Rotating Geared shares into Bonds.

Discussion in 'Share Investing Strategies, Theories & Education' started by radson, 12th Dec, 2016.

Join Australia's most dynamic and respected property investment community
  1. radson

    radson Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    1,563
    Location:
    Upper Blue Mountains
    OK to be clear at the start. I am generally a well behaved investor. I have low index funds with which I contribute monthly, I focus on fees and prefer to buy in fear.

    I have a Perpetual WFIA account which has no CGT on switching investments.Of course there is still Perpetuals buy/sell spread to consider

    As part of Managed funds, I have Perpetual Geared and Vanguard Bonds.

    Is there any downside, as a periphery strategy to rotate out of Australian Geared into Bonds when the ASX is high..like currently up (17% this financial year ) and then rotate back into Geared when we hit the dips again? Rinse and repeat?
     
  2. Hodor

    Hodor Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,238
    Location:
    Homeless
    I am certainly no expert, beginner would be accurate.

    Are you planning to use rules or pick market peaks through some other method?

    Bogleheads use rules based re-balancing which effectively does this , i.e. if your allocation is 50% shares and 50% bonds when shares have a bull run you sell down shares and move capital into bonds to maintain your 50/50 split in capital, when the market crashes you move capital from bonds back to shares. Long term this kind of re balancing seems to have little impact on returns from what I have seen, most models show lower capital volatility with slightly lower returns. However there are examples which will show whatever you want.

    http://www.theaustralian.com.au/bus...1/news-story/76b0b7dfc63ea9709ed99e2c0e6efe7b

    The graph in the link illustrates that a strong year doesn't give any indication what will happen the next year.
     
    6 people like this.
  3. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,376
    Location:
    Buderim
    Gee this brings back old memories. Earlier on I did something similar. Back in those days the Perpetual Multi-sector product with tax ruling to switch between funds with no CGT was known as Perpetual Investor Choice Fund. The assets classes available from memory were Aus Shares, Aus Industrial Shares, Small Companies, Property, International, Asian and Cash and maybe a balanced fund etc. The fees were a bit hefty back then.

    The strategy involved the use of the Economic Clock where one would switch between asset classes depending on where it was in the Economic cycle. I remember some time after I spotted a book using a similar strategy plus various other cyclical strategies with shares, warrants and LICs etc and purchased it. It's quite old now with the title "How to Handle a Bear Market" by Harper. Still gathering dust on the bookshelf.

    The only problem of course is that figuring out where we are in the Economic Clock is not always that easy. At it's simpliest one would switch to the Cash Fund when danger threatened then back into shares after a recession / crash / bear market etc.

    Quite frankly given where bonds are now if I was going down that path I would be switching to cash (not bonds) when you felt or have a rule that shares are into dangerously high territory.

    Like all these timing models it's never as easy as it looks and Fund fees (including platform etc) need to be taken into account.

    I gave it up long ago and nowadays only follow the dividend investing approach. No selling means no CGT and capital volatility is no longer feared due to the focus on more stable dividends. A cash buffer is there for further dividend smoothing if needed. But that's getting off topic and I'm sure I've bored you to death with this on the PC forum.

    Cheers
     
    4 people like this.
  4. radson

    radson Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    1,563
    Location:
    Upper Blue Mountains
    Thanks for much @austing and @Hodor.

    To be clear, this is not my main strategy but as a sideline to my regular monthly investments into various local and international equities.
     
  5. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,376
    Location:
    Buderim
    Of course mate, I've read other posts by you overtime and fully understand where you're coming from. The Perpetual product was / is great in that there is no CGT issues. I looked upon it as a less risky way to trade in and out of asset classes. Perpetual are doing the stock picking so your main focus is on the big picture rather than stuffing around trying to analyse and pick direct stocks.
     
  6. Hodor

    Hodor Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,238
    Location:
    Homeless
    You will have to keep us updated on your progress with this strategy. I can't commit enough funds to split my focus, helping me learn some discipline staying to the main plan.
     
    2 people like this.
  7. Redwing

    Redwing Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    7,435
    Location:
    WA
    Downside may be you get your timing wrong, ASX continues to climb

    I guess your not keem to have geared fund going south though if you do get your timing correct
     
  8. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
  9. Redwing

    Redwing Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    7,435
    Location:
    WA
    As a rule, when stocks drop bonds usually rise (or drop much less)...But it doesn’t always happen
     

Buy Property Interstate WITHOUT Dropping $15k On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia