Thoughts on my investment Strategy

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

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  1. Big A

    Big A Well-Known Member

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    Looks like we are in a similar boat. So I don't have anything that captures every single investment. All equities are on the BT panorama warp platform. I have holdings in multiple unlisted property trusts with multiple different managers. 4 managers ( it was 5 but Heathley have now merged with Centuria ) and 17 different trusts across those managers. Will be 15 soon as Charter Halls two automotive funds that I hold are winding up. I do have access to the platforms of each manager so I can view my holdings. But nothing on a single platform and that draws a pretty performance picture for you.

    Same with AU and the mortgage syndicates. I have access to a platform that shows my holdings but no real performance results.

    Like you I have my own excel spreadsheets that captures holdings and capital allocation but that doesn't really give me total results. I have recently created another simple sheet to capture income investment generated from each asset class, broken down into quarters and financial years with a pretty little graph. This is more to give me a visual of income growth and keep me motivated and growing.

    But to be honest it hasn't really fazed me not having everything captured in the one place. The property trusts and AU are reasonably straight forward. They pay a fixed distribution and then send you regular reports outlining growth. Its really only shares that you need to see regular performance results. In truth you probably don't even need to see it with shares either if you are a long term investor. The more access you have the more time you spend watching it and obsessing over short term gains or losses.
     
  2. exp

    exp Well-Known Member

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    I'm not going to defend financial advisors, however, I wanted to comment on the quoted section above about being put in the balanced fund due to being a new investor and being angry about not being placed in the high growth option.

    Risk tolerance is seldom discussed on forums, and there is nothing more important than being aware of your risk tolerance. The stock market is volatile. It is normal for the market to fall 30, 40, or even 50% on average every decade or so. Think about that - how would you cope seeing your $3,000,000 fall to $2,600,000. That's $400,000 that you no longer have. It may rebound soon, or it might take another decade of ups and downs before it just comes back to even. What if it continues to fall to $2,200,000, to $2,000,000, to $1,900,000, to $1,800,000, and you don't know when it will stop falling, or if it will be a Japan-style situation where it takes 30 years to recover. In the 2000 tech wreck, it took two long horrendous years of falling before it turned around. Are you going to hold your assets, or are you going to pull them out? People lose massive amounts of money pulling their money out after huge falls, only to miss the eventual rebound, thereby making these massive losses permanent.

    As a new investor, I think it is irresponsible for you to be all in a high growth fund.

    However, I also don't think the balanced fund that you mentioned being put in is a good option because if you switch to the high growth fund later after you are more knowledgeable about market volatility, you will have to realise gains when you switch. A more sensible option would be to have a smaller amount of your assets in a high growth option with the remaining in defensive assets. The result would be that your total balance matches a balanced fund, but where you can ease into more equities over time as you come to terms with market volatility without realising capital gains.

    In summary - don't put all your funds into high growth just because that is what someone else does, whether it is your advisor or a bunch of people on a forum. One useful part of a (good) advisor is (or at least should be) establishing your risk profile. While it sounds like there are significant issues with your advisor's advice, I suggest you spend some time learning about risk tolerance to determine your risk profile before investing so that you avoid making a potentially catastrophic mistake.
     
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  3. MWI

    MWI Well-Known Member

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    IMHO, risk tolerance with capital protection (like using stop losses, setting up upfront strategy for what maximum loss you are willing to take?).
     
  4. MsNewbieInvestor

    MsNewbieInvestor Well-Known Member

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    Thanks, I appreciate your response.

    I wasn’t cross at my FP for not advising to place my super in a high growth fund -I was cross at the way they justified their decision.

    Of course I am older than my FP and wealth preservation is a bigger priority for me, however, I didn’t feel it was appropriate to be told that I could progress to the higher growth fund over time, after I became more comfortable (it seems like unnecessary switching fees to me). Also, super isn’t a very large portion of the funds I have to invest, so I don’t feel it is too high a risk to aim for a fund with more growth (my overall portfolio could still be largely balanced).

    No, I certainly wouldn’t feel comfortable seeing my $3mil drop by $400K, but who would? I now understand that if I invest in shares, then I need to hold them during a downturn. I have made the mistake before (during COVID) of pulling my super out after we had a huge fall. But I didn’t have any advice then and I didn’t understand that a rebound was likely.

    My FP thinks it would be appropriate to switch me from a balanced fund to a high growth fund once I’ve become more comfortable. But what exactly does that mean? I will never feel comfortable with losing $400K for example. I think comfort comes from understanding that huge falls are normally followed by rebounds, but that those rebounds could take years (I would be ok with that because even if the rebound doesn’t occur in my lifetime, it should occur in my children's). My FP has never made any effort to educate me on any aspect of shares (I'm now putting in the effort to do some learning myself).

    When you say that you think it’s irresponsible for me to be all in a high growth fund, are you referring to my super? I have no intention of investing all of my funds into high growth assets. I was only referring to my super (which will likely end up being around $500K -when I maximise contributions).

    You mentioned that I would need to "realise gains" if I switch from a balanced to a high growth fund. Could you please tell me what that means? Will switching funds be the same as selling stock?

    I am definitely not putting all my funds into high growth -I would never be able to sleep at night!

    My risk profile ended up being Balanced (just bordering Growth). I don’t plan on rushing into anything. I’m really grateful for the helpful advice in this forum, but I will definitely do my own research/learning and discuss any suggestions with an FP before moving forward.
     
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  5. oracle

    oracle Well-Known Member

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    You might enjoy this chart to see how market had kept moving higher and higher in spite of all the falls during the 2 world wars, depression years, different political parties in power, oil crises, global financial crises, covid pandemic and much more. The chart only goes till 2016 so I attached another chart from 2016 onwards.

    this-is-the-top.png


    From 2016 onwards.


    DJI_2016_2021.png

    The growth is nothing short of a miracle if you ask me.

    Cheers,
    Oracle.
     
  6. FredBear

    FredBear Well-Known Member

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    Realise gains means that you have some event (e.g. a sale) that results in the gain becoming real and thus taxable.

    Example: You own $1000 in shares of company A. You bought these for $500. You sell, so have made a capital gain of $500. This gain is taxable, so you have to pay something, say 30% to make the numbers simple, in tax. The tax is thus $150. You are left with $850 to invest in something else.

    If say company A used to pay a 5% dividend you would get $50. Now a new investment in company B at the same 5% would only pay $42.50.
     
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  7. MangoMadness

    MangoMadness Well-Known Member

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    I sometimes watch Jim Cramer on CNBC for a bit of perspective on the market and as entertainment. Occasionally though he says something that sticks in my mind.

    He was telling a story about when he started at a company in the 90's and wanted to tell the rich clients about share investing and his boss was saying 'just get them into bonds'. Jim queried his boss about this and his boss said "You only have to get rich once, once you are there its all about maintaining the wealth and not losing it"

    Maybe this is what your advisors are thinking. You have built your wealth to a point where it is more prudent to just maintain that wealth than to take risks to build more wealth?
     
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  8. Big A

    Big A Well-Known Member

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    I hear this all the time but it really makes no sense to me. Are we saying that someone who has lots of money should take less risk but someone with only a little should take more risk? Are we investing or gambling?

    I imagine it should be the opposite. Someone with $10 million could lose half and still be very comfortable. Some one with $500k loses half and they would struggle to retire and live of $250k.

    I guess what I am saying is, if you believe that investing is risky and you could lose significant money what difference does it make if you have $100k to invest or $100 million. Best you don’t invest regardless.

    if anything having more invested should put you in a position in which you can live purely of the income and not have to sell in a downturn. Someone with a smaller portfolio who has to draw down capital regularly to live off should probably be playing it safer as a market downturn will hurt them more.
     
