# What's your retirement asset allocation percentages?



## Zaxon (26 October 2019)

What's your planned break down between Australian stocks, international stocks, corporate bonds, treasuries, property, lending products, cash, etc, on the day you retire.  If you've already retired, tell us what your percentages were at the time you retired.

For instance: 60% international shares / 30% corporate bonds / 10% cash.

Also, explain why you've decided on that allocation, and what are you trying to achieve?


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## InsvestoBoy (26 October 2019)

25% envelope each stocks, long duration Government bonds, cash and gold.

The composition of each envelope changes over time depending on short term (~1Y) momentum, volatility, value, correlation, etc. Right now, all in my benchmarks due to time constraints so holding 25% each of VAS, GSBE47, AUD and gold.

https://www.investopedia.com/terms/p/permanent-portfolio.asp


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## Zaxon (26 October 2019)

InsvestoBoy said:


> 25% envelope each stocks, long duration Government bonds, cash and gold.
> The composition of each envelope changes over time depending on short term (~1Y) momentum, volatility, value, correlation, etc.



The Permanent Portfolio certainly has a logic: don't try to time the market.  Keep diversified across asset classes.  I didn't read anything about changing envelopes in that link.  Is that your own adaption?


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## Zaxon (26 October 2019)

My planned asset allocation for retirement will be 90% stocks  / 10% cash/bonds.

My approach is to realize that when I retire, I'll still live for another 30+ years.  Long investment horizons are what stocks are designed for. 

In the last 10 years of my life (or so), then I'll possibly convert everything into cash or bonds.


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## Klogg (26 October 2019)

100% stocks if I can find things that are attractive enough


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## Zaxon (26 October 2019)

Klogg said:


> 100% stocks if I can find things that are attractive enough



OK.  Similar to me then.  And what's your reasoning behind that?


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## Klogg (26 October 2019)

Zaxon said:


> OK.  Similar to me then.  And what's your reasoning behind that?



Better return long term. On average you will do far better than other asset classes


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## sptrawler (26 October 2019)

60% shares(Aust), 30% cash, 10% property. 60%in super 40% outside super.
I will be reducing the cash by purchasing more LIC's/ETF's.
The reason behind my decision, I guess I'm conservative and it was hard fought accumulating it so scared to death of losing it.
But my investment confidence is improving, mainly do to the positive interaction and information/knowledge I'm gaining on ASF.


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## Zaxon (26 October 2019)

sptrawler said:


> 60% shares(Aust), 30% cash, 10% property. 60%in super 40% outside super.
> The reason behind my decision, I guess I'm conservative and it was hard fought accumulating it so scared to death of losing it.



It's actually not that conservative.  The "cliche" is 60% stocks / 40% bonds, so your allocation seems on par with that.  Is that direct property as in residential rental?


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## sptrawler (26 October 2019)

Zaxon said:


> It's actually not that conservative.  The "cliche" is 60% stocks / 40% bonds, so your allocation seems on par with that.  Is that direct property as in residential rental?



Yes it is, I didn't want to be in position where I have no exposure to property, so I bought it with the intention of using it as a holiday home. If I need extra income, it is an ideal airbnb proposition, close to entertainment, water, services i.e don't require a vehicle.


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## So_Cynical (26 October 2019)

What's your retirement asset allocation percentages? good question and something that i need to give some consideration, i reckon that 
the yield across all assets has to be above inflation and at least slightly above the prevailing deposit rate. somewhare between 3 and 4%


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## Zaxon (26 October 2019)

So_Cynical said:


> What's your retirement asset allocation percentages? good question and something that i need to give some consideration, i reckon that
> the yield across all assets has to be above inflation and at least slightly above the prevailing deposit rate. somewhare between 3 and 4%



I think it comes down to how you view retirement.  For some people, it's still an investment growth stage.  For others, it's purely drawdown, where they retire with 100% enough to cover the rest of their life, and do nothing to risk that amount.  Then, it's just matching inflation.  Where do you fall on that spectrum of thinking?


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## sptrawler (26 October 2019)

Zaxon said:


> I think it comes down to how you view retirement.  For some people, it's still an investment growth stage.  For others, it's purely drawdown, where they retire with 100% enough to cover the rest of their life, and do nothing to risk that amount.  Then, it's just matching inflation.  Where do you fall on that spectrum of thinking?



From my perspective, it comes down to how lavish a lifestyle the individual wants, which dictates the amount required.
It is a very individual thing, what some find is an adequate income, others would think was a small income and vise versa.
As I have said before, I am quite surprised how much less we spend post retirement, the moneysmart calculator suggests around $60k/pa for a couple to have comfortable retirement.
I have found that is pretty close for me, if we want a bigger holiday, I find $70k is heaps.
So you need to earn enough to generate that income, if you want to index it to maintain the capital, then you need to earn enough to re invest to cover inflation and unexpected costs and or loses etc.
Just my take on it.


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## Zaxon (26 October 2019)

sptrawler said:


> From my perspective, it comes down to how lavish a lifestyle the individual wants, which dictates the amount required.



For sure.


sptrawler said:


> So you need to earn enough to generate that income, if you want to index it to maintain the capital, then you need to earn enough to re invest to cover inflation and unexpected costs and or loses etc.



With the low interest rates in HISAs and TDs, that pushes people up the risk curve a bit to maintain the needed return.  Thats fine if you've used to investing.  Not so fine if you're 70 and learning to invest for the first time.

One of my concerns, particularly as we age, is the spiralling medical costs. We're not as bad here as is the US, but if you see a few specialists, have a few scans, they don't come cheap.  In addition, I suspect less will be covered by the government as time goes on.  It sounds like an area where cutbacks would occur, given the massive aging population we're starting to have.


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## So_Cynical (27 October 2019)

Zaxon said:


> I think it comes down to how you view retirement.  For some people, it's still an investment growth stage.  For others, it's purely drawdown, where they retire with 100% enough to cover the rest of their life, and do nothing to risk that amount.  Then, it's just matching inflation.  Where do you fall on that spectrum of thinking?




Yes your right, depends on how old you are, health, lifestyle expectation, and your net worth. I need capital growth, nothing spectacular but certainly some growth.
My thinking is to be drawing down about 3.7% annually and growing the pot by 5 or 6% not an outrageous expectation.


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## sptrawler (27 October 2019)

Zaxon said:


> For sure.
> 
> With the low interest rates in HISAs and TDs, that pushes people up the risk curve a bit to maintain the needed return.  Thats fine if you've used to investing.  Not so fine if you're 70 and learning to invest for the first time.
> 
> One of my concerns, particularly as we age, is the spiralling medical costs. We're not as bad here as is the US, but if you see a few specialists, have a few scans, they don't come cheap.  In addition, I suspect less will be covered by the government as time goes on.  It sounds like an area where cutbacks would occur, given the massive aging population we're starting to have.



Again that boils back to how much money you have, if you have $5m it isnt a problem, if you have $100K it is a major issue.
 So the reality is, work out how much you want to spend, then work out how you will fund it.
If you have no chance of funding it from, personal savings and investment, work out a plan B, which probably involves welfare.
If you are an astute investor, work out the best way to structure it, to mitigate political risk.

If you are mega wealthy like VC, well it doesnt matter you have heaps more than you need anyway and the World is your play pen.

It is different strokes, for different folks.


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## Zaxon (27 October 2019)

I read about a guy who retired with 100% cash, and had no intention of even keeping up with inflation.  He'd done his math, and he was content that he could leave it all the bank, and still have plenty for the rest of his life.


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## Value Collector (27 October 2019)

My super is 100% stocks, it’s just 50/50 split between asx200 index and the world index.

My personal portfolio is heavily in stocks, but with some property, p2p lending and some cash.

I don’t have any fixed ratio, I want to own as much stock as I can, but have a little property portfolio as a store of capital away from sharemarket that just compounds earnings back into itself (clearing debt, probably a new purchase every 10 years or so), and some p2p lending for similar reasons as property.

I hold enough cash to fund a year or so of spending + a tax reserve + options float and cash waiting for investment.


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## Value Collector (27 October 2019)

Zaxon said:


> I read about a guy who retired with 100% cash, and had no intention of even keeping up with inflation.  He'd done his math, and he was content that he could leave it all the bank, and still have plenty for the rest of his life.




I personally know some one that thought they could live off the interest forever of a lump sum the got when they sold a rental property in the 70’s for $4000.

They are now dead, but as of 2015 they still had the $4000 Term Deposit, as you can imagine, it didn’t keep up with inflation.

If they had kept the rental property, and just put 25% of the rent back into maintenance, they would have done a lot better.


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## Zaxon (27 October 2019)

Value Collector said:


> I personally know some one that thought they could live off the interest forever of a lump sum the got when they sold a rental property in the 70’s for $4000.
> 
> They are now dead, but as of 2015 they still had the $4000 Term Deposit, as you can imagine, it didn’t keep up with inflation.



Oh yeah.  It's a very brave person (or a very old person) that ignores inflation. 

With the 4% Safe Withdrawal Rate, according to the guy who "invented" it, William Bengen, the biggest risk isn't market volatility, which is what you'll see 90% of posts about when discussing the SWR.  He says the biggest risk, based on his math, is if we enter another period of high inflation.


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## qldfrog (27 October 2019)

In the current deflationary environment, it could be wise
If you avoid a 20 or 30pc crash, that is a lot of losses due to inflation when inflation is more or less as low as term deposits returns are..
But when inflation jump to 3 or 4 pc, compounded effect quickly reduce you savings in real term
Some food for thoughts
Have a look at Japan inflation for the last 20y
https://www.google.com/imgres?imgur...mEd_ZyhgcpM:&vet=1&w=525&h=298&source=sh/x/im
For a japanese japanese in 2000, the best action would have been to cash out and store the bills under the mattress...
The real question os
How do you see Australia and the west in  20ythe next
As the past 20y for us, europe, US or Japan
Being right or wrong strategy wise will be decided on this
Sadly no quick easy recipe


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## tech/a (27 October 2019)

Make sure you invest in assets that rise with inflation.


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## Zaxon (27 October 2019)

In general, low inflation periods are a great time to growth wealth, assuming you're prepared to own stocks.  There's a big discrepancy between what the sharemarket will return vs what inflation will eat up.

In high inflation environments, sure deposit and bond yields will be super high, but the real rate of return (after inflation) is probably still fairly low.  Importantly, sharemarkets are considerably less likely to perform with any premium over bond rates during this time.


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## Value Collector (27 October 2019)

tech/a said:


> Make sure you invest in assets that rise with inflation.




And produce income (not necessarily that’s paid out to you, but earnings that can compound) 

Eg. Not just a gold bar, (although the gold will provide an inflation hedge, it won’t have any real longterm compounding going on)


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## tech/a (27 October 2019)

Perhaps buy more with each 10-20% rise in gold 



Value Collector said:


> And produce income (not necessarily that’s paid out to you, but earnings that can compound)
> 
> Eg. Not just a gold bar, (although the gold will provide an inflation hedge, it won’t have any real longterm compounding going on)


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## Zaxon (27 October 2019)

Value Collector said:


> And produce income (not necessarily that’s paid out to you, but earnings that can compound)
> 
> Eg. Not just a gold bar, (although the gold will provide an inflation hedge, it won’t have any real long term compounding going on)



This is, of course, direct advice straight from Buffett. And it makes a lot of sense to me.  I would expect commodities to keep pace with inflation - they're worth something after all, but as they don't inherently produce an income of their own, it would only be a tightening of supply that could cause a return above inflation.  



tech/a said:


> Perhaps buy more with each 10-20% rise in gold




Over short periods, gold can be an excellent investment.  On the other hand, if you're holding gold or any commodity as a part of "balanced" portfolio on a permanent basis, I'm not sure of what mechanism would make long term, non-timed holding of commodities worthwhile.


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## tech/a (27 October 2019)

Saxon
It is expected that you’d be investing when inflation is threatening 

If not then I agree

I like property.


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## willy1111 (27 October 2019)

Value Collector said:


> My super is 100% stocks, it’s just 50/50 split between asx200 index and the world index.




It surprises me a little that you wouldn't use a smsf to invest your super in a similar way you do personally with regard to hunting for what you perceive to be good quality businesses with great growth potential similar to CZZ.

