Asset Allocation

Not as exciting as futures trading which I did for awhile when younger and even stupider.

 

Would you consider a tax return a 5th dividend payment due to franking credits?

 

Good point, Yes for personal and smsf.

 

Looked at my tax assessment for last FY. I see the franking credit offset but the end result is DR not CR. There was a payment but not a 5th dividend.

 

Well that was a lie.

 

Reading a few of your posts it seems that some opportunistic possibilities are under consideration.

So, my opportunistic friend, let me introduce to you a framework that may be of some interest for harvesting opportunism.

It's called total return investing

I'll just throw up the spreadsheet because I reckon you can follow it.



In the example the dividend stream from company is held steady but yield is changing. ie the market discount rate is changing or in other words the amount the market is willing to pay for a dollar of dividend is changing. in the example the change in yield increase/decrease is logarithmically equivalent.

First box is taking dividends.
Second Box is 4% total return where prices cycle low then high.
Third Box is 4% total return where prices cycle high then low.

The real work is done by accepting a more variable income stream with total return vs dividend stream. But hey if you are in the position to accept it, all that total return withdrawal dictates is to buy toys, do reno's, travel and live luxurious when the market is up and use common sense when its down.

I suspect you probably think and act at least in a discretionary way like the above anyway but recoil from your thinking being labelled total return for some reason. Maybe this is the chance I have for you to see what I mean when I say total return withdrawal strategy. Lots of smoothing options can be added to a total return withdrawal strategy if straight % on capital is too volatile.

Dividends are an important source of liquidity, but consumption shouldn't be driven by liquidity alone if you ultimately wish to maximize spending and wealth collection. Well, that's my conclusion anyway.

 

There's a few other considerations.
With dividends the money is in the account available to spend and enjoy it while I can.
Non franked dividends are available now. Gov is not holding 30% of my income for 12 mths.

Just as important the phsycological.
Will a person sell in a bear market or be horrified at selling a 10 or 20% drop?
Will a person sell at 50% gain or be spooked by the thought of paying tax?
LIFO, FIFO?
Will they end up just making excuses and not enjoy the wealth they have accumulated?
I would probly be susceptible to all of the above.

I do agree with the principle of "total return" from a mix of diversified assets, though I think it's very hard to achieve effciency with just a few index funds or under >2mil to invest and of course personal temperament.
Life is a little easier though with 7.7mil as the above eg.

I noticed in your OP 25% direct Au shares, which is what I've doing after the income equities.
Do you still have 25% allocated?

 

Target of 25% was at preservation age which is 6.5 years away. Current directs are 40.5%

Need to add a few more mil to that figure, market and particularly directs have been good recently and nothing is being drawn yet. But size doesn’t matter, everything scales on percentages, difficulty comes when you don’t have enough capital to sustain what you want to live on and the solution to that is more efficient/effective accumulation or allocate more to savings so that you get to an adequately sized capital base.

As for the psychological. I feel completely at ease and that is because of the thought behind the strategy. Dividend liquidity goes into the cash allocation, total return calculation spits out withdrawal amount which will be direct debited from cash allocation into spending account each month. Then just rebalance to Strategic Asset Allocation if necessary. I have a bit of leeway built into asset allocations so that I can indulge my valuation bias when transactions needed, not enough leeway to hang myself though.

 

Thanks @dunno. I’ve always well understood the total return approach and withdrawal strategies to suit. But just found the dividend focus more comfortable.

Some would probably be surprised how much I do sell stocks to realise capital at times usually when there’s a large expense. And the reverse being I like to take advantage of tax loss harvesting when albeit infrequent opportunities present. Hence why I prefer ARG / AFI over AUI etc because the liquidity is dramatically better.

Fortunately we’re at that stage where it doesn’t really matter what we do going forward. However it’s time to add further diversity when opportunities present. And what interests me is certainly less dividend focused. Opportunity wise because I only buy listed funds nowadays as opposed to individual stocks more patience is required.

So whether it’s receiving dividends or realising capital especially from high growth listed funds I’ll take it with a smile on my face. My experience has been that unexpected large expenses sometimes arise good and bad. Hence I now take the view that when buying an asset there is always the possibility some or all of it may be realised in the future.

 

I just did some quick calcs.

RIP 25.%
CIP 56%
ASX 7.5% = income 90%(MOT 41%, PL8 29%,QRI 21% ,MXT 5%, GCI 5%) BTFD direct shares 10%
FX 6%
CSH 7.5%

The basic premise of buying equities for income was to move my cash holding to a higher income earning asset. With some more risk/volatility that comes with it.

Being an unemployed bum, like the power grid, my money grid needs base load income to adequately cover normal monthly usage and quick discharge storage for peak usage and events. Or storms and blackouts.

It's nice to earn 5% on cash and i think there's no need for FOMO and plenty time allocate.