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  9. MangoMadness

    MangoMadness Well-Known Member

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    I think you miss the point entirely. It goes hand in hand with the 'what is enough' question.

    If you say 'yes, I have enough' then what is the point of accepting risk to simply get more?

    Someone with $500k might say they have enough and be as risk adverse as someone with 1/3/5/10 mill. But the reality is that most people wouldn't consider 500k enough or feel like they are 'rich' whereas many would assume (rightly or wrongly) 3mil to be enough/rich and suggest a lower risk portfolio to match.

    In this case it also goes hand in hand with the psychology of loss vs gain. Humans feel loss more acutely then they do gain and so as much as the client may say 'more risk, more risk' the advisors know full well that as soon as the portfolio drops by the hundreds of thousands or even millions the client is going to **** themselves. Hence why they would (and probably should) always defer to the low risk side of the equasion. :)
     
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  10. Big A

    Big A Well-Known Member

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    Oh yes that Question. How much is enough? I will get back to that question but regardless if you feel like you have enough, if you had an opportunity to make more and provide something extra to for the next generation then why wouldn't you? Anyway that's just how I see it.

    Back to the million dollar question. I am well past the rookie stage of thinking if only I had X amount that would be enough. For me personally I don't think there is such a number that I would consider enough. As long as I can continue to accumulate more in a measured and calculated manner then I will try. Many would assume that $3 million would be enough. But I think many are kidding themselves and if faced with the option of having more, and when I say that I mean via a measured and sensible investment approach and not going all in on Black or Red then they would choose more. Maybe most people wont admit it for fear of sounding greedy, but I think greed is a common trait of many people but just don't like to say it out loud.

    Get a group of people who don't own their own home and have no real savings. Ask them if they had a home paid off and $500k invested would that be enough? I reckon most will say Hell Yes.

    Ask a group of people with their own home and $3 million invested if that is enough. While I am think most would say sure its enough, but I wouldn't mind a little more just for some extra buffer.

    I have played this game myself from my early 20s when I bought my first house. If only I have my house paid off and maybe 1 investment property that would be plenty. What more could I want.
    House paid off and 5 investment properties later, I say if only I had a portfolio that could bring in $200k p.a income that would be plenty. And so on and so on. I now know that I will have a forever moving target. And why not? I am not killing myself or living frugally in order to achieve those targets. So as long as I hit the next target I will then move on to the next one. Is this a good thing or a bad thing? I guess it could be both. We must occupy ourselves with something, so it might as well be this.

    @MangoMadness , I am glad you brought this particular point up of Enough. Its a great topic for debate and I am sure something that everyone at some point will need to figure out.

    I will pretend to be smart and finish with something that I read or heard since it was on audio book from John Bogles Book titled Enough. Hopefully I am retelling the story fairly accurately but I am sure you will get the point.

    Some writer had just launched a successful book and was at the launch party at some billionaires house. The writer was pretty happy with himself having written a successful book that had earned him plenty of money. The billionaire makes a comment along the lines " Well I have made more money this year than you will ever make from your book". The writer then say's " Well I will have something that you will never have." The billionaire being quite puzzled as he has everything say's " What's That"? The writer answers " Enough".
     
  11. exp

    exp Well-Known Member

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    My apologies, I missed the super part. If you are in a regular pooled fund then no there should be no gains realised when switching as they're taxed along the way.


    Yes, its a conflict of interest. I assume many advisors be aware that they would have clients for longer if their clients remain in the dark and therefore rely on them indefinitely.

    I hear the idea for those going into financial planning is to build up a client list of however many, and then service them indefinitely. The obvious question is why on earth anyone would need to pay a yearly fee for their whole working life when 90% of the work is done up front.
     
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  12. SatayKing

    SatayKing Well-Known Member

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    A bit of a broad brush.