Indexes expected average around the 10% p.a. return, and with your track record of returns of around 20%. I believe you have at least 20 yrs until preservation age, the compounding difference between 10% and 20% over 20 years would be huge.

Perhaps you consider it as another way of diversifying?


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## Zaxon (27 October 2019)

Value Collector said:


> My super is 100% stocks, it’s just 50/50 split between asx200 index and the world index.
> 
> My personal portfolio is heavily in stocks, but with some property, p2p lending and some cash.



Sounds good.


Value Collector said:


> I hold enough cash to fund a year or so of spending + a tax reserve + options float and cash waiting for investment.



The money to pay your bills, does that come all from income, so p2p interest, rent, and stock dividends?


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## Belli (27 October 2019)

sptrawler said:


> cover inflation




And it depends on your measure of inflation.

For me:

Education costs - zero
Alcohol and tobacco - zero
Housing - zero
Clothing and footwear - minimal verging on zero
Furnishings and household equipment - zero
Services - Energy costs zero to negative, rates meh chicken sh*t, water same.


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## Value Collector (27 October 2019)

willy1111 said:


> It surprises me a little that you wouldn't use a smsf to invest your super in a similar way you do personally with regard to hunting for what you perceive to be good quality businesses with great growth potential similar to CZZ.
> 
> Indexes expected average around the 10% p.a. return, and with your track record of returns of around 20%. I believe you have at least 20 yrs until preservation age, the compounding difference between 10% and 20% over 20 years would be huge.
> 
> Perhaps you consider it as another way of diversifying?




Yeah, I just look at it as some diversification/insurance, just in case For some reason I completely mess up and blow up my accounts and lose everything, it’s good to know I still have my super as a back up outside my personal operations.


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## Value Collector (27 October 2019)

Zaxon said:


> The money to pay your bills, does that come all from income, so p2p interest, rent, and stock dividends?




Yeah, as I mentioned earlier I live of 50% of my investment cashflow (excluding rent)

50% of dividends, p2p interest and options profits flows to my spending account, the other 50% gets reinvested.

Property rental just goes to reducing property loans, however all the costs of maintaining home are fund from the property account Eg rates, insurance, maintenance etc, so it probably works out I am using some where around 50%-70% of net property cashflow for personal housing costs, while the remainder is building portfolio equity by reducing loans.


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## systematic (28 October 2019)

Zaxon said:


> What's your planned break down between Australian stocks, international stocks, corporate bonds, treasuries, property, lending products, cash, etc, *on the day you retire*...
> 
> For instance: 60% international shares / 30% corporate bonds / 10% cash.




Practically 100% equities.

International vs Australian allocation - undecided (still).  I'm still 100% ASX. I've researched the topics and have different ideas (that have changed from time to time) about international, and never really settled on a decision.  ASX has done well enough to make me lazy enough to not pursue the topic to a decision, though now you've reminded me, I must get back to it. 
But either way, equities it is.



Zaxon said:


> Also, explain why you've decided on that allocation, and what are you trying to achieve?




On the day of retirement I'll still be looking to achieve growth, same as current. I'm one of the 'public equities are one of the best assets for growth) people I guess.  David Dreman (rather than Buffett) convinced me of that early on so I guess I was indoctrinated.  I went through a phase of devouring all the asset allocation stuff (I thought it'd be cool to simply own a couple of ETF's or funds and rotate them around etc), along with my own research and never concluded anything other than equities are good enough for me (and probably better than any other option I looked at).


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## Zaxon (28 October 2019)

systematic said:


> Practically 100% equities.



We're getting a lot of that is this thread!  I was expecting some very conservative allocations full of bonds and big cash holdings, but apparently, this thread has been left to the "stock jockeys".


systematic said:


> International vs Australian allocation - undecided (still).  I'm still 100% ASX. I've researched the topics and have different ideas (that have changed from time to time) about international, and never really settled on a decision.  ASX has done well enough to make me lazy enough to not pursue the topic to a decision



I'm somewhat similar. Now, I do all my active stock holdings via the ASX, and as you say, the ASX has done well enough.  My super is 100% in US ETFs.

As Australians we're lucky.  If you were going to pick one country and not invest outside it, historically, both the US and Australia have done very well.


systematic said:


> On the day of retirement I'll still be looking to achieve growth, same as current. I'm one of the 'public equities are one of the best assets for growth) people I guess.



And one of the nice things about sticking with publicly traded assets, there's a lot more accountability, in theory.  So they should be safer assets, on the whole.


systematic said:


> I went through a phase of devouring all the asset allocation stuff (I thought it'd be cool to simply own a couple of ETF's or funds and rotate them around etc), along with my own research and never concluded anything other than equities are good enough for me (and probably better than any other option I looked at).



I've reached the same opinion.  If shares have had the highest return historically of any asset class, why go anywhere else?


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## Sharkman (28 October 2019)

currently at about 30% international equities (thru index ETFs), 50% Aust equities (thru direct holdings), 20% short term trading including collateral for short option positions.

i'm not retired yet, but am planning to do so in the next 2-3 years, aiming for 50% international, 25% Aust, 25% short term trading. probably won't be able to reach that weighting before i retire (can't sell most of the Aust holdings due to CGT) but i'll keep moving towards it by deploying all new funds to international ETFs. i'd like to up the short term trading slightly, as i do intend to get into it a bit more once retired (can't do that much of it now due to work). but might end up actually lowering it instead, if my paranoia over the loss of SIPC coverage caused by the migration to IB Aust gets the better of me.

i also agree 100% equities is the way to go, but i keep a floating 0-10% cash allocation to allow for some limited market timing/buying on dips. i have a self-imposed rule where if cash rises above 10%, i force myself to make a regular sized dollar cost average into the international ETFs within a week, to ensure i stay relatively fully invested and don't go overboard with trying to time the market too much.

personal views only, may well prove to be wrong in the coming years, but i'm a bit nervous about Aust's long term economic prospects, hence the much heavier weighting towards international ETFs. despite being a developed nation, our currency and stock indices act like those of an emerging market (both tend to get smashed on risk-off sentiment) and our primary/secondary/tertiary sector weights seem to be drifting back towards resembling those of an emerging market as well (heavily dependent on mining and agriculture, manufacturing fading away to irrelevance, high tech stagnant). i think US is still prime, but looks a bit expensive, all world ex-US seems better value at the moment. so i'm going with a 50:50 split when investing new funds (IVV/VEU).

another reason is that international equities (particularly US) pay *less* dividends than Aust. Zaxon you wrote an excellent post in another thread about the viability of selling units to raise cash vs relying on dividends, which i completely agree with. as a 40 year old FIRE adherent, long term growth is still paramount, immediate cashflow not as much. i don't want companies giving me their earnings as dividends, then i have to go to the trouble of re-investing it again (and paying tax along the way). i'd rather they retain most of it and pump it back into their own future growth.


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## Zaxon (29 October 2019)

Sharkman said:


> currently at about 30% international equities (thru index ETFs), 50% Aust equities (thru direct holdings), 20% short term trading including collateral for short option positions.



Ah, another person with the overseas ETF, and direct shares Australian.  I've dabble with options, but I feel the decay and expiry side of things makes it feel like the ASF stock picking comps we hold each month: it may be a brilliant share, but if it doesn't perform well in that exact 30 day period, you get nothing for it 


Sharkman said:


> i'm not retired yet, but am planning to do so in the next 2-3 years. i'd like to up the short term trading slightly, as i do intend to get into it a bit more once retired. but might end up actually lowering it instead, if my paranoia over the loss of SIPC coverage caused by the migration to IB Aust gets the better of me.



I hear about a lot of people who "feel lost" once they retire.  I think having an active interest in making money through investing/trading once you retire can be very power.  You've got the time.  There's excellent communities to tap into.  And it can become your new focus that gives you purpose.


Sharkman said:


> i also agree 100% equities is the way to go, but i keep a floating 0-10% cash allocation to allow for some limited market timing/buying on dips.



Sounds good.  My 10%, which I'll keep in bonds mostly, are to smooth out my takings from my shares.  But like yourself, I tend to feel I'm missing out on too many opportunities, if I have a lot in cash just sitting around.


Sharkman said:


> personal views only, may well prove to be wrong in the coming years, but i'm a bit nervous about Aust's long term economic prospects, hence the much heavier weighting towards international ETFs.



Interesting.  Instinctively I don't see Australia as much of as risk, but that's based on how well it's performed in the past - which is very well - as opposed to some insight into it's future.  I definitely agree about mining being very cyclical.  But on the other hand, it did help us through soft spots when other economies went into recession, and we sailed on through.  The other sector the ASX is massively overweight in, is our banks.  That's bad post royal commission, but historically, they've done really well.

Although Australia is considered very underrepresented in tech, we are quite good at bio tech (CSL, Cochlear, etc), and fin tech (APT, ISX, Z1P, etc).  So we're getting there.  Not so much straight tech, but I'm waiting on the launch of DingoBook to take over the world.


Sharkman said:


> Zaxon you wrote an excellent post in another thread about the viability of selling units to raise cash vs relying on dividends, which i completely agree with. as a 40 year old FIRE adherent, long term growth is still paramount, immediate cashflow not as much. i don't want companies giving me their earnings as dividends, then i have to go to the trouble of re-investing it again (and paying tax along the way). i'd rather they retain most of it and pump it back into their own future growth.



There you go - an excellent summary of that view point!  People like "income" because it works so well in other asset classes, but people overlook the oddity about dividends.  If someone pays you rent for your house, your house price doesn't fall because of it.  If your bank pays you interest, they don't decrease your balance to offset it.  But if a company pays you dividends, your share price does drop by that amount.  I think too many people come from understanding of how rents and interest work (which is understandable), and then assume it's the same with shares, so dividends must be good.


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## Value Collector (29 October 2019)

Zaxon said:


> I've dabble with options, but I feel the decay and expiry side of things makes it feel like the ASF stock picking comps we hold each month: it may be a brilliant share, but if it doesn't perform well in that exact 30 day period, you get nothing for it
> 
> .




If you are selling options (rather than buying), the price decay works in your favor.

I think of selling a put option as just like placing a low ball buy order in the market, 

Eg, if CBA is currently $80, but I want to buy them at $70, I can sell a put with a strike price of $70 and collect $1.

If the share hits $70, I get my buy order filled if it doesn’t I get to keep the $1, and write another put and collect another $1. 

I see my options program as just being a part of my investment program, eg I am just using put options to place orders I companies I want to buy, and being paid to wait for them to drop.


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## qldfrog (29 October 2019)

After loosing a bit on options in the past, i believe VC is using them the right way
I once left for a holiday with a paper profit of 60k...and came back from a week in the wilderness with a small loss.there was no SL at the time
But as VC said, it is actually a great way to increase your portfolio if that is your aim


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## Zaxon (29 October 2019)

Value Collector said:


> If you are selling options (rather than buying), the price decay works in your favor.
> I think of selling a put option as just like placing a low ball buy order in the market,



OK.  That makes sense.


Value Collector said:


> I see my options program as just being a part of my investment program, eg I am just using put options to place orders I companies I want to buy, and being paid to wait for them to drop.



I think that's a smart use of options.

Do you find that if you stray into mid or small caps, that options aren't available - they're a large cap game only, at least on the ASX?  And is there much liquidity: if you write an option, is there a high chance there will be a buyer for it?

You gave the example of earning $1 on a $70 share.  Wouldn't your brokerage for selling the put, just eat up the premium you received for it?  For instance, my broker charges $33 as a minimum fee for options.


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## Sharkman (29 October 2019)

Zaxon said:


> OK.  That makes sense.
> 
> I think that's a smart use of options.
> 
> ...




