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Assett Class Spread.

Discussion in 'Investing Strategies' started by Simon, 28th Nov, 2005.

  1. Simon

    Simon Well-Known Member

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    Currently I am spread accross the three sectors as follows:

    70% Property
    25% Equities both direct and MF
    5% Cash

    I actually thought I had a reasonable sized Share portfolio but now seeing that they only make up 25% of our net wealth I am starting to think I should expose myself a little more.

    What sort of ratios do others hold in their portfolios?

    Any comments?

    Thanks team,
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    There's another way of looking at this.

    How much of your own money (or equity) have you invested in each of the asset classes ?

    For real estate at 80% LVR, you only need $20K for every $100K of investment, but for shares at 70% LVR, you need $30K to get the same investment.

    Put another way, if you have $20K to invest, you can get $100K worth of real estate, or you can get $66.7K worth of shares. In fact, going from 70% LVR to 80% LVR gives you 1.5 times as much purchasing power for investments. As such, perhaps you should allow 1.5 times as much real estate value as shares value ?

    Was just a thought :D
     
  3. Simon

    Simon Well-Known Member

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    Good points Sim although I am not so concerned. My total LVR is only about 35% at present. I can borrow with no problem however do not wish to raise my LVR to the 70% or 80% level until my wife finishes her studies and our income rises.

    But taking it to 50% for either class is neither here nor there.

    So my question remains - Do people think 25% is underweight for sharemarket investment?
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Do you think you can make more money out of real estate over the next 5 years than you can out of the sharemarket ? If yes, then 25% is probably about right.

    Personally, I'm leaning more towards the sharemarket right now (building up to closer to 50/50 shares/property), because I don't think I can make high enough returns out of real estate in the short term. If I was a more active property investor (willing and able to put in a significant amount of research effort to find good deals, and perhaps add value by renovating), then I might be still more bullish on my abilities to make money in the short term. But for now, I'm taking the passive route and building up my share portfolio (via managed funds).
     
  5. Alan

    Alan Well-Known Member

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    I'm about 1.5:1.0 (Property to Shares).
     
    Last edited by a moderator: 29th Nov, 2005
  6. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Simon,

    You're underweight in Gold. It has low to negative correlation with other asset classes which means that it gives diversification benefits during high stress periods such as now.

    http://www.australiangoldinvestment.com/why_def.asp

    You don't think this is a high stress period? Well, the clouds are gathering and time will tell. Here's just a couple of POV from one source, but there are heaps more from other sources if you want me to link them:

    http://www.peakoil.com/fortopic1514.html
    http://www.peakoil.com/fortopic14879.html

    Cheers,
    Michael.
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    And how much gold do you have in your portfolio Michael ? :p
     
  8. Simon

    Simon Well-Known Member

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    I already have plenty of gold around the missus neck :)

    Interesting articles. Some are a bit reminiscent of Y2K:

    Here are my priorities:

    1. Get out of debt.
    2. Get out of the city. ( I just moved from San Diego)
    3. Put your money in precious metals.
    4. Sell your house and get someplace smaller and cheaper while you have the equity. Housing prices are going to collapse big time.
    5. Upgrade your disaster preparedness kit.
    6. Try to find work where you don't need a car to commute.
    7. Make capital investments to improve your energy efficiency.
    8. Stay away from "leisure activities" jobs. Luxury fuel use vehicles, boats, RV's, although RV's may be the home for a lot of people.
    9. Surround yourself with people who you can count on. Not just trust, but who have abilities..MacGyver types.
    10. Join peak oil.com


    I am not keen to hold much gold due to lack of yield. But thanks Micheal.

    Cheers,
     
  9. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Sim,

    Not enough... :D I'm taking a punt on the markets holding strong for the next 6-12 months so am maximising my leverage in equities. If you read that first article it says that "A portfolio which is optimal for good times (non-stress periods) is not one which is optimal for bad times (stress periods)". So, I'm gambling on this being a non-stress period so I can optimise my returns in the equities markets.

    The thing is though that others are starting to perceive this as a "stress period" which is driving the gold price up. So, to optimise my return in this period I should optimally be holding 12% gold: "The “optimal” portfolio allocation to commodities was 3% during the full-sample period and 12% during the stressed period."

