Assett Class Spread.

Tropo,

Of course they are, they're returning to their historical correlation. Its not that they're diverging, but that they're moving in opposite directions so that they're correlating once more. With gold at US$500, oil should be at a little under US$30 a barrell. With Oil at US$50 a barrell gold should be at US$900 an ounce. They NEED to move in opposite directions for a while.

Cheers,
Michael.

 

Of course they are, they're returning to their historical correlation. Its not that they're diverging, but that they're moving in opposite directions so that they're correlating once more.

Divergence means that this two are moving in OPPOSITE direction.
Convergence means that this two are moving in the SAME direction.
I guess that you confuse yourself a bit...

PS - Do not bet on any historical correlation / relation too much.
It's a WEALTH hazard in some instances.

With gold at US$500, oil should be at a little under US$30 a barrell.
With Oil at US$50 a barrell gold should be at US$900 an ounce.
They NEED to move in opposite directions for a while.

Who told you that ?????.

 

History did...

http://www.zealllc.com/2004/goldoil4.htm

And how about this from today's AFR:

To get to US$850 that's an average of 14% pa growth over the next 5 years. Personally, I reckon it will happen a lot sooner than 5 years too...

Cheers,
Michael.

 

http://www.zealllc.com/2004/goldoil4.htm

Well .... a lot of people believe in history but to me above article about gold / oil ratio it's just another point of view.

," said Angus Geddes of tipsheet Fat Prophets which predicts it will reach US$850 an ounce within 5 years.
To get to US$850 that's an average of 14% pa growth over the next 5 years.
Personally, I reckon it will happen a lot sooner than 5 years too...
Cheers,
Michael.

It's just prediction, which may or may not be correct.
Time will tell ....

PS - Almost forgot....Gold might go back to $ 480....soon...

 

I'm not going to invest in gold because I don't understand it's relevance or importance.

How gold relates to oil prices, how gold relates to the Dow Jones industrial average, I just don't understand.

 

Glebe,
Do not worry about gold or oil....
Do not invest in something which you do not understand.
If this is your rule - stick to it !!!.

 

Gold for me fails 2 of the three criteria for what constitutes an efficient investment asset.

1) Gold does not produce an income (yeah I know there's a new gold fund that aims to do this but that introduces fees and manager risk) so strike one!

2) gold does seem to appreciate in value so a tick here

3) generally gold cannot be used as collateral or security for borrowings so strike two!

To my mind if it fails on any one of these three criteria then it's not suitable for investment. On the other hand if you asked my wife about gold...

 

Hey, join the party Glebe- economists we are not
However, I know a few people that swear by gold. A funny story for you:
When I was looking at IP's to buy in Rockhampton a couple of yrs ago now, I came across this REA who was anxious to sell his house and have the investor lease it back to him for a period of five years. When I asked him why he was selling his own beloved PPOR, his response was that he was investing all his cash and reserves into gold! He had total faith that he would be a multi millionaire in the very near future.
His asset spread mustn't look too good now- I wonder how he's going....

 

Getting back to the original topic, thanks Simon. It forced me to do an Investmant Class analysis. Something I've been neglecting for too long.

Here's my split, and as you can see, I'm going against the norm as I don't have direct property though a couple of the direct stocks are Westfield types but I prefer to class them as pure equity stocks. Super not included in the figures below.

Cash 60%
Share/Funds 30%
Private Equity 10%

Cash is split 46% AUD, 20% JPY, 13% USD, 21% SGD
Shares/Funds is split 60% Direct stocks in AUD, 34% OS Stocks via Funds, 6% Stock options

 

For me asset split as follows

Property 80%
Shares 19%
Cash 1 %

Although about 90% of the shares "lot" are in geared share funds which generally return about double any XJO movements.

 

I found below info somewhere in cyberspace...
FOR YOUR EYES ONLY ....

THE rumour that the gold run up is in part due to the Refco Capital derivatives problem being far more serious than has been let on?.
There have been several BIG BOYS meetings on derivatives (Starting on Sept 15th) and two more recent ones.
It was noted for some time that someone out there is holding a bad derivative book....one day that the chicken will come home to roost....

Gold rally is over, the concern of Central banks ability to continue confidence in the paper game.....seems that money is 'hedgeing' into some real assets....

 

Original topic..

Cash 20.4% Mostly Sitting in offset Accounts
Shares 22.5% Mixture of Direct and Funds
Property 57.1% Residential CG only

Lvrs ...
Cash 0.00%
Shares 38.39%
Property 84.82%

Gold = Nil.

Questions:
Why 20% Cash?
1. Cash cover would last us a good couple of years if we both lost our jobs and couldnt work, while maintaining our current lifestyle.
2. Buffer for any unexpected events
3. Allows for any good purchasing opportunities to be seized
4. This is actually in the upper range .. I aim between 10-25% depending on circumstances.


Where to from here?
Approx DSR Ratio: 65.68%
=> DSR = (loan payments per annum) / (30% * annual income + 80% * annual rental income)
So we got a little room to move. Looking for next great opportunity, wont just jump on any old thing.


T&D.

 

Hi All,

Distribution between the asset classes is somewhat dependent on what each investors’ requirements might be!!

Some investments are purchased for CG
Some for Income
Some held as a buffer
And many combinations thereof.

In the asset acquisition phase it is mostly about Capital Growth; with sufficient income to cover the holding costs and of course some lifestyle.

In the retirement (financial independence) stage it is more about Income for lifestyle; with enough Capital Growth to sustain the portfolio.

Liquidity can be held in cash or other liquid assets . . . and this buffer amount is dependent on the investors risk profile. (SANF)

In GENERAL:

Without Leverage:

Property = 50%
Shares =50%
Cash = (SANF) and this will form part of your liquid share holding; or reduce your share holding and be held in cash. (Usually in an offset account.)

In this case:
Property = 50%
Shares =45%
Cash = 5%

This translates to a WITH LEVERAGE situation as follows:
RATIO between Property and Shares will be 5 : 2

For every $100k placed in property + loans (80%) : $100k placed in shares + loans (50%)

Gross Property $500K : Gross shares $200k

The cost of holding 80% loans against the properties is offset by the income from the shares, with the excess balance for lifestyle / reinvestment

Where up to 5% (more if you can't sleep at night!) is held in an offset account, this is a form of INCOME which serves the same purpose as the shares . . . just without the CG element. In general, most clients use shares as a buffer. (But do not leverage that portion.)

Regards,
Steve