Value Collector beat me to it, but yes that's how i primarily trade options - as a seller, not a buyer. that's why i need a 20-25% allocation to short term trading - have to stump up collateral for short option positions. would probably only need 5% or less if i was doing long options only.

over the years i have made better overall returns from short option trades vs long option trades. it's basically lots of small winners vs a few large winners that get more or less neutralised by a lot of losers. a big part of that is, as you mention, long options need good timing, so you need to be able to watch the market if not continuously, then at least fairly regularly. i've found that difficult to do due to work getting in the way, so i seldom make long gamma bets now. might try dabbling in them again in retirement though, when i will be able to watch the market more, and see if i can do any better.

on the ASX, pretty much has to be the top 20 large caps, and i find i don't trade much outside the top 10.

for trading options regularly, you must use IB or similar (hence my mention of the loss of SIPC), not a ripoff CHESS broker, otherwise you'll be eaten up by commissions. from Value Collector's example, that's $1 per underlying, options are generally over 100 units of the underlying per contract. if you sell 20 contracts, you take in $1,994 after IB commission ($6) and worst case you get to buy 2,000 shares at an effective entry cost of $69. i like to fully collateralise, even though most brokers don't require that (even though IB no longer offers margin, they still calculate your collateral under the old margining rules, just can't let your cash balance drop below $0), as i find it makes it easier to manage - i can opt to simply take the assignment without doing anything if it makes sense to do so. so i would then set aside $140k to collateralise such a trade.


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## Zaxon (29 October 2019)

Sharkman said:


> over the years i have made better overall returns from short option trades vs long option trades. it's basically lots of small winners vs a few large winners that get more or less neutralised by a lot of losers.
> on the ASX, pretty much has to be the top 20 large caps, and i find i don't trade much outside the top 10.
> $1 per underlying, options are generally over 100 units of the underlying per contract. if you sell 20 contracts, you take in $1,994 after IB commission ($6) and worst case you get to buy 2,000 shares at an



Very informative.  Thanks.


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## sptrawler (29 October 2019)

Sharkman said:


> over the years i have made better overall returns from short option trades vs long option trades. it's basically lots of small winners vs a few large winners that get more or less neutralised by a lot of losers. a big part of that is, as you mention, long options need good timing, so you need to be able to watch the market if not continuously, then at least fairly regularly. i've found that difficult to do due to work getting in the way, so i seldom make long gamma bets now. might try dabbling in them again in retirement though, when i will be able to watch the market more, and see if i can do any better.
> 
> on the ASX, pretty much has to be the top 20 large caps, and i find i don't trade much outside the top 10.
> 
> for trading options regularly, you must use IB or similar (hence my mention of the loss of SIPC), not a ripoff CHESS broker, otherwise you'll be eaten up by commissions. from Value Collector's example, that's $1 per underlying, options are generally over 100 units of the underlying per contract. if you sell 20 contracts, you take in $1,994 after IB commission ($6) and worst case you get to buy 2,000 shares at an effective entry cost of $69. i like to fully collateralise, even though most brokers don't require that (even though IB no longer offers margin, they still calculate your collateral under the old margining rules, just can't let your cash balance drop below $0), as i find it makes it easier to manage - i can opt to simply take the assignment without doing anything if it makes sense to do so. so i would then set aside $140k to collateralise such a trade.



I only bought options once years ago, in Franked Income Fund, I did very well but with a young family and kids life got busy, so I never got around to buying any more.
You and VC have re kindled my interest, must read up on them again. 
Cheers


----------



## BoNeZ (29 October 2019)

Zaxon said:


> I hear about a lot of people who "feel lost" once they retire. I think having an active interest in making money through investing/trading once you retire can be very power. You've got the time. There's excellent communities to tap into. And it can become your new focus that gives you purpose.




I haven't retired, I just changed jobs and now manage our investments full time.

While the task expands to fill the time available some days the "job" takes 5 minutes to run the scans, 0 - 10 minutes to place the trades and 0 - 20 minutes to do all the administration (printing and filing the paperwork, updating spreadsheets and Amibroker etc). I then have the rest of the day for other activities and hobbies.

The previous job also involved sitting in front of a PC so it wasn't a big change but I now have no commuting into the office and no regular salary.

To answer the original question apart from a safety buffer of cash in a HISA I'm 100% invested in shares. I have international exposure through my super while my personal account is 100% Australian shares which I actively manage. When I fully retire my personal account will probably change to ETF's or be rolled into my super account but for now in addition to making money it's helping to fill my day and keep me sane.


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## Zaxon (29 October 2019)

BoNeZ said:


> I haven't retired, I just changed jobs and now manage our investments full time.



Sounds very similar to me.  My "job" is also as a full time investor.  In one sense I'm retired, because I don't have to go to work.  In another sense, I'm not because we don't draw down any money from the investments at this time.


----------



## Value Collector (29 October 2019)

Zaxon said:


> OK.  That makes sense.
> 
> I think that's a smart use of options.
> 
> ...




Yeah, options are only available on the larger shares generally.

I don’t find the brokerage as issue with the size of the positions I am trading.

For example if you sell a put on 1000 CBA shares for $1 per share, that’s $1000 of income, so if you paid $33 that’s still $967 of income.

But the closer the strike price to the current share price, and the longer the expiration date, the higher the premium.

For example in Aug 2017 CBA was I sold a Dec 2019 put, and received $6.10 per share premium = $6100.

I saw that as being a good deal, I $6000 up front, which I could sit off my home loan saving interest (building equity in property account), and then in 2 years if CBA was below $70 I would buy them, but I would have an extra $6000 to fund the purchase.

I use a mixture of short and long dated options normally, either on 90 rolling cycles, 9 month rolling cycles, and a few super long dated ones when the strike and premiums makes sense to me.


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## Value Collector (29 October 2019)

Sharkman said:


> Value Collector beat me to it, but yes that's how i primarily trade options - as a seller, not a buyer. that's why i need a 20-25% allocation to short term trading - have to stump up collateral for short option positions. would probably only need 5% or less if i was doing long options only.
> 
> over the years i have made better overall returns from short option trades vs long option trades. it's basically lots of small winners vs a few large winners that get more or less neutralised by a lot of losers. a big part of that is, as you mention, long options need good timing, so you need to be able to watch the market if not continuously, then at least fairly regularly. i've found that difficult to do due to work getting in the way, so i seldom make long gamma bets now. might try dabbling in them again in retirement though, when i will be able to watch the market more, and see if i can do any better.
> 
> ...




I use CommSec, and they allow we to use my existing share portfolio as collateral, so I don’t require any cash margin, So I receive all premiums in cash the next day, which can then be held in offset set accounts against property loans or in Rate Setter etc.

Also, I have a margin loan set up ready to fund any larger purchases if my options start getting exercised and rolling out to longer dates and lower strikes isn’t possible.

Once I have exhausted savings set aside for investment and drawn on the margin loan, that 50% of income I said I direct to investing (50% of premiums, dividends and p2P interest) gets used to rapidly repay margin loan.


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## Iggy_Pop (29 October 2019)

I have been retired for a couple of years and started out with - 
Aus Shares - 35%
Rest of World (mainly US) -30%
Property Infrastructure - 20%
Cash/Bonds/Fixed Interest - 15%

My plan is a form of bucket strategy with shares and property/infrastructure providing the drawdown for retirement. If/when we have a recession/ large pull back in the market, plan is to swap the drawdown to Cash/Bonds/Fixed Interest during this period of time till shares and infrastructure recover. I plan to re-balance typically every 12 months as fits in the best.

I will most likely spend some of the cash component on large purchases - house refurb, holidays, etc as part of the plan. Seems to be working OK at the moment. 

Iggy


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## Zaxon (30 October 2019)

Iggy_Pop said:


> Property Infrastructure - 20%



I'm familiar with infrastructure: roads, bridges, ports; I'm familiar with property.  But what do you class as property infrastructure?


Iggy_Pop said:


> Aus Shares - 35%
> Rest of World (mainly US) -30%
> Property Infrastructure - 20%
> Cash/Bonds/Fixed Interest - 15%



You're possibly the respondent with the most diversification so far, so congrats.


Iggy_Pop said:


> My plan is a form of bucket strategy with shares and property/infrastructure providing the drawdown for retirement.



What's your drawdown.  Are you doing the 4% SWR, or something else?


Iggy_Pop said:


> If/when we have a recession/ large pull back in the market, plan is to swap the drawdown to Cash/Bonds/Fixed Interest during this period of time till shares and infrastructure recover. I plan to re-balance typically every 12 months as fits in the best.



I think that's the first discussion we've had about rebalancing so far too.


Iggy_Pop said:


> I will most likely spend some of the cash component on large purchases - house refurb, holidays, etc as part of the plan. Seems to be working OK at the moment.



That makes sense.  How do you structure your bonds, fixed interest, and cash?  For the bonds, I guess you're holding ETFs?


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## Sharkman (30 October 2019)

Zaxon said:


> Interesting.  Instinctively I don't see Australia as much of as risk, but that's based on how well it's performed *in the past* - which is very well - as opposed to some insight into it's future.  I definitely agree about mining being very cyclical.  But on the other hand, it did help us through soft spots when other economies went into recession, and we sailed on through.  The other sector the ASX is massively overweight in, is our banks.  That's bad post royal commission, but *historically*, they've done really well.
> 
> Although Australia is considered very underrepresented in tech, we are quite good at bio tech (CSL, Cochlear, etc), and fin tech (APT, ISX, Z1P, etc).  So we're getting there.  Not so much straight tech, but I'm waiting on the launch of DingoBook to take over the world.




all very true - but the thing is - the words that i highlighted above. over time as economies develop in theory they should slowly be shifting towards secondary and tertiary industries. i don't have the data readily available, so i'd be happy to be proven wrong if someone does have it, but to me it feels like that is happening with a lot of other advanced economies, whereas we seem to be slowly shifting back to primary. our sector distribution might have been roughly comparable in the past, but i'm not so sure we've been moving in the same direction since then.

we are heavy in banks which technically are tertiary, but they're a bit of an oddity in that they're mostly there to service the rest of the economy, they don't really export anything (at least ours don't). in the past they were able to grow by utilising technology to improve profitability, but those gains are mostly realised now, future growth seems limited. they tried expanding overseas (NAB in the UK, ANZ in SE Asia) and that didn't go too well. they tried expanding by offering more "services" to squeeze more out of their customers, and that ended up disastrously as we all know. the way i see it, they're really only good for dividends now (well, that and short term trading, they do have nice liquid options that generally give good fills), dividends that at best will grow slowly and at worst will shrink (NAB's already did) as the compensation costs continue to bite.

we do have a few tech names here and there (CSL is in fact the centrepiece of my Aust portfolio, i was lucky enough to get in at the IPO and still hold today... shame i only had barely over a grand to throw into it, i was just in my mid-teens at the time). but if one is looking at broad based, low MER, low risk indexes to form the foundation of a retirement plan, the sector isn't all that prominent.

contrast that to the US - i can't see us ever having the sort of aerospace, robotics, software, semiconductor etc. sector concentration that they do. nor do i see us matching the engineering prowess of the Germans and Japanese any time soon. i'd rather have the bulk of my investments in economies where those sectors are more prominent, as sectors like that are where the growth of the future lies IMHO.

i also don't see too much of a risk investing in Aust - but i don't see a lot of future growth potential either, compared to the world's leading economies because of the above. it's a YMMV type thing though, it's not for me to tell those who want a healthy dollop of dividends and/or those who sleep easier if they satisfy their home bias that they are wrong to invest locally. if it's the best fit for their objectives, nothing wrong with it at all. i just find S&P 500 and all-world ex-US are better aligned to mine.


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## Sharkman (30 October 2019)

sptrawler said:


> You and VC have re kindled my interest, must read up on them again.
> Cheers




glad to hear it. could always do with some more liquidity in the options market, especially liquidity provided by fellow retail traders more open to doing a fair deal at the mid instead of MMs squeezing you on the spread whenever they get the chance!


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## Value Collector (30 October 2019)

sptrawler said:


> I only bought options once years ago, in Franked Income Fund, I did very well but with a young family and kids life got busy, so I never got around to buying any more.
> You and VC have re kindled my interest, must read up on them again.
> Cheers




I only sell options (mainly puts, sometimes calls), but I never bought any options.


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## sptrawler (30 October 2019)

Value Collector said:


> I only sell options (mainly puts, sometimes calls), but I never bought any options.



That is kind of what I meant, when I said I had some a long time ago and I must read up on them again.


