Thoughts on my portfolio

I look at it the other way.

Growth assets (international shares/ smaller companies etc) in super because they are more volatile. I can handle the risk in super because I cant touch the money anyway.

Outside of super I've got mortgages on investment properties to pay, kids to put through school etc so I can't afford to take as much of a gamble. Thats why I've gone for lower volatility and fully franked dividends.

 

That’s just it, equities are volatile because of the risk premium. A share price will drop by about the same amount as the dividend. It isn’t free money. Any volatility in the market is on top of this “withdrawal” from the company balance sheet.

If investors are willing to prop up a share price because of dividends, this means they are willing to over pay for a stock resulting in lower expected future returns

Diversification is the only free lunch in investing.

Volatility is better reduced by adjusting your asset allocation between equities and defensive assets like cash and bonds.

 

LICs are not magical. Neither are dividends. You're taking on more risk compared to something like a simple VAS/VGS portfolio.

 

Please don’t take any of this feedback as being critical of your past decisions.

Regularly investing and savings rate are going to have a much bigger impact that asset allocation and we all start somewhere

I also have skeletons in my portfolio including direct property and direct shares before learning about things like idiosyncratic risk and passive index investing. I guess this is propertychat, so direct property is ok . Main thing I like is the easy ability to leverage up property compared to equities.

It is all a journey of learning and implementing what you learn in future investment decisions

 

Exactly, growth stocks have a higher risk premium and higher volatility than income stocks.

 

Not at all, appreciate your input.

We learn from having our ideas challenged not agreed with

All good.

 

Growth stocks do not have higher risk premium than income or the correct term "value stocks". Higher risk premium means higher expected returns with higher volatility. In fact, you actually have lower expected returns with growth stocks if you look at the history of financial markets. Value beats growth in most periods.

 

Don't worry about it - I've spoken to an older investor overseas who obviously had made a fortune in the share market. When I asked him how he did it he said buy REITs, nothing else. There's also a heck of a lot of people in this world who've become rich off commercial property. If you like the idea of part ownership of everything from boutique apartments and fancy shopping malls to data centers, warehouses and self storage containers all around the world you can get that from REITs. That's the great thing about investing now, I can simply buy DJRE or REIT (hedged to AUD) and get it all. If you check out some of their top holdings like Prologis, Digital Realty Trust etc. it's pretty interesting. It's the nerd in me but I think they're cool to own.

For me I design my portfolio based partly on what the experts recommend - and for that I refer to people who've been in the game a long time with an established track record like David Swensen and William Bernstein. Swensen recommended around 20% in real estate which seems about right to me. The other part is making sure that what I buy I will stick with. REITs are volatile, with booms and busts, but I like the "tangible" nature of what they own. There is also great empirical evidence for their long term performance, they've been studied a lot over the years.

I can't argue they're better than small cap value or whatever other sector people have data mined to show is the best, but I'm confident I will stick with REITs.

If anyone is interested - An interesting thesis from MIT in the 90's with a good summary of how REITs did during the 1970s which was one of the worst times for investing in history. It sums up REITs well - they're a rollercoaster so hang on https://www.google.com/url?sa=t&source=web&rct=j&url=https://dspace.mit.edu/bitstream/handle/1721.1/67431/32278879-MIT.pdf;sequence=2&ved=2ahUKEwjhl5n68bLvAhWixzgGHddFCXAQFjAAegQIARAC&usg=AOvVaw2NV1naANpA7uQYGbP4-dZn
The lit review has some interesting stuff in there.