Review and criticise my Managed Fund Portfolio Super Fund

I am building the my Managed Fund Portfolio Super Fund as follows. Can you give your thought and recommendation?

 

is there a fees column? what would be the total fees for this portfolio?

 

Anne11, thanks for reminding me the fees:

 

I believe you can get a better long-term return by reducing fees and going for index ETFs. Not advice.

 

1.6% overrall fees seem to be on the high side for me.

If it was my portfolio I would estimate overall return of around 7-9%/year.

 

Those fees are high.

Here is how you can understand the real cost of those fees.
Pick what you think the stock market long term average will be (past has shown 8-10%).
Lets go with 9 just for the sake of picking one. You could pick any amount for the below numbers and still holds true.
It looks like your average fees are around 1.25%.

So your performance expectation of $100,000 using these products vs index funds with 0.2% management fee would be:

Over 20 years: $444,985 vs $540,229

That tiny little sounding number of 1.35% and 1.19% are going to cost you around 20% of your money over 20 years, and the gap compounds the longer it is, so it will cost you over 1/3 of your money over a 40 year investment period.

And before you say you will not be investing for 40 years, your investment period lasts until you sell, which will likely be when you die, it doesn't stop when you stop working.

Here is a great documentary explaining how these small looking fees cripple your end return. It is long, but when it saves you hundreds of thousands of dollars it will be well worth the 90 minutes of your time.

 

Here is old paper on funds written by Ashley Owen it might help a bit

 

How about picking out-performing funds?

 

Additional info, I am mid-40 years old and invest for max 15 years. Will the cost be a big issue if the returns from active managed funds are high?

 

What will you do when you are 60? Take all your money out and put it in the bank and live off the capital earning 2% interest for the next 30-40 years? You would need 50 or 60 times your yearly salary in savings in that case since inflation will eat into it.

The majority of the stock market is purchased by managed funds. Very little is by individuals.
They all pay big dollars to very smart people who pick stocks for the sake of outperforming the market average.
By definition, the market average means that for every unit of outperformance, there are others who have underperformance for exactly the same amount.
If these very smart people half the time under perform then what chance do you have of outperforming or of finding a fund that outperforms? I would say close to none.
In fact you should do a google search for 'SPIVA'. They are an organization who measures long term performance of active fund managers vs index performance. What they found was that those who outperformed for a period of time, underperformed in the next period of time, and after taking into account the massive cost of fees, such a small number outperformed in the long term that it would be considered statistically zero.
Outperforming the market is a sales and marketing tactic to convince you to pay their insane management fees, so that they can profit from customers ignorance. If you ask me, it's sick. You know those warnings on cigarette packets that have a picture of a dead fetus to make people who buy them unable to ignore the reality of their choice?
The government should make a law that all managed funds need to get a customer-signed document saying that the investor understands that by paying up to 2% management fees they are handing over 20-40% of their future wealth compared to index funds and that virtually all managed funds have been shown to underperform the index in the long term after the cost of management fees is taken into account - and they should put a graph showing the 20 year growth of management fees of 0.2%, 1%, and 2%.
I would urge you to watch that documentary I posted earlier.
There are lots of really books that say exactly this and I would urge you to spend a little time reading some of those too.

 

By the way, where did you get the figures for "expected return".

Take a look at your first item.
Return over 5 years is 14% and over 10 years is 7%. Wouldn't that mean that the first 5 of the last 10 years returned zero with the next 5 years returning 14% giving the 10 year average of 7%?

So how do you determine your expected return over the next 10 years? Do you go by 0% or 7% or 14%?
If you invested in the US market from 82-97, you would have gotten a return of about 17% pa compounded.
If you invested in the US market from 97-2012, you would have gotten a return of closer to 3%.

Past performance is no indication of future performance. And in fact an overperformance over a short or medium turn of a particular market, tends to underperform (and vice versa) in the future because of reversion to the mean.

 

Thanks Anthony. It is interesting. You opened my eyes.

 

Hadn’t seen that, covers pretty much all the bases.

 

Why First Choice Personal Super?

 

CBA Financial advisor?

 

Just because I find it diversified investment options,

More questions are not to try to debate anyone but try to understand if my direction is correct or not.

1). As you seen, I selected most geared share investments and small company shares. Though the fees may double those of the index funds, the return will double in the long term. No index fund offers gearing/leverage the borrowed money.

2) If I want to invest in EFT, which super fund do you recommend? Should I go with Vanguard S&P 200 index?

 

Betashares has GEAR

The Fund’s gearing ratio ranges between 50-65%

Not for this black duck though, out of my comfort zone, as if oft said, gearing magnifies losses as well as gains and who knows what the future holds.

 

Thank Redwing

Can I ask which Super Fund allow us to buy Betashares GEAR. Australian Super seems to be not. ING Super is too expensive.

 

Pretty sure none do. Legal Super offer the widest range of Direct Investment Options.

 

How did you choose these funds?

I'm wondering why you have so many Aust share & Int'l share funds? If you are investing only $100K that's a heck of a split.

If these are all in a FC Wrap (which I know nothing about) can you reduce fees by holding higher amounts in fewer funds?

Edit: Also on FC Wrap accounts - are these directly into the investments named (eg Perpetual) or are they rebadged ones that may have different fees/returns?