Thoughts on my investment Strategy

Discussion in 'Share Investing Strategies, Theories & Education' started by Big A, 23rd Jan, 2019.

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  1. Nodrog

    Nodrog Well-Known Member

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    Now this is where it gets interesting as it can also bring in the hardest part of investing, the behavioural aspect. It’s very difficult to massively change who we are despite all the evidence thrown at us over time. As mentioned in the previous post I’ve done a rediculous amount of reading about investing including indexing over many years. Of course the power of knowledge / experience may result in changing our behaviour over time for the better, a classic example being able to cope successfully with market crashes.

    However there are just some things I will never feel comfortable with despite the evidence or do even if you held a gun against my head. And one of those is having the vast majority of our investment in just a couple of index funds. Some will think me silly but that’s what’s required for me to sleep well at night. No amount of education, knowledge, hypnosis, psychotherapy, personal development etc will change that.

    But in regard to equities I do like wide diversification, low fees, relatively reliable income, low turnover in the portfolio, no key person risk, a long history of survivorship etc. Other than index funds some specific LICs meet much of this criteria. So having our investments spread between index ETFs and LICs and holding a generous amount of cash / term deposits is not about achieving outperformance but simply meeting my behavioural needs to enable me to stay the course and sleep well at night. And at 59, retired and enjoying a wonderfully comfortable life off our investments I’m really not all that interested in further trying to change who I am. Am I outperforming the index? Do I care? Nope, not one bit.

    Despite being armed with an abundance of knowledge and a superior investing strategy etc if you try to go against who you are behavioirally there’s a strong possibility you’ll end up toast. Seen it happen many times over my life to even the best.

    Sorry @Big Al if I’ve confused you more. The evidence certainly suggests that indexing wins hands down against the vast majority of active Mgrs over the long term. I’m a huge fan of it. But I just need to spread the money around to meet my psychological needs. May not be perfect in many other’s eyes but we ain’t done too bad. Only you can determine what balance is right for you. In terms of behavioural aspects sometimes what the gut is telling you can be a powerful thing in the right circumstances.
     
    Last edited: 24th Jan, 2019
  2. Big A

    Big A Well-Known Member

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    Why settle for 1 adviser when you can have a team of very knowledgeable and experienced members right here offering advise opinions and sharing there experiences. I think that's as valuable if not more than any paid adviser.

    Ill put the disclaimer here that I will not take any posts from other members as advise and if it all goes pear shaped will not sue anyone. :D
     
  3. Big A

    Big A Well-Known Member

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    Actually @Nodrog that was one of the clearest and most confusion clearing posts I have read if that makes sense.

    I could not agree more. While I like index investing and believe its a great strategy I don't know if I am comfortable going only in index funds with the size of capital I wish to hold in equities. I would be much more comfortable splitting it between index and actively managed.

    Even though I like the idea of simple and not holding to many different funds I have no issue with going into a few LIC's while still holding the managed funds in the active half. Then over time the managed funds that are not performing as expected we can move out of and re allocate to LIC's or index funds till the split is 50% active split between managed funds and LIC's and 50% index funds.

    Being that I am currently growing the portfolio rapidly rather than make rash decisions and move completely in one direction I can just re balance with the additional capital I am injecting over the next 12 -24 months.
     
  4. Nodrog

    Nodrog Well-Known Member

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    Join the club mate. Never worried about money when younger and had a lot less.. Now we’re likely better off than at least 95 - 98% of the population financially wise at a guess and I’m the same. Pathetic I know. But another one of those behavioural traits I’ve never managed to overcome as life progressed. I’m your typical nervous nelly despite years of attempting meditation and other strategies. Given my nature it’s amazing that I’ve learnt to deal with market crashes so well with my first experience of one with share exposure being in 1987. It’s not natural to me but I learnt to cope.

    I’m similar to you in that I allow for at least a 50% cut in dividends / distributions over a very long period but still enabling us to live very well. And that’s catering for a worse than Great Depression scenario. So in a nutshell I need a minimum of double what our lifestyle needs are to keep my nerves at bay.

    Funny also similar to you none of my family (other than wife) and friends have a clue about our finances or that I know anything at all about investing. Yet on an anynomous forum we expose so much detail.

    We are who we are!
     
    Last edited: 24th Jan, 2019
  5. Nodrog

    Nodrog Well-Known Member

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    There’s a saying in the world of investing and a very powerful one behaviourally wise and that is the best path is the one of least regret even if it’s not considered perfect in some quarters!
     
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  6. Big A

    Big A Well-Known Member

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    Isent it funny how we can share more on a forum then to our own family sometimes. Only the wife and adviser would know what I have shared on here.
     
  7. Zenith Chaos

    Zenith Chaos Well-Known Member

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    You should be able to work out how much cash / bonds you keep based on the risk you want to take. More cash equals less risk.

    Whatever is left should be diversified using a strategic allocation across: countries; large, mid, small cap; value, growth; active, passive; equities, reits, others.

    Costs should be minimised, firstly the FP costs and then the overall MER (aim for less than 0.3% averaged over the portfolio). I'd ensure you have appropriate tax structures in place with professional advice.

