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Thoughts on my ETF Plan...

Discussion in 'Exchange Traded Funds (ETF)' started by samaka, 9th Jan, 2008.

  1. samaka

    samaka Well-Known Member

    Joined:
    30th Sep, 2007
    Posts:
    308
    Location:
    Sydney
    What are peoples comments on the following? This is a long term investment so hopefully I could ride out problems like the recent drops by holding a considerable cash buffer - and buying more units if a margin call occurs.

    You could probably swap out SFY for STW as performance is relatively similar.

    Capital $50,000
    Loan $100,000 @ 9.5%
    LVR 66%

    Weighting
    SFY 75% -> $112,500
    SLF 25% -> $37,500

    Dividend Yield (last year from Commsec)
    SFY 5.7% -> $6412 -> DRP
    SLF 7.9% -> $2962 -> Take as cash

    Growth PA (from 3rd Jan 02 to 2rd Jan 08)
    SFY 17.9% -> $20163
    SLF 5.2% -> $1958

    Investment Value is $178,534
    Minus Interest of $9,500
    Plus Cash of $2962

    Final Value of $171,997

    14.6% return not including $6537 of remaining tax deductible interest payments or franking credits.

    Each year (or some other suitable period) I draw down on the ML to keep it at 66%.
     
  2. Glebe

    Glebe Well-Known Member

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    Location:
    Sydney, NSW
    Well that's a high LVR but you've got cash on the sidelines eh.. you'll be getting margin calls from the banks pretty often I'd imagine. Hope you don't mind getting calls when you're on holidays..
     
  3. dkmc

    dkmc Well-Known Member

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    Posts:
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    re Growth PA (from 3rd Jan 02 to 2rd Jan 08)

    You are looking at averages during one of the greatest booms weve seen
    Long term growth is probably realistically closer to 10%

    You are borrowing 100k at 9.5%
    Is it worth it ? for that 0.5%

    Id say no

    If you could borrow for 6.47% like a few years ago then yes its worth it

    I reakon you should just go the 50k
    and leverage when it all hits the fan!
    when the next recession comes - when the news and everyone is selling
    when there is the biggest stock market plunge in recent history
    Thats when you invest ur 100k

    Sure one cant really time the market
    but Id see this as a safer strategy than investing 100k borrowed at 9.5% now
    or
    you could also invest 25k every 3-6 months and dollar cost average in until you have invested the 100k
    It just shields you a bit more from mistiming the 100k investment

    Id go for STW over SFY - SFY is too concentrated in large caps
     
  4. samaka

    samaka Well-Known Member

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    Location:
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    Yeah I wouldn't be implementing this till midway through this year at the earliest - so hopefully after the end of the subprime crisis.

    I would be saving $1000 to $2000 a month and then buying more units every quarter (probably right before the dividend dates).

    The reason I originally picked SFY was because I want this to be as blue chip as you can get. I would still have a bit of money in a more speculative fund or two - and a bit extra for play trading through out the day.

    That said, I suppose the diversity of STW would be worth it.
     
  5. dkmc

    dkmc Well-Known Member

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    Posts:
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    how about adding some emerging markets exposure
    and international exposure
    A good way would be ishares and or vanguard

    If you bought slf and stw 3 months ago you would be down a lot at the moment
    They are not necessarily negatively correlated enough and to diversify a bit more may be good
     
  6. The Stig

    The Stig Well-Known Member

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    3rd Dec, 2007
    Posts:
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    Location:
    Central Coast NSW
    I like the idea.

    I'd dollar cost average into them 50/50 each fund each month though.

    I would definitely start now and not and try and time the bottom of each market.

    Hopefully in time these funds get options and you can protect the investment.

    I would do the STW because it has much higher liquidity (and more chance of getting options) and also gives you a better balance in your concept of indexing. This way you have 200 stock companies and 200 listed properties.

    If you want to get funky for protection you could investigate the idea of protecting the portfolios with CFDs. Not for beginners though.

    10/10 for the homework. You taught me a bit more about what I can do in the Aussie market with my SMSF.

    Cheers
    The Stig
     
  7. The Stig

    The Stig Well-Known Member

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    So, have you been adding to your portfolio this weel samaka?
     
  8. samaka

    samaka Well-Known Member

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    Location:
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    Not yet, the monthly contribution happens on the last pay day of the month (this Thursday)... so hopefully I won't be buying in at the peak of the bounce back.
     
  9. The Stig

    The Stig Well-Known Member

    Joined:
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    Posts:
    190
    Location:
    Central Coast NSW
    Fair enough.

    I have my money allotted for the month and then try and pick the bottom for the month. More of a challenge and fun than anything else.

    I think I picked it this month. Didn't do so well in December though. Ended up buying on the last day waiting for a decent pull back LOL!!