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Asset Classes - preferred mix

Discussion in 'Investing Strategies' started by islandgirl, 19th Mar, 2007.

  1. islandgirl

    islandgirl Well-Known Member

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    Just wondering what everyones preferred mix of asset classes is. I am trying to sort out now how much to invest in what so I would be interested to know what mix most of you have and why.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    There are many differing strategies ... although there is some "conventional wisdom" that you will probably get from Financial Planner.

    But I'm not a planner - so I don't necessarily follow their strategies.

    My current strategy is approximately 50/50 split between direct real estate and managed funds. I like the high leverage you can get with real estate (I typically gear to 90%) and I like the liquidity and growth/income return from the managed funds (I typically gear those to 60%).

    I use equity from my real estate portfolio to invest in managed funds and I use the growth/income from the managed funds to help fund the holding costs of that real estate.
     
  3. Tropo

    Tropo Well-Known Member

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    From Investopedia [ Asset Class ]

    A specific category of assets or investments, such as stocks, bonds, cash, international securities and real estate. Assets within the same class generally exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.

    Asset classes exist to provide structure to the vast array of financial instruments available in today's market. Although no two stocks are exactly the same (and some differ quite significantly from each other in terms of volatility, dividend yield, etc), most equity shares are sufficiently similar to each other, and are different enough from other financial instruments that they are reasonably grouped together into the same asset class.

    Assets are also grouped together based on the characteristics of their underlying companies. For example, a micro-cap and mega-cap stock can both belong to the same industry sector, while two mid-cap stocks can be involved in entirely different business sectors.
    Investors often build portfolios which make use of several asset classes, changing the proportional weighting of each asset class to suit their changing needs.
     
  4. islandgirl

    islandgirl Well-Known Member

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    OK I guess what I was trying to get to was a good mix for my diversified funds. My stragegy is to use the funds to buy IPs. The mix I was currently looking at was 37% Aust Shares, 18% Int Shares, 32% Listed Property, 13% cash. I'm just not entirely sure if I am too weighted in any particular area
     
  5. Nigel Ward

    Nigel Ward Team InvestEd

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    Investment theory would suggest you'd be possibly overweight Listed Property

    BUT if you'd been overweight Listed Property in recent times you'd be laughing...:rolleyes:

    All of which just demonstrates:

    1) it's easy to be wise in hindsight
    2) there's often a difference (particularly in the short term) between theory and best practice. I.e. tactical asset allocation can enhance returns.

    Cheers
    N.
     
  6. _Sharon_

    _Sharon_ Active Member

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    Islandgirl,

    The CFS site has a calulator on there that will work out your risk profile and then will give you an allocation of asset classes.

    For example, I did it and my risk profile was Moderate, it then shows me that my assets allocation should be as follows:

    Cash: 6%
    Fixed Interest: 34%
    Australian Shares: 28%
    International Shares: 22%
    Property: 10%

    Is that the sort of thing you are after?
     
  7. Chris.R_WA

    Chris.R_WA Well-Known Member

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    Hi Sharon,

    Do you have a link to that webpage you could post?

    Cheers, Chris
     
  8. _Sharon_

    _Sharon_ Active Member

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    Hi Chris,

    Colonial First State: Home

    you will see "Calculators" on the left side column and then under that "What investments suit your risk profile"


    Cheers
    Sharon
     
  9. islandgirl

    islandgirl Well-Known Member

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    Sharon
    That's perfect. Thank you
     
  10. Bantam Roosta

    Bantam Roosta Well-Known Member

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    One thing I always wonder about is why advisers etc recommend such high levels of Australian assets and such little of international.

    The Australian share market makes up approximately 2% of the world market which is diddly squat in my opinion. I understand the idea behind the fact that we live in Australia and therefore understand Australian markets better, but that's what fund managers are for and even if you subscribe to that theory then make it perhaps 10-20%. Why are we so scared to invest overseas?

    Admittedily my current ratios are only 47% int and 53% Australian, but I do have every intention over the long term to have 75% int and 25% aus (of my share portfolio only). Out of my total portfolio I am aiming for about 60% direct property and 40% shares/funds.

    BR
     
  11. Bantam Roosta

    Bantam Roosta Well-Known Member

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    I just did the calculator on the CFS site and feel a bit better now. They recommend 50% int and 50% aus shares for me. I'm not so annoyed at them anymore.:eek:

    BR
     
  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I know the advice has really always been the way you describe it - but in recent years, a number of factors have conspired to make our markets some of the strongest performing in the world.

    Taking into account the extra risk of currency fluctuations along with potentially riskier investments due to weaker corporate governance rules in other countries - makes it a LOT more risky to invest internationally than locally.

    The sheer volume of capital entering the local markets due to our compulsory super really has a significant impact on the liquidity and strength of our markets too.
     
  13. bundy1964

    bundy1964 Well-Known Member

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    With international shares/funds you also have the price of the dollar effecting your returns.

    I have been burnt with managed funds in the past but they do add balance and cash income as well as growth.

    For me currently Property 66% aussie shares 30% and 4% managed funds. Path of least resistance is to invest more into shares and managed funds.
     
  14. AndrewG

    AndrewG Well-Known Member

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    Classic - I just did this, and came back with the exact same result.... There's probably only 4-5 different risk classes anyhow so it would be easy to get grouped into the middle one :)

    Andrew.
     
  15. petros

    petros Member

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    The CFS calculator gave you about the asset mix of large institutional investors in the US who do have a moderate risk profile with more stock allocations followed by bonds and about 10% in direct real estate investments.

    Petros
    Profitable Property Investing in Perspective
     
  16. Dunsborough

    Dunsborough Active Member

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    The one variable that i feel is missing from these calculators/profiles is are they assuming you are joe bloe with 100g inheritance to invest? or the typical investor here that gears up with Other peoples money to a high degree.
    Not sure if i making sense but in reality the minute we used geared funds would be good if that was a variable that could be allowed in profile as in itself has to be looked at carefully?
    cheers
     
  17. unthreaded

    unthreaded Active Member

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    As far as I see this, the profile is going to tell you if you are the sort of person who is happy to gear or not. If your highly geared and looking to a web calculator to see if thats appropriate, I would suggest you need to reevaluate your whole strategy.
     
  18. Dunsborough

    Dunsborough Active Member

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    I think what i should have said is this should be something that is stressed to anyone who uses. I have seen where people are gearing a 70% portfolio and tell you they are a "moderate" investor.
    Surely the minute you gear into a portfolio regardless of assett classes you have to consider yourself a agressive investor?
     
  19. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    So if I buy a house at 80% or 90% LVR, I am an aggressive investor ?

    What about a 20% LVR on a margin loan ? That's not exactly aggressive when comparing to a 60% LVR ?
     
  20. Dunsborough

    Dunsborough Active Member

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    Sim i take your point completely, and not sure i know what i talking about but it worries me that Gearing negatives are not emphasized enough.
    The risk profiles clearly ask people to consider their comfort zones, but my thought was a question about gearing % and the standard reminder about gearing can give + and - multiples could ensure people are more thoughtful.
    I still remember stories galore where it was the margin lenders fault that people were going bankrupt.

    If in worst case scenario a seasoned investor factors in he could lose 50% of his portfolio but still have a lovely home, several ips, car, super etc well so be it.

    But i reckon a percentage of investors risk family homes etc all because they have never seen a huge drop in value, and dont relise magnified losses occur as well as magnified gains.

    In the end it's i know its buyer beware, and cant protect people from themselves etc etc.