    The following portfolio would do better than most IMHO:

    VGS 15%
    VAS 20%
    AFI 10%
    CASH 15%
    IJR 5%
    IJJ 5%
    VGE 10%
    DJRE 10%
    Vanguard wholesale fund split equally as above 10%. Weekly inflows into this fund.

    Not advice.
     
  8. Omnidragon

    Omnidragon Well-Known Member

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    WHEN You buy a property you do DD on it. Seems like you don’t DD your shares
     
  9. Big A

    Big A Well-Known Member

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    @Zenith Chaos thank you for taking the time to put together your allocation breakdown of preferred funds.

    @Omnidragon what is DD? I’m guessing due diligence right? I don’t normally buy invidual stocks. Only ever bought three individuals and 2 are A Reits. The managed funds were picked by the adviser I use and his job would be to do the DD on those funds for me.
     
  10. Big A

    Big A Well-Known Member

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    Happy Australia Day fellow PC members.
    I feel like we should not be talking investing today, but rather celebrating how lucky we are to live in such a great country.
     
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  11. Nodrog

    Nodrog Well-Known Member

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    That’s the wonderful thing about investing in equities. One can buy near the whole market (index fund) for a tiny fee hence no DD required. Obviously not possible with Resi property:).
     
  12. The Y-man

    The Y-man Moderator Staff Member

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    Great idea!.....wait....darn can't help myself...... :oops:

    The Y-man
     
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  13. Big A

    Big A Well-Known Member

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    And that’s pretty much where I will be directing all capital that goes into equities for at least the next 12 - 24 months. Will balance holdings to be 50% index funds. After that will review and and decide wether I keep going past the 50% in index.
     
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  14. Big A

    Big A Well-Known Member

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    Badley. it’s terrible isn’t it. I think we have serious issues. :eek:
     
  15. Big A

    Big A Well-Known Member

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    But now that we are here I might as well put forward the next question. Till now I have not been a fan of having an allocation to cash. I have about 2 very comfortable years living expenses set aside and everything else is invested.

    I want to have a war chest to be able to deploy in significant market downturns but also have the option of using funds I have sitting in the offset against the house loan. I have kept that open as my line of credit.

    Question is should I be all in always even in the current volatile market and not put some dry powder aside? Considering the fact I have the ability to draw some $1.4mill against the PPOR at 4% interest?

    What are others doing with regards to cash holdings?
     
  16. The Y-man

    The Y-man Moderator Staff Member

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    I have some defensive holdings in

    GOLD (ETF) - lquid and versatile (traded on ASX) but have heard various stories about the gold actually not being there etc. I use these quite a bit as a bit of reverse capital reserve (usually gold goes up in big bad days on the market, and down on "good" days)

    Gold (Physical) - many many moons ago on Somersoft, I think it was Thommo argued the benefits of bullion coins over normal bullions, due to easier assaying etc. I have taken that piece of wisdom and have bullion coins.

    The Y-man
     
  17. The Y-man

    The Y-man Moderator Staff Member

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    The beauty of having dry powder in a volatile market is the ability to DCA in (or average down as they say).

    I still have a bit of "room" in my offsets yet to dump cash into. :D
    I big logistical issue I am facing is that when I buy into the share market, it is difficult to transact the amounts needed (transaction limits) - not sure how people deal with this....

    The Y-man
     
  18. Nodrog

    Nodrog Well-Known Member

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    Using a standard offset arrangement as a LOC for investment purposes could result in a tax mess. Have you discussed this with your FP?
    Now retired and having achieved more than ever planned I’ve decided not to use leverage anymore.

    In the past however I favoured investing most new cash into the market roughly when available. The LOC(s) were used mostly to take advantage of when exceptional market opportunities arose. I would aim to repay the loans ASAP then rinse and repeat when the next major downturn occurred.
     
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  19. Omnidragon

    Omnidragon Well-Known Member

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    The index is heavily weighted by top 10 anyway. So you’d take a view in at least the banks and BHP/Rio surely?
     
  20. Big A

    Big A Well-Known Member

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    I haven’t discussed using the offset as a LOC with the FP but have with the accountant. As far as I understand as long as I only draw from it for investment purpose then tax deducting the interest is not an issue. Prior to commencing drawing from it for investment purpose it was pretty much matched to my PPOR loan so no interest was payable any longer. I don’t draw from it for any personal use so there is no mixing and matching.

    Does the above sound right or is there more to it?

    @Nodrog we seem to have a similiar mindset when it comes to investing. I favour having all funds invested as soon as its available and then using Small amounts of cheap leverage to take advantage of opportunities till more surplus capital arrives to pay down the debt.

    Though there’s always the thought in the back of mind especially considering the current market volatility and constant media talk of upcoming doom that I should hold off deploying large lump sums into the current market.

    Funny story regarding that last point. I remember going to my first meeting with the banks FP team in January 2016. I was a little early and was in the building foyer waiting so had the phone out and doing some reading. At the time the market was going through a slight downturn and I am reading all this stuff about the doom that’s is coming.

    I remember thinking I’m about to commit to investing into equities and the whole thing could be about to come undone just as I go in. I held strong and went ahead with investing in equities and we had a decent rally just after that period.

    Now 3 years later I am having the same thoughts in the current market. Should I commit significant capital into equities this year with all the talk of doom? While i am nervous with the current local and global political and economic climate I’m still thinking all in always is the way to go.
     
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