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## Iggy_Pop (30 October 2019)

I call water assets, airports, electricity assets, toll roads infrastructure. Hold these as direct shares and within industry super fund

As far as drawdown ,targeting around 3.5 to 4 % at this stage

Bonds is via industry super fund, hybrid shares, fixed term deposits, high interest saving accounts. As we are in retirement, we do intend to spend on travel, cars etc so use this money to fund these, and do a re-balance at an appropriate time.

Iggy


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## InsvestoBoy (30 October 2019)

Zaxon said:


> The Permanent Portfolio certainly has a logic: don't try to time the market.  Keep diversified across asset classes.  I didn't read anything about changing envelopes in that link.  Is that your own adaption?




Yeah I guess so. What I mean is that, at least when I have time to manage it accordingly, rather than simply buying the index for stocks I will hold 25% "envelope" of stocks and within that envelope I use various strategies to manage my allocation to individual stocks, funds etc. Same with bonds and cash, where I will shift duration or currency exposure depending. e.g. late last year I was holding US long bonds via TLT and more USD exposure.



Zaxon said:


> On the other hand, if you're holding gold or any commodity as a part of "balanced" portfolio on a permanent basis, I'm not sure of what mechanism would make long term, non-timed holding of commodities worthwhile.




See https://thepfengineer.com/2016/04/25/rebalancing-with-shannons-demon/

Re inflation: a lot of people think stocks are the best inflation hedge but my own research shows that they are only good inflation hedges *after* the initial inflation shock of fast rising inflation. The real returns of stocks, historically, during inflation shocks have been poor. Counterintuitively, cash and short duration bills do well during the shock and then obviously poorly after that. 

For example I provide this quote about Warren Buffett and inflation that I randomly googled right now:
https://www.cnbc.com/2018/02/12/war...to-invest-in-stocks-when-inflation-rises.html



> It's worth remembering that the worst stock performance of the 1970s came not when inflation peaked but when it first spiked rapidly. From 1972 to 1973, inflation doubled to more than 6 percent. By 1974 it was 11 percent. In those two years, the S&P 500 declined by a combined 40 percent. Inflation was higher in 1979 and 1980, topping out at 13.5 percent, by which time the S&P 500 had long returned to positive performance, though on an inflation-adjusted base. It was a lost decade for stocks.


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## Value Collector (31 October 2019)

sptrawler said:


> That is kind of what I meant, when I said I had some a long time ago and I must read up on them again.




Feel free to tag me in a chat if there is anything you want to discuss in the future


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## Sir Burr (5 November 2019)

Been delving into this topic too as I'm up for retirement soonish. Been researching assets, asset allocation and SWR. Hope no one minds posting these links to info I have found very helpful:

https://passiveinvestingaustralia.com/
https://www.doughroller.net/investing/an-awesome-and-free-investment-tracking-spreadsheet/
    *if you download this, delete row 20 on the Holdings sheet and all will come good 
https://earlyretirementnow.com/safe-withdrawal-rate-series/

Australian Stocks      (VAS) 15%
International Stocks  (VGS) 30%
Short term system    (ASX) 10%
Bonds (VAF)  35% 
Cash             10%

International into US & EM minus Australia. Bonds into mostly Government and small amount of corporate.

Need to merge my "Balanced" super account numbers into the above and workout the allocation outside of super but the spreadsheet above should help.

The Short term system I'd expect less risk to the the buy and hold "Australian Stocks" allocation as it exits on market downturns and I see a lot of people having low bond allocation here but on my balance, have a low tolerance of a big drawdown. I'd rather use my Short term system (beat the index) to bolster returns and more bonds.


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## aus_trader (5 November 2019)

I have been too cautious and have a very poor allocation, probably why I haven't reported . But ASF is like family so I'll do the honest thing and report my current allocation and hopefully improve going forward...

I am getting ideas from the fellow ASF members to allocate the significant cash component that is idle at the moment. I am not comfortable going heavy into individual stocks as I am also approaching retirement similar to quite a few members who have reported such as Sir Burr above. So will be looking into putting that into Index ETF's, Bonds and perhaps some LIC's. Will still do some trading of individual stocks with smaller positions and will only increase the sizes gradually when I feel more confident in my approach.

This is my current pathetic allocation:

Stocks and ETF's : 5 to 10%.
Rate Setter Account: 5% (just got that idea set up after reading through all the ASF member allocations)
A Big4 Bank HISA(Low Interest Savings Account): roughly 80%
A Big4 Term Deposit (TD): The remaining, roughly 5%

I'll take time with allocating the cash though, since it's costly (both investment returns wise as well as additional brokerage) to get things wrong and having to re-allocate. So I have to be comfortable staying in the markets through good and bad times, with the % allocations that I will decide on.


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## sptrawler (5 November 2019)

aus_trader said:


> So I have to be comfortable staying in the markets through good and bad times, with the % allocations that I will decide on.



To me personally that is the critical thing, there is no point in over reaching your comfort zone, retirement is about enjoying holidays, time with family, doing your hobbies etc it is not about worrying yourself sick over investment decisions IMO.
Until you are retired and gain a feel for your outgoing costs, take your time and buy wisely, opportunity always presents.
Like at the moment, the banks are down a lot, and they make up a large percentage of mine and probably a lot of others retirement account. Their dividend has dropped, so do you sell or do you accumulate? If you are fully in the market with very little cash your options are limited.
So in my opinion, I need enough cash to enjoy my holidays, even if the market crashes.
I also need enough cash to buy on speculation and accumulation, how much is the question, which brings us back to the personal comfort zone.
If all my shares went to zero, I still have enough cash to get the pension and enjoy retirement, but I am conservative.


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## aus_trader (5 November 2019)

sptrawler said:


> To me personally that is the critical thing, there is no point in over reaching your comfort zone, retirement is about enjoying holidays, time with family, doing your hobbies etc it is not about worrying yourself sick over investment decisions IMO.




Very well said sptrawler. I would also like to know that my wealth is still around (while moving up and down) even during market downturns. The portfolio will take a hit during a downturn and I will be content with that, knowing that's something that was fully considered at the time of allocation.

Hence the cautious approach to doing asset allocation with individual stocks. I have learnt that even if I look at a company from every angle and feel so confident that I have found something that I could go all in on, it could turn out to be a dud. This could be due to dishonest management reporting bogus numbers or some unforeseen black-swan event that hits that particular company or it's sector hard or a new disruptive technology or a small competitor taking all of the market share and decimating the company that I put my faith (and wealth) in.

Hey mate, I know I am not in a position to give any advice, but if you already have enough exposure to the banks via an asx market ETF, I think you have to be careful to not go overweight into that sector further and make sure there is good diversification in the portfolio IMHO.


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## sptrawler (5 November 2019)

aus_trader said:


> Hey mate, I know I am not in a position to give any advice, but if you already have enough exposure to the banks via an asx market ETF, I think you have to be careful to not go overweight into that sector further and make sure there is good diversification in the portfolio IMHO.



I wont be buying any more, I have plenty of exposure to them, but the thing with the Banks is they are the most regulated in the World, they have to make money and they will be there in twenty years. IMO
Diversification is what I have been doing, with the help of a lot of great info on ASF, but miners are more cyclical than Banks when it comes to income.
There is a lot of huff and puff and restitution, but give it a couple of years some immigration and who knows?
Jeez I've followed Knobby's advice and bought Cleanaway today, so I know who to blame.
Off to Japan on Sunday, so hopefully you keep me informed, I only check ASF when I'm away, it always keeps me abreast of issues.


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## Iggy_Pop (5 November 2019)

sptrawler said:


> To me personally that is the critical thing, there is no point in over reaching your comfort zone, retirement is about enjoying holidays, time with family, doing your hobbies etc it is not about worrying yourself sick over investment decisions IMO.




This is the key to a happy retirement. I have left the majority of funds in an industry Super Fund for a number of reasons, including these as well as if something happens to me, can my spouse manage a SMSF?? Also the large industry super funds do have access to many investments that you cannot get as an individual. I did model me managing an SMSF for a number of years and I never managed to match the industry super funds returns. I do pay more in fees with this but feel overall I am ahead as well as maintaining a comfort zone. 

Iggy


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## sptrawler (5 November 2019)

Iggy_Pop said:


> This is the key to a happy retirement. I have left the majority of funds in an industry Super Fund for a number of reasons, including these as well as if something happens to me, can my spouse manage a SMSF?? Also the large industry super funds do have access to many investments that you cannot get as an individual. I did model me managing an SMSF for a number of years and I never managed to match the industry super funds returns. I do pay more in fees with this but feel overall I am ahead as well as maintaining a comfort zone.
> 
> Iggy



I will probably do the same down the track, my wife isn't interested in investment, whereas I enjoy it.
Taking into account the franking credits, I find I manage to beat my draw down by enough to cover inflation + a bit.
As you say fees are a big thing, my accounting and auditing fees are about $900p.a, whereas an example of paying a Fund 1% of $1m is $10,000, which is a lot of income.
If the SMSF had lost the franking credits, it would be hard to match the Industry Funds, but that was the idea behind taking the franking credits off SMSF's in the first place.
So my "final" plan will be, enough in each of our names outside super to obtain tax free threshold and the rest in an Industry Fund.
But hopefully that is 10-15 years away, I guess it depends on an election outcome


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## aus_trader (5 November 2019)

sptrawler said:


> Jeez I've followed Knobby's advice and bought Cleanaway today, so I know who to blame.
> Off to Japan on Sunday, so hopefully you keep me informed, I only check ASF when I'm away, it always keeps me abreast of issues.



Cleanaway Waste Management Ltd (CWY) is a good company, I had it for a while in the past. Now have BIN instead but may also keep an eye on CWY for a possible buy in again...


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## Zaxon (5 November 2019)

Sir Burr said:


> Australian Stocks      (VAS) 15%
> International Stocks  (VGS) 30%
> Short term system    (ASX) 10%
> Bonds (VAF)  35%
> Cash             10%



Very good amount of detail there.  So that's 55% stocks, 45% cash and bonds.  I think you're our most conservative so far, although not far from the  60/40.


Sir Burr said:


> The Short term system I'd expect less risk to the the buy and hold "Australian Stocks" allocation as it exits on market downturns



OK. So it's a market timing approach.


Sir Burr said:


> and I see a lot of people having low bond allocation here but on my balance, have a low tolerance of a big drawdown.



I have been surprised by the lack of bond holding by most posters so far, since that's what the retirement industry preaches so heavily.


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## Zaxon (5 November 2019)

aus_trader said:


> I have been too cautious and have a very poor allocation, probably why I haven't reported . But ASF is like family so I'll do the honest thing and report my current allocation and hopefully improve going forward...



My threads are always a safe space.  Nobody will judge you here 


aus_trader said:


> I am not comfortable going heavy into individual stocks as I am also approaching retirement. So will be looking into putting that into Index ETF's, Bonds and perhaps some LIC's. Will still do some trading of individual stocks with smaller positions and will only increase the sizes gradually when I feel more confident in my approach.



I'm very pro index ETFs.  Amazingly low fees, and you're investing in "the market", so you avoid any personal stock picking risks.  Bonds can be good.  Are you thinking corporate or treasuries?  LICs are actively manged, so you're increasing risks there.  The question is how their return compares against a passive index fund to balance that.  Personally, I don't use them.


aus_trader said:


> Stocks and ETF's : 5 to 10%.
> Rate Setter Account: 5% (just got that idea set up after reading through all the ASF member allocations)
> A Big4 Bank HISA(Low Interest Savings Account): roughly 80%
> A Big4 Term Deposit (TD): The remaining, roughly 5%



Good amount of detail there.  VC loves RateSetter, so you'll get a Christmas card from him  .  At 5%, I have no problem with that.  85% in cash.  You are in-line with a lot of the baby boomers.


aus_trader said:


> I'll take time with allocating the cash though, since it's costly (both investment returns wise as well as additional brokerage) to get things wrong and having to re-allocate. So I have to be comfortable staying in the markets through good and bad times, with the % allocations that I will decide on.



Yes, good to take things at your own pace.  I think going the index fund route is definitely suited to you.  If you buy share XYZ and then it crashes, you'll want to sell out of it (and maybe feel guilty for holding it).  If you hold an index fund and the market crashes, well that's just what markets do.  It will come back up.  You'll have to come to terms with the volatility, but you, personally, haven't made any bad picks. But it doesn't have to be a binary decision.  You could hold most of your allocation to shares in index funds, and then retain a small percentage to actively stock pick, if you think that would benefit you.

Thanks for sharing your details.  Hopefully, it wasn't too harrowing for you.


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## aus_trader (5 November 2019)

Zaxon said:


> I have been surprised by the lack of bond holding by most posters so far, since that's what the retirement industry preaches so heavily.




I would also be aiming for a similar weighting to bonds as Sir Burr's, probably around the 30% mark. So count me in on the conservative end as well Zax. Probably 50/50 in investment grade corporate and treasuries.


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## Zaxon (5 November 2019)

aus_trader said:


> if you already have enough exposure to the banks via an asx market ETF, I think you have to be careful to not go overweight into that sector further



Banks just need to make up their minds.  Are they going to gouge their customers and make huge profits, or are they going to bleed it back, have their profits tumble, and cut their dividends.  I suspect they'll find new and creative ways of gouging future customers.


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## Iggy_Pop (5 November 2019)

sptrawler said:


> As you say fees are a big thing, my accounting and auditing fees are about $900p.a, whereas an example of paying a Fund 1% of $1m is $10,000, which is a lot of income.



My experience is that through an industry fund using a mix of balanced and fixed interest options for the last financial year, my fees have been 0.5% but returns were around 9%. My share/bonds/cash portfolio outside of industry super. fees were approximately 0.1% from fees within LICS and ETFs, buying and selling shares held directly and returns were 6.7%. For this year, the industry funds have easily out-performed my own holdings. This has been my experience, maybe some are capable of getting better returns than me, but the reality is it is difficult for me to outperform the industry funds.  I plan to move to more LICs and ETFs at an appropriate time. I found prior to retiring, my management of shares would be unlikely to outperform the returns of the industry funds. At the moment I cannot put more into superannuation, and having a holding of shares under my control for interest, diversity and keeping a feel for the market. The main learning for me, is while franking credits are good and will always be part of the plan, i will most likely do better out of US based ETFs compared to fully franked aussie shares.

So my experience is fees are one thing but returns are the key.

Iggy


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## aus_trader (5 November 2019)

Zaxon said:


> VC loves RateSetter, so you'll get a Christmas card from him  . At 5%, I have no problem with that. 85% in cash. You are in-line with a lot of the baby boomers.



Yes, thanks VC.

True about the allocation of a lot of baby boomers, I happen to have a chat with a few who are already retired in order to plan what I need to do. All are conservatively set for retirement in different scenarios. I'll be happy to share a summary with ASF members:

1. Retiree 1 is just going into retirement and have not got a lot of savings to self-fund retirement so will be leaving the super in the current balanced option that was set up by the industry super fund. He will be accessing the pension and working a few hours a week to supplement it without going over the threshold to cut into his pension. He is happy though when I spoke to him, as he is always positive. He said it's probably better that way as he was worried about going a bit 'loony' if he stopped working altogether as he is very social, Eveready to have a chat.

2. Retiree 2 is a widow and she has no clue (sorry, but quoting her own words) about investments but has got quite a big nest egg that her husband has helped to accumulate. She gives the whole management of that nest egg to a financial planner and pays an annual fee to keep it safe and grow it conservatively based on having a peace of mind. She also has an investment property that she manages with the help of a real estate agent. Fully self funded and has been for many years.

3. Retiree 3 is also a widow but was unfortunate to have a large sum of money saved up in investments and super. But she had one last straw to make sure she didn't end up in poverty in her golden years. She sold her family home for multi-7'figures (inner leafy suburbs) and moved into a smallish unit and put the rest of the proceeds into part super, part HISA etc and now in a good position to enjoy her golden years.


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## aus_trader (6 November 2019)

Zaxon said:


> Banks just need to make up their minds.  Are they going to gouge their customers and make huge profits, or are they going to bleed it back, have their profits tumble, and cut their dividends.  I suspect they'll find new and creative ways of gouging future customers.



Yes, they get you by the throat if you are a customer. If I miss a payment or late on a payment or don't pay the outstanding balance, this is what my credit card charges me on the outstanding balance:




In such a low interest rate environment where you can barely earn a nickel on your savings, I think it's ridiculous !


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## Zaxon (6 November 2019)

aus_trader said:


> 2. Retiree 2 is a widow and she has no clue (sorry, but quoting her own words) about investments but has got quite a big nest egg that her husband has helped to accumulate. She gives the whole management of that nest egg to a financial planner and pays an annual fee to keep it safe and grow it conservatively based



Good stories, so thanks for that.  In regards to Retiree 2, I'm hoping that's where ASF members can be better prepared than the average person.  If the first time you think about your money is on the day you retire, then no wonder people have no idea what to do.  Hopefully, ASFers have been chatting here, reasearching, and investing all along.  When we come to retiring, we'll already have a plan in place and plenty of experience.

And if not, at least we will now you can stick your money in an index fund and not pay an advisor a single cent.


----------



## sptrawler (6 November 2019)

Zaxon said:


> My threads are always a safe space.  Nobody will judge you here
> 
> I'm very pro index ETFs.  Amazingly low fees, and you're investing in "the market", so you avoid any personal stock picking risks.  Bonds can be good.  Are you thinking corporate or treasuries?  LICs are actively manged, so you're increasing risks there.  The question is how their return compares against a passive index fund to balance that.  Personally, I don't use them.
> .



Your observation about ETF's Vs LIC's I find interesting, when I started moving money into that space I compared the performance of low MER funds and found LIC's like MLT have in general outperformed VAS. That and the fact the LIC's tend to focus on dividend, rather than following the market, lead me to chose the LIC's.
Not that I wouldn't consider an ETF in the future, it was only the research I carried out at that time.
But if stock picking is a risk, as opposed to following the market, then why not just put all the money in an ETF?


----------



## Sir Burr (6 November 2019)

Zaxon said:


> Very good amount of detail there.  So that's 55% stocks, 45% cash and bonds.  I think you're our most conservative so far, although not far from the  60/40.
> 
> OK. So it's a market timing approach.
> 
> I have been surprised by the lack of bond holding by most posters so far, since that's what the retirement industry preaches so heavily.




Good topic Zaxon, I'm learning too and not ready just yet 

Couple of things, the cash component (10%) might be a bit high but may reduce later. Also, I'm not sure if I should increase the international % from the Aussie but something I might need help.

About "market timing approach" I've been system trading since the nighties and want to continue into retirement. In my mind it would be years of wasted knowledge if I don't, although as someone mentioned above, you need to think about your spouse. My wife has no idea about trading and having joint accounts may help.

A good question might be "why not trade all the Aussie component". For the franking within super, the separation and not having it all in one lot.

Anyway, I am wondering the people who suggest 90-100% stocks. How much money are we talking about for retirement living? 100K, 500K, 1M, 2M etc. Having a possible big drawdown on those bigger numbers is a big number gone in retirement that may take many years to recover.


----------



## aus_trader (6 November 2019)

Zaxon said:


> Good stories, so thanks for that.  In regards to Retiree 2, I'm hoping that's where ASF members can be better prepared than the average person.  If the first time you think about your money is on the day you retire, then no wonder people have no idea what to do.  Hopefully, ASFers have been chatting here, reasearching, and investing all along.  When we come to retiring, we'll already have a plan in place and plenty of experience.
> 
> And if not, at least we will now you can stick your money in an index fund and not pay an advisor a single cent.



Yes, I want to be comfortable allocating and managing my own funds as well. ASF has been a wealth of knowledge and quite a few ideas came from some of the threads that you have started. So thank you for the initiative Zaxon.

I also wanted to see outside of ASF, so that's why I decided to also research outside of ASF knowledge to see what a few real life examples of retiree fund allocations. In Retiree 2 case, she mentioned that her husband used to manage the nest egg and she said they had shares as well in the mix of assets. The investing knowledge was not passed on however (or she didn't have the interest to learn about portfolio management), so it was probably sensible to get a reputable fund manager to take over upon the passing of her husband. If you don't know what you are doing that large nest egg could be shrunk or destroyed in no time.


----------



## Zaxon (6 November 2019)

sptrawler said:


> Your observation about ETF's Vs LIC's I find interesting, when I started moving money into that space I compared the performance of low MER funds and found LIC's like MLT have in general outperformed VAS. That and the fact the LIC's tend to focus on dividend, rather than following the market, lead me to chose the LIC's.



If you have specific LICs that continually outperform the market (dividends + capital appreciation), then it's possibly a great investment.  The caveat being that often the best performing funds of the last few years go on to be the worst performing over the next few years - reversion to the mean.

As to buying an LIC specifically for dividends, a cap weighted index fund isn't specifically focused on dividends.  So I can see an alternative investment could be relevant.  You can, however, get ETFs which specifically invest in higher dividend paying stocks. 

Having said that, the dividend yield on VAS (ASX300), is 4.15%.  So if you follow the 4% SWR (for instance), that index fund would provide all the withdrawals you would need.


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## aus_trader (6 November 2019)

Sir Burr said:


> Anyway, I am wondering the people who suggest 90-100% stocks. How much money are we talking about for retirement living? 100K, 500K, 1M, 2M etc. Having a possible big drawdown on those bigger numbers is a big number gone in retirement that may take many years to recover.




Well, in my case,  by the time I retire I had an earlier plan of around 1M or somewhere close to it since 1M is not easy to achieve.

Let's say I did hit that 1M, then based on my naïve plan (the same plan many to be retirees were relying on by the way), retirement would be easy. Just put the whole thing in the bank as a mix of savings and Term Deposits and you get 5% which equates to roughly 50K per annum. Maybe slightly less after taxes but in retirement taxes would be low so it wouldn't be too significant a reduction. Most people (including me) would be quite comfortable with that income, even enough for a little luxury or travel every now and then. The problem is we got screwed with the interest rates. So it's not so easy any more.

That's why the portfolio asset allocation becomes important to generate income while taking on a bit more risk and volatility in the portfolio in order to achieve it.


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## Zaxon (6 November 2019)

sptrawler said:


> But if stock picking is a risk, as opposed to following the market, then why not just put all the money in an ETF?



That's very true.  And you can do exactly that, and live happily ever after.


----------



## aus_trader (6 November 2019)

Zaxon said:


> That's very true.  And you can do exactly that, and live happily ever after.



Well theoretically it's possible to live off it. But putting 100% in to an Index ETF means could be in for periods of high volatility and draw-downs at the mercy of the stock market. One needs to be comfortable to handle that as well.

That's why a mix of diversified assets is better in my opinion. The draw down fluctuations could be less and smoothed out, while still maintaining an income from the portfolio of assets.


----------



## Zaxon (6 November 2019)

Sir Burr said:


> Good topic Zaxon, I'm learning too and not ready just yet



Very good.


Sir Burr said:


> Couple of things, the cash component (10%) might be a bit high but may reduce later.



In retirement, cash has two purposes.  Firstly, smooth out volatility.  In which case holding 10% is about right.  Secondly, because you're afraid of stock market losses, and you only trust cash.  Some people are like that.  In which case, you'd be in almost all cash.


Sir Burr said:


> Also, I'm not sure if I should increase the international % from the Aussie but something I might need help.



Historically speaking, though it depends on over what period, the S&P 500 > ASX 200 > word ex US and AU.  I think holding all AU or all US or any mixture should be OK.  You'd be safer holding both of course.  I'm not yet convinced holding world ex US and AU is actually needed.  I think if the US has a meltdown, the rest of the world will have too, and probably be worse of.


Sir Burr said:


> About "market timing approach" I've been system trading since the nighties and want to continue into retirement. In my mind it would be years of wasted knowledge if I don't, although as someone mentioned above, you need to think about your spouse. My wife has no idea about trading and having joint accounts may help.



Very good.  I strongly recommend that people who are interested in investing/trading, practice before they retire, and then take all those skills into retirement.  This would assume you can equal or better the index over time.  If not, then it's probably better that you play lawn bowls 

The number of post I've seen on ASF saying, "I retired. I got bored out of my skull.  My life has no purpose anymore" is alarming.  So I think if you have a passion for investing, take that into retirement with you.  Watch the markets, read forums, watch investment videos.  "Making bank" is your new purpose.  Oh, and visiting country cafes for scones and cream.