    I've looked into purchasing hard bullion out of the Perth Mint and its readily done:

    http://www.perthmint.com.au/gc/depository/depository_layout3.asp?file=precious

    I like the idea of the certificated service whereby you can buy gold but have them store it for you. I've got an LOC for $100K just sitting there at the moment and am contemplating putting a large portion of this into gold.

    My current asset allocation is about 50:50 property and shares. My property is all my PPOR at $800K and shares of around $700K. I hold no IPs currently and believe the property market will stagnate for a few years yet. I'm not into +ve CF property so will hold my dollars in reserve (maybe gold) until the market improves and then buy some CG properties.

    Cheers,
    Michael.

    PS Oh yeah, I also have about $60K in cash now too, my emergency buffer and its parked in the offset account against the PPOR...
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    What kind of returns do you actually think you can make from gold ?
     
  11. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Sim,

    This article might paint a pretty picture to answer that question. You'll like it because it uses statistical analysis based on correlations:

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

    Note that the gold/oil correlation is statistically significant historically. Then consider that the oil price is currently around $60 a barrell. Now, draw a line across on the chart to what this might translate to in gold price....?

    OK, maybe US$1000+ an ounce is a little on the "high" side. But I've read a lot of reports lately suggesting US$700-$800 is achievable and its currently at US$500. So, it has the potential to be a high yielding asset in the short term. Add the diversification benefits and it is something I'm looking into SERIOUSLY at the moment.

    Cheers,
    Michael

    <edit> Link to breaking news article today:

    Gold breaks US$500 barrier
    http://www.theaustralian.news.com.au/common/story_page/0,5744,17402810%5E1702,00.html
     
    Last edited by a moderator: 29th Nov, 2005
  12. MJK

    MJK Well-Known Member

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    Lets get back to the original question,

    I'm at,

    7% cash :cool:
    17% shares :eek:
    76% property :D

    Its actually surprising when you work it out.
    I'm leveraged off the property to 80% but am applying no leverage against the shares. Maybe that is the next step? suppose that what many are doing with LE ( leveraged equities)? Margin lending?

    I've got a long way to go to get to 50/50 property and shares!

    MJK :D
     
  13. Nigel Ward

    Nigel Ward Team InvestEd

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    how much cash to hold

    It's interesting that nobody is holding much cash (percentage wise at least)

    Of course even 5% can be a substantial sum if your net asset base is large.

    I've been reading that some of the more bearish managed funds out there are at around 60% cash atm. Of course that's not exactly a fair comparison, but what do people think is an appropriate cash holding to permit you to take advantage of opportunities but without too great an opportunity cost?

    Our cash holdings are under 10%.
     
  14. Simon

    Simon Well-Known Member

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    MJK,

    That is exactly what I use LE for myself.

    Cheers,
     
  15. MichaelWhyte

    MichaelWhyte Well-Known Member

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    MJK,

    OK...

    Specifically:

    Property 56% ($800K)
    Shares 40% ($580K)
    Cash 4% ($60K)

    I'm pretty happy with the mix right now but have spare income and spare equity. So, when the property markets look like they've stopped tanking I'll put that equity and income to work servicing some IP loans.

    Cheers,
    Michael.
     
  16. gazza

    gazza Well-Known Member

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    Cash 3%
    Property 65%
    Shares 32%
     
  17. MJK

    MJK Well-Known Member

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    I suppose us property investers consider the shares are liquid enough?

    MJK
     
  18. Glebe

    Glebe Well-Known Member

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    Shares 68%
    Property 28%
    Cash 4%
     
  19. Tropo

    Tropo Well-Known Member

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    Gold breaks US$500 barrier >>>> and oil is down so we've got clear divergence between this two....right now.
    Many investors belive that gold is an indicator of a weak dollar.
    Gold has been used by hedge funds as a inflationary hedge and also to protect their dollar longs.
    So buying gold ( long ) is a temporary convenience and a hedging tool...
    :cool:
     
  20. Jenny

    Jenny Well-Known Member

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    Property 65%
    Shares 34%
    Cash 1% :eek: :eek:

    gee Gazza your cashflow is much healthier - areya good for a loan :cool: