ETF Ive finally rejigged my portfolio to indexing

Hi everyone,

Good stuff dkmc.

The topic of index funds pops up infrequently on this site and rarely generates much interest in the midst of the Navra and other 'chasing alpha' discussions, but I think this one has FINALLY gotten off the ground here on Invested!

The evidence I've read in favour of index funds over active funds is quite overwhelming. It is the approach I use too. Like others here, I've also found material from DFA/Vanguard/Travis Morien useful, as well as some of the US authored books available on Amazon. There's an interesting one called 'Active Index Investing' which discusses some interesting concepts/variations on the basic strategy.

It is far more popular in the US it seems, but I don't think it will be too long before the average punter here throws away the darts (being thrown at the fund manager dart board) and uses the KISS approach to investing.

 

Agree with that JIT, apart from the prediction about the average punter

 

Please tell us more about the variations on the concepts!
I havent read that book - thanks for the tip
Its an expensive book - but if it adds a lot id think about buying it

Set and forget is sooo much better
Life is too fun, and important to spend too much time on investing
I got lost going to too many open inspections and to watching etrade daily
Yes its an addiction that most on this site would be familiar with
If you find ur self checking the navrainvest site for % return, checking etrade several times a day - its really silly. I still struggle to stop though
Set it, forget it, review occasionally, watch everyone else panic
You start arguing its fun to read forums, etrade, somersoft, navrainvest, etc but your life is going by, and you are getting poorer returns
Work on things that matter - fitness, family, relationships
I dont want to be known just for the guy who has x houses or x shares but the guy who has good values, is a nice person and cares about what is important.

You are right this forum is overloaded with questions like - is this fund good, or should I buy this fund, Look this fund is up x %, or interest rates r x, or asx has gone up x or dropped x - all trying to chase alpha.
Oh well - I just like to pass on what I have learned - and would hope people could suggest improvements
After a while you really train yourself to look at why you are investing in X - is it emotion, is it a tip, what evidence is there, what is the risk
before you even buy or sell. Its a completely different way of thinking once you completely remove emotion - and interestingly when you remove that emotion - you dont care as much when investments go up or down x % in the short term. Im still new at index investing, if anyone who has held them for 4+ years is reading, tell us how you have done, and what the % returns are - whats it like, and whats the volatility been like

 

Hi Gang,

Following are a couple of my favourite quotes from Warren Buffet:

"If you are not a professional investor, if your goal is not to manage money in such a way that you get a significantly better return than world, then I believe in extreme diversification. I believe that 98 or 99 percent — maybe more than 99 percent — of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs."

"Wall Street makes its money on activity. You make your money on inactivity. If everybody in this room trades their portfolio around every day with every other person, you’re all going to end up broke. The intermediary is going to end up with all the money. On the other hand, if you all own stock in a group of average businesses and just sit here for fifty years, you’ll end up with a fair amount of money and your broker will be broke."

And of importance in the first quote is Buffet's definition of "professional". Here he means someone who puts in an enormous amount of work in getting to know a business(s) inside and out. Basically people like himself.

Also Buffet really emphasises that the most critical thing for investors is to never lose money. Hence another reason for "extreme" diversification using an index fund.

Cheers - Gordon

 

Not for my lack of trying, I've been plugging SPDR's and conservative LIC's for a while now..

 

Quick post...maybe not Sim or Michael Whyte, but they're not average punters either .

 

Hey all,

dkmc has put together the following portfolio:

As an alternative to this, I propose the following portfolio which for the most part mirrors dkmc's but has lower costs:

I believe my portfolio represents a highly credible alternative to dkmc's. It is lower in cost, immediately liquid, requires no relationships to financial advisors and no delays as wrap managers perform portfolio calculations.

Yes, with my model portfolio being listed, each reinvestment would cost $30, but this represents a cost of only 0.03% per $100 000 invested.

Yes, my portfolio not being part of a wrap will involve more paperwork, but this is negligible compared to investment properties etc etc. It would take my accountant a further 5 minutes than dkmc's tax return.

So if the name of the game is low cost, low churn, and high diversification I'd like people to compare the two.

Cheers.

PS - As things stand I don't own any ETF's. This isn't my portfolio. But if I started from scratch, which I will be doing next year, it will look similar to what I've modeled.

Sources:
SPDRs
iShares ETFs for Australian Investors

 

It's been a while since I've looked at the book, and I've only skimmed through parts of it at this stage (it's pretty heavy reading!), when I get a chance I'll post a bit more about it.

Also dkmc, what sort of % asset allocations do you use for each of those index funds? Are they comparable to the % asset allocations in Glebe's model portfolio?

Great stuff Glebe.

I like the bit about 'no relationships to financial advisors' the most!

With the $30 fee, is that the same if you only re-invest 5k or 10k? If so, then re-balancing might be a more expensive exercise, and need to be done less frequently.

Also, is there an ETF for international property?

And ETF's don't have 'value' tilts right?

I like the automatic rebalancing in dkmc's approach - this is as passive as you can get, suits lazy people like me!

Tough call between the two, but I'm still leaning towards index funds over ETF's.

Thanks.

 

... and for a new investor you could trial this portfolio out for $5180 and watch how it performs.

EDIT: ... and I think I will.

 

That's brokerage for purchasing the shares.

 

Hi Glebe, nice portfolio alternative.

I still personally favour listed funds such as LICs and ETFs rather than the unlisted variety. As you mentioned there is a little more paperwork but the fees are very low and performance is excellent if you choose well (eg such as older LICs). We don't buy small parcels of shares so the brokerage cost of investing directly is not an issue. These are still very much passive investments and really there is bugger all work involved. This is the direction I will continue to take in the forseeable future.

Of course it doesn't have to be one or the other. A few years down the track I might be tempted to use something similar to dkmc's arrangement in one of our trusts. I wouldn't use it with the SMSF as the fees start to add up - so I would definately stay with direct investments in the SMSF.

Either of the options are great examples of passive investing. I think its fantastic that nowadays we have such great, hassle free, "passive" investing opportunities.

Cheers - Gordon

 

STW, SFY and SLF are on my radar, there is some doubling up on the top 50.

IEM and IVE along with AGF and INES are the foreign exposure I am looking at currently. Will look at others when they stop falling.

 

With AGF being China and INES being India, they are covered by IEM so there could be some duplication there.

IEM Holdings | iShares Australia

I say that for others, not yourself Bundy because you have obviously done your research.

 

Glebe
Thanks for posting that, very interesting.
Just out of interest, why not include something like ARG in there, with the 2.5% discount on DRPs and up to $5k each year.
MER is only 0.15%.
With the fund's investments it would go a fair way towards being a core part of the fund, no?

I guess the other issue, as dkmc suggests, is that there is the temptation to start trading/timing these things.
If you have the discipline then your alternative seems very good

 

You could also say there is a tripple up on BHP with them in IVE as well, I can't see a problem with backing winners up to a point. I do see a problem with investing into a falling market especialy if your gearing into it, I would feel more comfortable at present shorting some of the markets rather than taking a long term view.

I would review STW and the like if we hit a serious bear market and either short hedge or rebalance into something more suitable for the market conditions.

You can always just buy and stick them in the draw and forget about it which long term should work if you can take the short term pain when it comes.

 

Glebe
YES Etfs and LICs are great, thankyou for your threads on these - I partly went into them because of your posts a few yrs ago

As I said my second portfolio is ETF and LIC
and now that ishares are available I could incorporate that for international exposure and emergin market exposure

However ishares dont have the value and small cap tilts
They do have small cap in US stocks, but not a global market
Also you dont get the value and small cap tilt in australian stocks
I believe this tilt could be worth 2-4% above the index long term thats why Im willing to pay an extra 0.6-0.7% to access them.

Still a cheap low cost portfolio in ishares, ETFs, and/or LICs is
an alternative
As you mention - paperwork ,etc is a disadvantage
I actually like my FP so I see my option as exceptional value

At least now with ishares in the game - we can create passive diversified portfolios without large costs
Having access to emerging markets is great too - as is small cap S&P - but bear in mind thats US only and not as diversified
If there was a value tilt - we could replicate the portfolio better
Still it is a little messy to do

JIT: my asset allocations are on page 4 , in the picture
NB this is for my situation only, asset allocation will depend on your risk profile, Its specific for me, accounting for my tax position, and amount of leverage.

My asset allocation is tilted more to Aus shares thane glebes - approx 50%
the reason is that we have the advantage of dividends and imputation credits The true return is higher. Also I wanted a higher yield tilt - so that I wouldnt be as cashflow negative if I geared, and it gives me more room to gear.

I cant tell you guys how much an FP has helped me formulate this portfolio. We discussed risk, levaraging, LOC, margin loans, asset structure, how to buy, whether to the whole portfolio or to buy 1/4 every few months so that I dollar cost average over a year, whether to borrow more, projections of my portfolio - backtesting, research data on all the funds, and a document - stating the reasons why Ive decided to invest in this way, all the potential risks, what my specific requirements were eg yield tilt,asset protection etc
In the meantime he provided me with educational material to read and made suggestions
He took my views, presented his views and very good reasons why, and I went somewhere inbetween. There were no jugdements on his behalf. All done over the phone and email.

How much do you value a coach who keeps you on track! and provides superior return to what you could do because you keep deviating, or trading without good reason.

I dont usually post this much, and I don't want to seem as if im dominating the thread too much. If you guys have ideas or questions, please post. If you have an index portfolio tell us about it.
Im a relative newbie at this too - index investing
Ive just started the portfolio
Lets hear from someone experienced

 

Hi. Very interesting thread. I'm just moving into index funds too - Vanguard and ETFs. I highly recommend "The Intelligent Asset Allocator" by William Bernstein who gives the background of why you should be in index funds. He is on the same page as the other index fund advocates. A very smart chap. See his sight: Efficient Frontier

One interesting idea he puts forward that I haven't seen mentioned yet is the idea of keeping tax-unfriendly investments in super (eg. fixed interest, LPT) and keeping your more tax-friendly investments (eg. index funds) out of super. Thus, you must consider all the investments you hold (bank accounts, super and non-super) as your total personal portfolio. A portfolio considered like this has the benefits of diversification amongst asset classes and tax savings. And no one likes seeing their money devoured by taxes.

I'm not advocating pumping more into super where it'll be locked away until retirement, but you could structure your super so as to cover the tax-unfriendly (income) portion of your portfolio, which has been demonstrated to reduce overall risk and increase returns. Any comments?

Another good read that I'm only part way into is "A Random Walk Down Wall Street" by Malkiel.

 

Great thread and very interesting (you could get lost in Travis's site, lots of interesting information there).

Reading "The Little Books" at the moment i.e. The Little Book of Value Investing" By Christopher Browne and "The Little Book that beats the Market" by Joel Greenblat

Let uis know how you go Samaka, is $5,180 a reasonable tilt thought at six (6) Funds?

 

Q to Glebe or anyone who can answer.

IShares Global 100..

Where can I find composition info on this? Only been able to find track record info so far.

 

http://www.asx.com.au/asxpdf/20071010/pdf/3151dyspjmvx7w.pdf

Quarterly holdings report.