ETF Ive finally rejigged my portfolio to indexing

thanks for the links dkmc, some good reading in there, eg I just read
Active vs. Passive Management

Fascinating.

 

I'm not trying to be negative dkmc (I'm a fan of the DFA funds as well, and I love your work ), but your point above is not something that I would consider when choosing funds. I'm sure you're aware of LTCM.

John.

 

DKMC
Personally I have found this one of the best threads in recent times. Thank you for the information and your personal experiences. I am working my way through the IFA book now, and will look to get a couple of those books off amazon. Thanks very much, it is appreciated.

 

Yeh, I wouldn't be worried about index funds per se based on this, but the nobel has to be the most over-rated award in the history of humanity.

It's basically got this huge chunk of politics behind it, often seen as being a way of nudging people or countries in the 'right direction'.

I mean great to have but the perception I think people have that it's a stamp of reliability or something is just flat wrong.

Oh.. And I agree this is an excellent thread, top stuff.

 

Its not just that but more the fact that its based on academic research, lead by directors who are academics. It means that the funds continually apply different methods to extract higher returns
see
Research



I like the pages below too- explaining a simple concept that gets
overlooked when you keep trying to pick stocks
Try and pick the overall asset allocation - reduce volatility and increase returns.
Diversification
Structure

Id suggest most should do some reading on the topic even if you think indexes are too boring
Its well worth it
And if you still think you can beat the market - how about a core portfolio like this with a satelite of say 10-15% of stock picking
Though Id still rather completely passive portfolio
Its really refreshing
and a fantastic exercise to construct your own allocation and risk profile

 

Can you access the DFA funds with smaller amounts through wrap accounts?
Is there a particular minimum doing this?

 

Those books from amazon
Ive havent even had time to give them a proper read
Just a few of the relavant chapters

I found nearly the best source to be ifa.com - the audio or video podcasts
Its basically the book they sell but in an easy to listen to form

Im not sure if there is a minimum in a wrap
Ive only got a few thousand in one DFA fund

so Im sure the minimum is something like 2000

 

See this old thread for where I was

http://www.invested.com.au/79/whos-beaten-market-how-has-your-15754/

And now

Much more robust now I think
Though less income - as I dont need it - Im aiming for growth

 

Check out this link

Investment Guide

Read the chapter on rebalancing

"the most important reason to rebalance your portfolio is to maintain your desired risk level. As assets grow, your stock allocation will become higher than you originally intended. There may be a temptation to let it ride, but this increases your risk, which you have carefully evaluated in your asset allocation model. So, reason number one for rebalancing is to maintain your risk profile."

This strategy can provide a small return bonus and keep volatility in check over time. This is the second reason for rebalancing.

“Rebalancing imposes a discipline that results in an investor buying low and selling high which is the name of the game after all. Rebalancing ensures that investors periodically sell winners and buy losers. In this way, the standard deviation of the portfolio over the long term is reduced without sacrificing performance.”

 

I had an interesting chat with a financial planner yesterday.
He seemed to take a fairly negative view on future growth - he said that expecting 14% over the long term was overly optimistic, he suggested 10% was more appropriate (referring to an indexed portfolio.
Also tried to throw water on the idea of early exit from the workforce. He basically suggested that super was the best way to go, plough everything into superannuation until your super is big enough to have a comfortable retirement at 60, then worry about building a nest to tide you over from whenever you want to "retire" until age 60.
He is not particularly fond of leveraging, or direct residential real estate investment.
It was actually a little depressing talking to him, as I have always had a more optimistic view. He did say something that rang true with me, that you should ensure that if the worst crash we have ever seen hit the share market you wouldnt be wiped out. He made the point that if you are geared to 50%, and the market drops 50%, its all she wrote for you.
Definitely has made me have a think about whether my expectations are too high, or leveraging over 50% is too aggressive to be sustainable...
Anyone have any thoughts on this?

 

No, he was a strong advocate of indexing, and entirely fee for service.
He is also probably one of the most referenced planners in Australia, because of his comprehensive website.