As to the spouse question, my partner is a few years younger than me, so statiscally I'll probably go to the Happy Investing Ground in the sky first.  So I've told him, when I die or become too old to invest, sell everything and cash out.  By then, we'll be so old it will be time to drawn down on your money anyway.


Sir Burr said:


> Anyway, I am wondering the people who suggest 90-100% stocks. How much money are we talking about for retirement living? 100K, 500K, 1M, 2M etc. Having a possible big drawdown on those bigger numbers is a big number gone in retirement that may take many years to recover.



Interesting question.  For me personally, I'd ideally retire with 2M.  But I can't promise that, so I'll take it as it comes.

The drawing down, or sequence of returns risk, is real, but often over inflated.  After you retire, you have 30+ years to live.  That's plenty of time for the market to crash a few times, recover, and reach record highs.  But, you have to have thought through a strategy of how you're going to make your withdrawals, which I can discuss further if you want.


----------



## Zaxon (6 November 2019)

aus_trader said:


> Yes, I want to be comfortable allocating and managing my own funds as well. ASF has been a wealth of knowledge and quite a few ideas came from some of the threads that you have started. So thank you for the initiative Zaxon.



You're welcome.


aus_trader said:


> I also wanted to see outside of ASF, so that's why I decided to also research outside of ASF knowledge to see what a few real life examples of retiree fund allocations. In Retiree 2 case, she mentioned that her husband used to manage the nest egg and she said they had shares as well in the mix of assets. The investing knowledge was not passed on however (or she didn't have the interest to learn about portfolio management)



I'm in the same situation.  I have explained all the ins and outs of investmenting to my partner.  We've been together for 20 years, and I love to chat about everything I do.  But he has zero apptitude or interest in investing, and wouldn't know a share from a hole in the ground.  Such a waste.  lol.

After we retire, my life will continue exactly as it is now.  I want to be like Warren Buffett, still actively investing at 89.  But when I feel my health slipping, I'll covert everything over to index funds, and write baby step instructions on how to withdraw money from it.  Or if we're super old, we'll just convert everything to cash.


aus_trader said:


> so it was probably sensible to get a reputable fund manager to take over upon the passing of her husband. If you don't know what you are doing that large nest egg could be shrunk or destroyed in no time.



That part I'm not a fan of.  Index funds have replaced the need for fund managers.  You're paying someone for "advice" and skill you can get for 7 basis points in an ETF, so virtually free.  You'd need to have a brokerage account and know how to press the buy and sell button, but that's about it. Perhaps not everyone can do that.  But you'd think a knowledge family member could help them out.


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## Zaxon (6 November 2019)

aus_trader said:


> Let's say I did hit that 1M, then based on my naïve plan (the same plan many to be retirees were relying on by the way), retirement would be easy. Just put the whole thing in the bank.
> The problem is we got screwed with the interest rates. So it's not so easy any more.



That is such a big lesson.  In a sense, we're privileged to not be retired and see how these low interest rates play out.  So now we all know that unless you're super rich, you'll always need a percentage of your funds invested and at risk.


----------



## Zaxon (6 November 2019)

aus_trader said:


> Well theoretically it's possible to live off it. But putting 100% in to an Index ETF means could be in for periods of high volatility and draw-downs at the mercy of the stock market. One needs to be comfortable to handle that as well.
> 
> That's why a mix of diversified assets is better in my opinion. The draw down fluctuations could be less and smoothed out, while still maintaining an income from the portfolio of assets.



Yes, all very true.

There's really 3 ways to smooth out volatility.  You have a safe withdrawal rate and pretend the volatility doesn't exist - that's the 4% rule.  You typically would have bonds as a part of the mix, but the exact percentage is very much a flexible question.

Alternatively, as you suggest, you heavily invest in income assets to balance out your shares.  That works as well.

Finally, if you're the "Shares FTW" type, then you can have a "slush fund" to smooth out your returns.


----------



## aus_trader (6 November 2019)

Zaxon said:


> That is such a big lesson.  In a sense, we're privileged to not be retired and see how these low interest rates play out.  So now we all know that unless you're super rich, you'll always need a percentage of your funds invested and at risk.



It's definitely something that takes time to reflect and make wise changes to your portfolio mix. I haven't rushed to do it because I want to feel comfortable to leave the portfolio alone once the right mix is decided. The last thing I want to do is to panic sell in market downturns etc.

Having more time to continue to trade at the edges of the portfolio with a small amount of capital is also an advantage before I retire. As you said, once I feel confident enough I will keep aside a portion of my cash in a trading account for stock picking strategies that I am doing at the moment. This will be separate from an investment account which will be more or less a buy and hold portfolio of different asset classes. Depending on my skill level that I develop and the confidence I have in myself sticking to discipline such as 'sell when I should', I think I'll be happy to set aside 10 to 20% for stock trading. As you said it'll be a challenge to keep me occupied to monitor the share market and stock selection if I feel a bit bored once I retire.


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## sptrawler (6 November 2019)

aus_trader said:


> Hey mate, I know I am not in a position to give any advice, but if you already have enough exposure to the banks via an asx market ETF, I think you have to be careful to not go overweight into that sector further and make sure there is good diversification in the portfolio IMHO.



I just had a bit of a thought aus trader, one has to a bit careful making mental notes, I have been caught doing it at times.
What I mean by that is, often when a share is on the nose, it is actually the perfect time to be buying into them. For example 4 years ago when the Samarco dam failed, BHP went to $12-13 range, with the Brexit issues a couple of months back CYBG went below $3, IOOF went below $5 two months ago.
It kind of backs up the old saying about when everyone is heading for the exits.
The big 4 in Australia are kind of pseudo government agencies, they are regulated by the Government and as such they IMO will be around for a long time, I will add to them if the opportunity presents. With the current outgoing remeadiation, they are being hammered, but it wont go on for ever and as Zaxon said they will find other ways to make money. They have to, for the economy to function.
But as you say, there is no point in going overweight in something, I am already overweight in.


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## Sir Burr (6 November 2019)

Zaxon said:


> I think you're our most conservative so far




There is another way of thinking 

To reduce *sequence of return risk, *have a high initial bond allocation and withdraw the first 5 years (at least) from the bonds only.


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## aus_trader (6 November 2019)

sptrawler said:


> I just had a bit of a thought aus trader, one has to a bit careful making mental notes, I have been caught doing it at times.
> What I mean by that is, often when a share is on the nose, it is actually the perfect time to be buying into them. For example 4 years ago when the Samarco dam failed, BHP went to $12-13 range, with the Brexit issues a couple of months back CYBG went below $3, IOOF went below $5 two months ago.
> It kind of backs up the old saying about when everyone is heading for the exits.
> The big 4 in Australia are kind of pseudo government agencies, they are regulated by the Government and as such they IMO will be around for a long time, I will add to them if the opportunity presents. With the current outgoing remeadiation, they are being hammered, but it wont go on for ever and as Zaxon said they will find other ways to make money. They have to, for the economy to function.
> But as you say, there is no point in going overweight in something, I am already overweight in.



Yes, I understand where you are coming from. However I found it's not always profitable buying just because the share got hammered. It could get beaten down further and sometimes for a long period of time. A recent example might be the fresh fruit and veg producer Costa Group Holdings Ltd (CGC).

In terms of the banks, yes I agree that they won't go out of business because the Government will ensure that. They showed us how protective of the banks they are during the GFC.

I just made the comment about how you can be overweight to the banks in your portfolio if you already hold a portion of your wealth in ASX index funds and decide to buy the individual banks on top of that. The reason for my concern was the ASX index ETF will have the banks at the top of the list with some of the highest weightings. Let's say you bought an ASX200 ETF to give your portfolio exposure to the largest 200 blue chips on the Australian market, those 4 banks will be right near the top with some of the highest weightings of that fund. See the culprits with their weightings all within the top 10 holdings of the ASX200 fund below:


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## sptrawler (6 November 2019)

aus_trader said:


> Yes, I understand where you are coming from. However I found it's not always profitable buying just because the share got hammered. It could get beaten down further and sometimes for a long period of time. A recent example might be the fresh fruit and veg producer Costa Group Holdings Ltd (CGC).
> 
> In terms of the banks, yes I agree that they won't go out of business because the Government will ensure that. They showed us how protective of the banks they are during the GFC.
> 
> ...




The LIC's and Australian ETF's all have heavy weighting to the Banks, but as has been shown recently, if the Banks don't lend money everything goes pear shaped.
You are spot on with your observation.
When the GFC happened CBA went to $26 and ANZ,NAB and WBC from memory, went to around $15. I will be loading up again if that happens.
Just my opinion.
Below is an LIC and ETF holding example.
Milton's top 20 holdings.
https://www.asx.com.au/asxpdf/20191105/pdf/44b8v01tfvzwhm.pdf

Even VAS top 10 holdings include the big 4 Banks and financials make up 31% of their holdings.
https://www.vanguardinvestments.com...t.html#/fundDetail/etf/portId=8205/?portfolio

Great discussion thread this.


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## Zaxon (6 November 2019)

Sir Burr said:


> There is another way of thinking
> 
> To reduce *sequence of return risk, *have a high initial bond allocation and withdraw the first 5 years (at least) from the bonds only.



I like the idea of going into retirement with a good margin of safety, so this idea has a lot of merit.  I'm thinking there's a "Goldilocks amount" between having too much out of the stock market, and therefore stacking the odds of a good return against you, and having sufficient in bonds that the chance of a crash happening on the day you retire, is mitigated.

Thinking in 'x' number of years sounds right. We know you're only going to withdraw 4% (insert figure here) per year, and a lot of that could come from dividends anyway.  So most of your portfolio can crash "safely", since you won't be drawing on it for years or decades anyway.

Typically a crash is severe, and then within 12 months (or so), a lot (but not all) of the original market value has recovered.  The last 10% (or so) seems to take the longest.

So I'm thinking having 2 years in cash/bonds gets you through the worst of a crashed market, and well into the recovery phase.  On the other extreme, having 10 years out of shares would put you at such a huge disadvantage if you're wanting to grow your capital.  That Goldilocks amount probably comes down to the level of comfort each individual investor feels they need.


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## Zaxon (7 November 2019)

*As a second question for everyone:* *what is your withdraw rate when you retire*?  Are you doing a fixed rate based on your balance on retirement + CPI?  Are you doing a variable rate as a percentage of your assets under management each year?  And what percentage are you using?


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## aus_trader (7 November 2019)

Zaxon said:


> *As a second question for everyone:* *what is your withdraw rate when you retire*?  Are you doing a fixed rate based on your balance on retirement + CPI?  Are you doing a variable rate as a percentage of your assets under management each year?  And what percentage are you using?



I am certainly thinking along the line of % drawdown per annum. That way, in the leaner years when the market returns are poor the amount withdrawn will also be lower based on %'s. If it's a fixed amount, it can end up depleting too much of the fund during a downturn.


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## aus_trader (7 November 2019)

sptrawler said:


> The LIC's and Australian ETF's all have heavy weighting to the Banks, but as has been shown recently, if the Banks don't lend money everything goes pear shaped.
> You are spot on with your observation.
> When the GFC happened CBA went to $26 and ANZ,NAB and WBC from memory, went to around $15. I will be loading up again if that happens.
> Just my opinion.
> ...



Yes very good discussion indeed.

Given the exposure to the banks of around 30% or more whether you invest in the overall market via an ETF such as VAS or a LIC such as MLT, I wouldn't be keen on gaining further exposure via buying the banks directly.

But as you said if it is doing a trade to buy the banks from a GFC recovery type scenario I would be interested, if I can get the timing right


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## Bill M (7 November 2019)

Zaxon said:


> *As a second question for everyone:* *what is your withdraw rate when you retire*?  Are you doing a fixed rate based on your balance on retirement + CPI?  Are you doing a variable rate as a percentage of your assets under management each year?  And what percentage are you using?



