history of BKI. Learn to question these things rather than accept them at face value. DYOR.

 

Here are the figures for income growth with the above portfolio ( 4 x LICs, CBA, WES ). Edit - includes CSL



I won't achieve 7% year on year rental income growth over 10 years for my two IPs in Moreton Bay. Challenge to achieve that anywhere!

 

Disclosure I am an FP, this post contains no advice.

Great answers above....4% is a simple income assumption for a blue chip style of portfolio of course on top of this is growth and this can be sporadic and at times negative. Most retirees are not going to hold a 'pure' blue chip share portfolio and if they have any sense they will more likely be invested across a far broader range of asset classes all designed to generate healthy income yields.

Statistically most will choose to be balanced/moderately defensive in their retirement portfolio and from this we can expect the range of total returns to be lower than pure shares over the long term, but with the advantage of being more stable. We normally assume an 8% overall return on assets for a 'balanced' type of retirement portfolio (60% growth assets, 40% defensive). As a self-funded retiree aside from drawing down the needed income, it is important to strive for a small increase in the capital base each year to counter the effect of inflation.

In summary an income drawdown of 5-7% is normally achievable and sustainable while still retaining the value of the capital. Once income drawdown exceeds 8% this is a much more difficult prospect to sustain long term and unless additional risk is taken on board, capital value is likely to be eroded over time.

 

That evil word 'balanced'

Thornhill would snicker.

 

Oh dear that would be like waving a red rag in front of a bull.

Peter told me his financial planner is an ex-Perpetual colleage who he knows he can trust NOT to do stupid things when Peter dies like adding bonds, property, hybrids, alternatives and other rubbish.

Peter spent most of his life working for large fund Mgrs including Perpetual and educating financial planners and the like.

He has strong views but sticks with what he believes in No matter what. And that is the hardest battle with investing.