 

You need to be aware that hanging out on these forums gives some unrealistic expectations over time

10% long term above inflation - sounds about right
Thats why Im very cautious about margin loans in this environment
Im not a fan of super - but it depends on how long you have til retirement

One of the reasons i got a planner was to help manage risk
And planners are conservative and realistic

They would frown on how I have leveraged property, and direct property as an investment

I look at my aggressive view, consider their conservative view - and take something inbetween - taking the best elements of both

Leveraging from line of credits with the lowest Interst rate you can get seems good to me

Ive also considered leveraging to just 30% so that the portfolio remains cashflow neutral

It depends whether you want to go aggressive in property or shares and your overall portfolio

 

What I am leaning towards at the moment, after discussion with the FP, is to keep the margin loan side of things at a fairly conservative LVR, something under 50%, and leverage the absolute balls off of property - take advantage of the fact that the banks like it, no margin calls, and lower interest rates.
Keep the managed fund side of things very bland - indexing at low LVR, and use property as the engine room, adding value where possible, regularly ripping money out of there to put into the funds.

Again, I really appreciate your posts dkmc, I have got a lot out of them and looking forward to making another adjustment to the investment strategy, hopefully one that is a bit more conservative but just as effective.

 

Yep thats the way Ive done it
Leave margin loans til your servicibility has run out

Thats the way navra does it too
the thing is Im not needing the income as im not that cashflow negative
The difference is Im aiming for growth in shares as well


That way you have 2 engines running
Theres no need to be ultra aggressive increasing risks when this is happening
I think this lowers the risk of just being in property, or just being in shares too

It all depends on your situation

 

The planner had some interesting things to say about Navra as well, but we will leave that one alone!
It is my belief, much to the chagrin of the planner I spoke to, that leverage is the only chance the average punter has to attain some measure of financial success.
Obviously this needs to be tempered with some level of safety, so your boat doesnt sink in rocky waters (how good are metaphors!)
Your (maybe ultra) aggressiveness on the real estate front could be well tempered and buffered (due to liquidity) of a conservatively geared MF portfolio. (sorry to harp on, that is a real change to how I have previously approached things)

Now I guess the next issue is how much to gear property to.
Is the extra benefit you gain out of leveraging very highly (say 90% or so) worth the mortgage insurance (particularly since it is able to be written off over 5 years).

 

Hehehe....

Sounds like you might have been talking to Travis hey. Just a stab in the dark, but he was really negative about Navra last time I spoke to him, and he's the champion of diversification really which is the main theme of this thread. Oh, and you did mention a comprehensive website... I like his concepts for their simplicity, but he is a bit of a bear.

You need to be careful to temper all the advice you get and recognise individual styles for what they are and how this modifies their recommendations. If it wasn't Travis, then the point still stands. Just making an observation about understanding people's paradigms before taking their advice.

Cheers,
Michael.

 

Tell no names MW, but in unrelated news, you are a regular Columbo
He seems to be a massive proponent of the nice, slow, and easy approach.
He doesnt think a great deal of acquiring multiple properties at all (do you think you can add more value to a property than Westfield, etc).
He does however seem to have a really good understanding of the type of portfolio construction that is the topic of this thread.
Also, as DKMC suggested, hanging around on these forums could skew one towards the slightly more optimistic viewpoint.
Perhaps going with a FP like that is a good yang to the optimistic yin (or is it the other way around..?).
The hard thing is that being a FP, he is largely academic, so his way is really the only right way.
For example "I know of quite a few people who have done extraordinarily well out of acquiring multiple properties", the response: "yes, it is always annoying when people far more ignorant than you achieve what you cannot".
That thinking seems to be the exact opposite of my "I would rather be rich than right" philosophy!

 

Hi,

I think the FP being referred to favours LPTs (and the like) rather than Res property for the property asset allocation of your portfolio. Apart from the often higher yield and a lot less hassle it is a much more passive investment. Personally, I don't really regard Res IP as passive because there always seems to be something requiring your attention especially when you have multiple IPs even when using a PM.

Before spam somewhat runied aus.invest there used to be some brilliant discussion there. As for gearing on equities around 40% seemed to be considered reasonbly safe but of course this could be argued endlessly. Being conservative and concerned with preservation first that figure sits well with me.

As always there is no right or wrong way to do things - results is what counts albeit some take on a lot of risk to achieve their goals.

Although we have multiple properties now I do very much look forward to having a much more passive portfolio as we age. Hence that will certainly mean owning less res IP. Recording dividends and distributions is the only work I'm interested in. Other than that enjoying life is the main priority as time is a precious commodity.

Dkmc, thanks for starting this thread. I've thoroughly enjoyed seeing how you have put together an extremely low maintenance passive portfolio and the subsequent discussion. It just goes to show that investing really can be safe, simple and hassle free. Well done.

Cheers - Gordon