Both my wife and I draw the minimum amount of 4%. As we are younger retirees we kind of figure that if the minimum is enough for us to live on now then it is better to keep the rest for when you really need it.

ie. An aged care facility will cost each person around $1,200 week out of your own savings ATM if you are not entitled to a pension. You need cash flow for such events. You don't want to end up in some government funded facility sharing a room with 4 other people, not a nice way to check out of this world.


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## Bill M (7 November 2019)

aus_trader said:


> But as you said if it is doing a trade to buy the banks from a GFC recovery type scenario I would be interested, if I can get the timing right



I held bank stocks through the GFC, watched the value drop down during the crash. I had spare cash on hand and when they all offered share top up plans I bought as much as I could. The best play was CBA @ $27, they botched the original plan so they had to revise it and sell @ $26 a share. Both my wife and I topped up as much as we could.

I've had bank shares in my portfolio all my life, they are darn good stocks. They have all paid for themselves now with their dividends over the years. I just wish I had enough guts to pull the trigger on BHP when they hit $13.50. I remember a staff member of BHP coming on here saying something like "I have been offered a share purchase plan from the company to top up my BHP stocks at a discount, should I buy them?" Most us just said we would if we were in your position. Chances come along all the time but people do nothing sometimes, me included.


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## sptrawler (7 November 2019)

Bill M said:


> I held bank stocks through the GFC, watched the value drop down during the crash. I had spare cash on hand and when they all offered share top up plans I bought as much as I could. The best play was CBA @ $27, they botched the original plan so they had to revise it and sell @ $26 a share. Both my wife and I topped up as much as we could.
> 
> I've had bank shares in my portfolio all my life, they are darn good stocks. They have all paid for themselves now with their dividends over the years. I just wish I had enough guts to pull the trigger on BHP when they hit $13.50. I remember a staff member of BHP coming on here saying something like "I have been offered a share purchase plan from the company to top up my BHP stocks at a discount, should I buy them?" Most us just said we would if we were in your position. Chances come along all the time but people do nothing sometimes, me included.



Great post Bill, we all suffer from the same problem, when the herd is stampeding for the door it is hard not to go with them.
That is the one rule, I think is the most important and the young should learn it. When things are screaming up it is easy to join in, when things are crashing down it is hard to stand firm. 
That is why I think everyone should have a plan on which shares to buy, if there is a crash, they all become cheap, not having a clear head is the problem.


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## sptrawler (7 November 2019)

With regard draw down, as with Bill we draw the minimum amount, which is currently 4%. If I need to draw extra I will draw cash lump out of the wife's super, which is in accumulation.
The reason I left her's in accumulation is two fold, one while markets are strong the amount is increasing, because nothing is being drawn. Secondly if there is any Government instigated changes, as happened with the $1.6 cap, it gives a degree of flexibility as you can still add to it.
So while my draw down is increasing with age, any windfalls I add to hers. I could have started more super funds and put extra money into that, but I just find this plan is working for me.
My super is rising slightly, her super is flying along, when my draw down exceeds my earnings and we need more income, I will put hers into pension phase.


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## Sir Burr (7 November 2019)

Zaxon said:


> *As a second question for everyone:* *what is your withdraw rate when you retire*?  Are you doing a fixed rate based on your balance on retirement + CPI?  Are you doing a variable rate as a percentage of your assets under management each year?  And what percentage are you using?




Hi Zaxon, there people out there have done work based on history for us. Using historical monthly start dates of retirement and comparing fixed withdrawal rate percentages. This paper is for early retirees but has the numbers for 30 year retirement too. It would be using US data.

There is a chart on page 4 showing the probability (based on history) of your money lasting the distance. 4% looks pretty good.

*Safe Withdrawal Rates: A Guide for Early Retirees*
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=292032


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## sptrawler (7 November 2019)

Sir Burr said:


> Hi Zaxon, there people out there have done work based on history for us. Using historical monthly start dates of retirement and comparing fixed withdrawal rate percentages. This paper is for early retirees but has the numbers for 30 year retirement too. It would be using US data.
> 
> There is a chart on page 4 showing the probability (based on history) of your money lasting the distance. 4% looks pretty good.
> 
> ...



Great paper Sir Burr, terrific read.
It re enforces the 4% theory, the question it raises, how do you keep your draw down at 4%?
Super has increasing draw downs.
Outside super has tax implications.
Which leads to another discussion, this thread seems to be good at that.


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## tech/a (7 November 2019)

Some great discussion here.

I've remained silent for most part.

But it has been my goal ever since I left school to aim toward excess.
If I have well over what I need then life will and has been a great deal
easier than struggle street.

As pulling back loomed the challenge was/is to continue that excess.

The only way for me to do that was to have more investments than I need
to live well going forward 30 years. If Im un lucky enough to last that long!

I have put in place people who can carry on with what I have created to give
me a continued income similar to that which Ive had for the last 10 yrs.

I urge you to find something you can invest in which can supply a continued 
income to grow your investments. Hard but it can be done.


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## barney (7 November 2019)

tech/a said:


> Some *great discussion here*.




Been off the air a bit lately, but just browsing through this thread and thought the same




tech/a said:


> …  live well going forward *30 years*. If Im *un lucky enough* to last that long!




Lol …. I suspect many of us will be enjoying a good "sleep" by that time



tech/a said:


> I urge you to find something you can invest in which can supply a continued income to grow your investments.




Good advice … and certainly not wishing to appear unduly negative, but 

In the final washup, "our" investments are a reflection of our lives, and will likely end up a prelude to our immediate families' future "investments" (over which we will have no control)


I often think, if I get lucky and pick a multi-multi bagger …. and get to retire early, I'll most likely be bored as crap lol ….. 

Therefore, picking the wrong Stocks most of the time is probably in my best interest 

With that in mind … Some of us are doing extremely well​


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## sptrawler (7 November 2019)

Zaxon said:


> *As a second question for everyone:* *what is your withdraw rate when you retire*?  Are you doing a fixed rate based on your balance on retirement + CPI?  Are you doing a variable rate as a percentage of your assets under management each year?  And what percentage are you using?



The draw down from super is legislated, starting at 4% and increments with age to 14%.
https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=10
Outside of super, it is treated as income so normal tax rates apply, therefore the draw down + cpi, has to include tax.
So the choice of super, or holding outside of super, or a combination of both would probably have an effect on the way people draw down the money.


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## sptrawler (7 November 2019)

Zaxon said:


> That's very true.  And you can do exactly that, and live happily ever after.



Zaxon, with regard the ETF Vs the LIC, looking at VAS they seem to be selling at 2.13 times book value, yet MLT which is a LIC appear to sell at very near NTA backing.
Is there a difference between the ways they are valued, or is it just the fact the ETF is more popular, therefore commands a higher relative price?


----------



## qldfrog (7 November 2019)

And isnt any serious divergence between a nta and share value an absurdity and a recipe for poor dividend return?


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## Zaxon (7 November 2019)

aus_trader said:


> I am certainly thinking along the line of % drawdown per annum. That way, in the leaner years when the market returns are poor the amount withdrawn will also be lower based on %'s. If it's a fixed amount, it can end up depleting too much of the fund during a downturn.



I like your approach, and for exactly the reason you've stated!


----------



## Zaxon (7 November 2019)

Bill M said:


> Both my wife and I draw the minimum amount of 4%.



4% of AUM, or 4% of retirement balance + CPI?


Bill M said:


> An aged care facility will cost each person around $1,200 week out of your own savings ATM if you are not entitled to a pension. You need cash flow for such events. You don't want to end up in some government funded facility sharing a room with 4 other people, not a nice way to check out of this world.



Wow to the cost.  And I totally agree with the justifiable fear of ending up crammed into some aged facility, looking forward to the weekly kerosene bath.

I have this theory that, for the price you'd pay to go into some retirement home, you could hire a nurse yourself.  I'm sure there's a person with nursing training, who only wants a part time job.  (Perhaps they're raising kids or something).  Pay them to come to your house for an hour, 7 days a week.  Have an emergency button you could push if necessary, etc.

You'd end up with far cheaper care, be given as much attention or more than you'd get in a retirement home, and as you can choose who you hire, you can have someone who actually is prepared to care.

It's just a theory.  I've never worked out the numbers.  But it seems right to me.


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## Zaxon (7 November 2019)

Sir Burr said:


> Hi Zaxon, there people out there have done work based on history for us.
> There is a chart on page 4 showing the probability (based on history) of your money lasting the distance. 4% looks pretty good.



I expect many people to be using the 4% SWR.  But not everyone.  And not myself  .  But it's an excellent default position, and probably serves most people.


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## sptrawler (7 November 2019)

Zaxon said:


> 4% of AUM, or 4% of retirement balance + CPI?
> 
> Wow to the cost.  And I totally agree with the justifiable fear of ending up crammed into some aged facility, looking forward to the weekly kerosene bath.
> 
> ...




The nurse idea is what we have planned for the mother in law, she is happy with it, we will see how it works out.


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## Zaxon (7 November 2019)

sptrawler said:


> The draw down from super is legislated, starting at 4% and increments with age to 14%.
> https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=10



An excellent point!  Which begs the question, when people on ASF say they only draw dawn 3.5% (etc), that couldn't be based only on super.

Surprisingly, if you retire at the normal age of 65+, you're forced to drawdawn 5%.




For everyone who things retirement = stick everything into Super, and then use the 4% SWR, wouldn't actually be allowed to do that (at least not in the first few years).  A scary thought.


sptrawler said:


> Outside of super, it is treated as income so normal tax rates apply, therefore the draw down + cpi, has to include tax.
> So the choice of super, or holding outside of super, or a combination of both would probably have an effect on the way people draw down the money.



Very good.  So the drawdown minimum only applies to super, since that determines whether you get to keep the "zero tax" status of your super.  Your whole AUM (super + taxable investments) are assessed when it comes to eligibility for the pension.  In this case, it's a deemed % return you're assessed on, not your actual returned.

I think I have all that right.


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## Zaxon (8 November 2019)

sptrawler said:


> Zaxon, with regard the ETF Vs the LIC, looking at VAS they seem to be selling at 2.13 times book value, yet MLT which is a LIC appear to sell at very near NTA backing.
> Is there a difference between the ways they are valued, or is it just the fact the ETF is more popular, therefore commands a higher relative price?



There's a difference.  So book value in ETFs, is the underlying book value of the companies that it holds.  




For instance, CBA has a P/B of 1.96.  So if an ETF held 100% CBA shares, it would report its price-to-book ratio as 1.96.

The LIC uses "book value" to mean AUM - how much their holdings are worth on the market, not the book value of the underlying companies it holds.

Trixie!


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## Zaxon (8 November 2019)

sptrawler said:


> The nurse idea is what we have planned for the mother in law, she is happy with it, we will see how it works out.



I'm glad this is working in practice.  Excellent info!


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## Sharkman (8 November 2019)

Zaxon said:


> *As a second question for everyone:* *what is your withdraw rate when you retire*?  Are you doing a fixed rate based on your balance on retirement + CPI?  Are you doing a variable rate as a percentage of your assets under management each year?  And what percentage are you using?




my target is 2.5%. i'm currently in the low 3s, so i probably could retire now, but as much as i've grown to hate the corporate treadmill these days, i can still summon up the willpower to stay with the plan and stick it out another 2-3 years. though if one day i wake up and feel that i really can't take it any more, i always have the option of throwing in the towel and calling it quits in my back pocket.

think i wrote about this a while ago, can't remember the specific topic now, think it was something to do with ETFs, but i'm not too keen on the widely touted 4%, for a number of reasons.

it has a small but noticeable chance of failure, AND it's based on a 30 year retirement timeframe. all four of my grandparents lived into their 90s (one is still alive), not only did they live during a time when humankind was less technologically advanced, but they lived their whole lives in developing nations. so with that genetic background and the medical advancements of today, i have to consider the (tantalising/frightening/somewhere-in-between) possibility that i may actually wind up hitting triple figures. since i'm looking at retiring in my early 40s, that could be 60 years of retirement to fund. i don't want to be continually worrying about that small chance of failure for decades on end. of course nothing's ever 100%, but i'd like to think a 2.5% drawdown is at least a 99.

as tech/a wrote, it is far easier to expand your lifestyle to fit your budget, than expand your budget to fit your lifestyle. i'm far more at ease with the idea of planning super conservatively, then living more luxuriously if the risks don't eventuate, and if things go to crap, probably still being able to live comfortably without cutting back on lifestyle significantly.

i'm not looking to merely maintain my current lifestyle in retirement, i want to be able to _improve_ my quality of life during it. new medical treatments, the fancy new gadgets/toys/forms of entertainment that people can come up with in the future, those things probably aren't going to come cheap. i'd like to be able to afford those without constantly worrying about outliving my capital. that's the point of retirement isn't it, to enjoy life, not to be always stressing about your finances. so i'm after the extra growth that a 2.5% drawdown should provide, to cover for both actual inflation and lifestyle inflation, and i'm willing to grind thru a few more years of the rat race to get there (for now, anyway).