    Maybe a client isn't wired to be able to do it themselves and the work of the FP increases commensurately. Not everyone has the necessary competence skills.
     
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  13. paulF

    paulF Well-Known Member

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    That is extremely well thought, cheers for that. Some people are more ambitious than others or simply more driven. The reason for that ambition or drive is simply irrelevant except for that person making the effort.

    Add to that, having more money is always better than having less. As much as i dislike generalizations, I feel like anyone who thinks otherwise is kidding themselves.
     
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  14. The Falcon

    The Falcon Well-Known Member

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    The typical FP model totally sucks and I don’t know the answer, though I think robo advice has a part to play. Your summary is pretty spot on. Imho Most people (average earners) should set up a budget
    and follow it, pay off their mortgage ASAP and salary sacrifice into an industry super fund. If they want to take a punt on property, go and DIY. They will only need specific advice close to retirement.

    I’ve got an FP and have been happy with the service. My advisor is a partner in the firm and has given me a couple of great pieces of advice in the last 18 months that have added value well beyond the fees. This type of advice is not related to the investment management component - which is the easiest part, and lowest value add.

    Our situation is atypical however as there is a degree of complexity involved - your typical FP would add no value here. I specifically sought out an advisor who is familiar with clients that have similar requirements.

    I’ve thought about the FP business model and the challenges an advisor trying to do their best for clients has. It’s a pretty diabolical gig, dealing with irrational expectations (I want to give $$ to someone and he should make me rich, and quickly!) and difficulty of charging fees commensurate with the value add. “Fee for service” without an ongoing relationship is problematic from an operators perspective and not a business I’d enter into!
     
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  15. MsNewbieInvestor

    MsNewbieInvestor Well-Known Member

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    Thanks, Oracle, it's certainly reassuring to see a visual representation!
     
  16. MsNewbieInvestor

    MsNewbieInvestor Well-Known Member

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    Thanks very much for explaining that -it makes perfect sense and I learned something new.
     
  17. Millie

    Millie Well-Known Member

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    I believe good FP’s are of benefit to a range of people. Just because you have a high income because you are a top range sports player or in the medical field, or whatever, doesn’t mean you are financially savvy or have the time/interest to become so.

    An analogy is a personal trainer. Anyone can “do their own” fitness programme from YouTube but some need the motivation or discipline that the trainer provides to keep them in line with their “goals”.
     
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  18. MsNewbieInvestor

    MsNewbieInvestor Well-Known Member

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    Thanks, I understand the point you're trying to make.

    If I did absolutely nothing with my money, I would have more than enough for me. But I'm not thinking of just me, I'm also thinking of my children and grandchildren. If I can make their lives easier, then I want to be able to do that. I don't want my FP to suggest anything crazy, I just want them to do better than simply maintaining my wealth.
     
  19. twisted strategies

    twisted strategies Well-Known Member

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    i don't see listed REITs as a bad thing ( but ALWAYS encourage folks to do what is best for YOU and YOUR aims )

    i see those drops in share price (unit price ) as opportunities to buy more or resist the urge to buy more

    that said i consider REIT investments as a substitute for investing in bonds. notes and bills ( especially given the current low interest rate scenario .

    and yes 'which bank ' does seem to treat non-billionaire clients as trivial annoyances , i hope you found a better place to operate through

    don't fret about your English skills , by the look of it your maths and finance skills have made up the difference , rather nicely

    remember what you have learned about debt , because there is a huge debt overhang out there somewhere , probably disguised as CMOs and credit default swaps

    all investing is about RISK v. REWARD , remember that an equities look a bit easier as well

    cheers and good luck
     
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  20. twisted strategies

    twisted strategies Well-Known Member

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    you seem to be forgetting the implicit threat of inflation , in your calculations ( inflation can explode in a very short period ) and even if you are debt free it can savage your spending power like few can believe

    also good luck finding a safe place for your wealth ( even gold bars under your floorboards create security problems )

    cheers
     
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