----------



## Zaxon (8 November 2019)

sptrawler said:


> how do you keep your draw down at 4%?
> Super has increasing draw downs.
> Outside super has tax implications.
> Which leads to another discussion, this thread seems to be good at that.



These are excellent questions.  The method that makes sense to me, is to take your mandated drawdown of 7% when you're 80, for instance, pay yourself the 4% (insert figure here), and put the remaining 3% into taxable investments.  You can achieve whatever "effective drawdown" you want.

The big question is how much money you want at death.  If you have no kids, or believe you "came into the world with nothing so you'll going out with nothing", then you'd slowly increase your drawdown percentage as you aged.  This is what the government's mandated drawdown is designed to do - make you go broke on the day you die.

The complexity comes from not knowing your date of death - it would be *so* much easier if we knew, and could calculate backwards .  The other unknown is medical costs: are you going to slip away in your sleep relatively young, or live on endlessly, needing every medical facility ever invented.  Such a big unknown.

On the other hand, if you are wanting to leave as much money for your kids as you can, or you 25 y/o lover that moved in on your 80th birthday, in a sense it simplifies things.  Your aim could be, say, to keep your AUM paced with inflation after your cost of living drawdowns.  If you happen to live an extra long time, or your medical expenses shoot up towards the end, at least you're covered, even if there's a bit less left.


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## aus_trader (8 November 2019)

Zaxon said:


> There's a difference.  So book value in ETFs, is the underlying book value of the companies that it holds.
> 
> View attachment 98491
> 
> ...



Certainly Tricky, cheers for clarifying that.


----------



## Zaxon (8 November 2019)

barney said:


> In the final washup, "our" investments are a reflection of our lives, and will likely end up a prelude to our immediate families' future "investments" (over which we will have no control)
> ​




I was saying to my partner just the other day, if we leave money to the relatives, I'd like to set up a testamentary trust, give them no direct access to it, and have them paid 4% (insert figure here) from it each year.  I see it as good money mangement teaching opportunity from beyond the grave, and they'd have a reliable monthly income for the rest of their life.


barney said:


> I often think, if I get lucky and pick a multi-multi bagger …. and get to retire early, I'll most likely be bored
> Therefore, picking the wrong Stocks most of the time is probably in my best interest
> With that in mind … Some of us are doing extremely well



​Ha ha!  That's the funniest thing I've read all day.


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## Zaxon (8 November 2019)

Sharkman said:


> my target is 2.5%. i'm currently in the low 3s, so i probably could retire now, but as much as i've grown to hate the corporate treadmill these days, i can still summon up the willpower to stay with the plan and stick it out another 2-3 years.



Well done!  You'll be able to "fat" FI/RE.  Very good position to be in.


Sharkman said:


> i'm not too keen on the widely touted 4%, for a number of reasons.
> it has a small but noticeable chance of failure, AND it's based on a 30 year retirement timeframe. all four of my grandparents lived into their 90s (one is still alive), since i'm looking at retiring in my early 40s, that could be 60 years of retirement to fund. i don't want to be continually worrying about that small chance of failure for decades on end.



You make an excellent argument for going ultra concervative.  And curse those excellent genes of yours 


Sharkman said:


> i'm not looking to merely maintain my current lifestyle in retirement, i want to be able to _improve_ my quality of life during it. new medical treatments, the fancy new gadgets/toys/forms of entertainment that people can come up with in the future, those things probably aren't going to come cheap.



Totally agree.  Well, that's the ideal retirement.  Sadly, one most people will never see.


----------



## Zaxon (8 November 2019)

Zaxon said:


> *As a second question for everyone:* *what is your withdraw rate when you retire*?  Are you doing a fixed rate based on your balance on retirement + CPI?  Are you doing a variable rate as a percentage of your assets under management each year?  And what percentage are you using?



OK my turn.  My plan is to take a fixed % of AUM (Assets Under Management) each year.  In my case, that will be 5%.  But haven't I breached the 4% rule?  I have.  It's time to report to the headmaster and explain why!

The 4% SWR draws an ever increasing amount from your savings over time.  If the market crashes by 50% - too bad!  Pay up chump!  I want all my money, as usual!  Or if the market doubles overnight, although we're now twice as rich, we pretend we're not.  It's like being a contractor with a dramatically different income year to year, but pretending you're a salaried worker.

Having pointed out its weakness, in general, I think the 4% SWR is right for most people.  But there are other equally valid methods.  Which brings me to the fixed % AUM model.

The fixed % takes into reality what's actually happening with your money.  If the market doubles - you're rich.  You get to pay yourself more.  If it crashes - it's time to tighten the belt.  In a sense, it's a form of "dollar cost averaging", but in reverse.

In a sense, the fixed % method has an inbuilt safety mechanism that the 4% SWR doesn't have.  Say I retire with 2 million, I'm paying myself 5%, so that's $100k each year.  And then the market crashes, as we all know it will do every 20 years or so.  My AUM is now only 1m.  Oh no! That year, I take out my 5%, but alas, it's only $50k I'm being paid.  Boo for me!  But ya for my retirement nest egg.  In dollar terms, I've agreed to take a pay cut during the bad times.  That provides an inbuilt level of safety during bad times, and helps to protect your investments during a crash.  Even during prolonged bad markets, you keep protecting your investements by taking less (in dollar terms)

The one drawback - and it's a pretty big one - is that you have to be OK with wildly fluctuating drawdowns.  The best way to be OK with this, if you have a "smoothing" mechanism.  I plan on running 90% shares, 10% cash/bonds.  That 10% = 2 years of savings.  And this is how the smoothing is done.

Using the previous example, we take a "moving average" of the incomes over several years.  So let's say that's $75k. On a year where my drawdown equals $75k (by chance), then the money goes straight from the shares (dividends + capital sales if needed), into my pocket.  The bond smoothing fund isn't touched.

Any year where my return is >$75k, I keep the 75, and put the rest into the bond smoothing fund.  On years where my return is <$75k, then I top up the amount to $75k from the bond fund.  If I pick that average right, then I should be able to play myself a consistent wage, indefinitely.

OK.  So what I get to live off isn't quite so choppy as it first appeared.  But how can 5% be safe for you, whereas the Safe Withdrawal Rate is only 4%?  Well firstly, the 4% Rule is based on having 60% stocks / 40% bonds.  By definition, the more bonds you have, the lower your expected return.  But the more stable that return is.  So they're trading away stellar returns, and instead getting better consistency.

Due to my much higher stock percentage, it makes sense I should be able to outperform 4% over time. If the total return (dividends + price rise) of the ASX or S&P500 is around 10% per year (and it has been if you look over long periods of time), take away 2% (or so) for inflation on average, leaving 8% real returns.  I'm taking 5%.  In theory, my assets should grow by 3% annually, give or take, over time.  And as we've already established, after market crashes or extended sideways market, I'm taking a smaller dollar amount to compensate for that.  Essentially, I'm trading consistency, for hopefully better returns.

That's the theory.  It has the potential to outperform the 4% SWR in terms of growth, but it's not for the feint of heart. In a sense, I'm treating my nest egg as an active asset I'm trying to grow, rather than a passive annuity I'm drawing down on.


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## Belli (8 November 2019)

Zaxon said:


> I was saying to my partner just the other day, if we leave money to the relatives, I'd like to set up a testamentary trust, give them no direct access to it, and have them paid 4% (insert figure here) from it each year. I see it as good money mangement teaching opportunity from beyond the grave, and they'd have a reliable monthly income for the rest of their life




I suspect the Will maker would be unable to specify a percentage.  You cannot fetter the discretion of the Trustee and, if it is a Discretionary Testamentary Trust, the Trustee determines the amount of income, if any, allocated to each beneficiary.  Possible Corporate Trustee in which case a beneficiary can be a Director and then guess what can happen?

It is also possible for a beneficiary to opt out of the Trust in which case they are able to access the capital and do with it what they want.  Also a DTT has a limited span of 80 years from when it first comes into effect.  There are various ways around this but it requires careful planning and very sound legal advice.

Many, many aspects such as Beneficiary Controlled Testamentary Trusts, Special Needs Trust, Superannuation Death Benefits Proceeds sub-Trusts (with Binding Death Benefit Nomination making the superannuation payment to the Estate or Legal Representative) and much more.

A vast subject and it will cost to get it right initially plus future costs as it will need to be reviewed as circumstances change, eg definition of children (IVF, surrogate, etc), blood line and so forth.


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## Bill M (8 November 2019)

Zaxon said:


> 4% of AUM, or 4% of retirement balance + CPI?




Yes it is 4% AUM, recalculated on 1/07 each year. What ever the balance is on that date is what the 4% is calculated on, CPI not included. We will do that as long as we can but if we need more and we need to eat into capital then that is what we will do.



> Wow to the cost.  And I totally agree with the justifiable fear of ending up crammed into some aged facility, looking forward to the weekly kerosene bath.
> 
> I have this theory that, for the price you'd pay to go into some retirement home, you could hire a nurse yourself.  I'm sure there's a person with nursing training, who only wants a part time job.  (Perhaps they're raising kids or something).  Pay them to come to your house for an hour, 7 days a week.  Have an emergency button you could push if necessary, etc.
> 
> ...




Yes that all sounds doable but it just doesn't always work out that way. When both of you have dementia then you need 24/7 looking after. Unfortunately both my parents were in Aged Care Facilities when they passed and I have had first hand experiences of what goes on at that stage of life. It's not pretty, it is better to be prepared before you get to that point and hope to God that there is someone trustworthy to help you get set up in a nice place.


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## tech/a (8 November 2019)

barney said:


> Good advice … and certainly not wishing to appear unduly negative, but
> 
> In the final washup, "our" investments are a reflection of our lives, and will likely end up a prelude to our immediate families' future "investments" (over which we will have no control)




Yes this is true.
But look beyond the Normal investment. For those entrepreneurial there are some great opportunities to be
involved in owning or part owning businesses which can supply a passive or not so passive income and help
with that feeling of still contributing to society. Not to mention capital appreciation possibilities. At any age--Older age CAN be beneficial.




> I often think, if I get lucky and pick a multi-multi bagger …. and get to retire early, I'll most likely be bored as crap lol …..




Yes agree see above. I see this all the time. Don't under estimate that feeling of worth---a lot of retirees throw themselves into committees
for exactly that reason. Why not put that effort to work for yourself.



> Therefore, picking the wrong Stocks most of the time is probably in my best interest
> 
> With that in mind … Some of us are doing extremely well




The very first thing to do is drop anything that is continuously detrimental to your financial health
You can pick 10 wrong stocks and take a 5% hit to capital as long as you pick 1 or more stocks which return over
70% of your capital---depending on where you start in your win loss ratio!

To me having to concern myself with what % of draw down from funds I can live with ---with an unknown time frame AND quality of life Ill have or not have going forward doesn't cut it.

I want to do what I want NOW. NOW is today tomorrow and the next day---
I* dont want to scrimp and save thats what I did to get here!!!*


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## barney (8 November 2019)

A lot of quality postings on this thread. Well done to all the contributors




tech/a said:


> I want to do what I want NOW. NOW is today tomorrow and the next day---




Absolutely. Positive attitude for the present ….. with that thought in mind...

Saving or working to accumulate for retirement is a perfectly rational human plan of attack. 

However, I'm sure there are many who put undue emphasis on future wealth creation.  

Having all the money in the world for that "rainy day" scenario will be less than fulfilling if you can't lift the umbrella

On the flip side, you will be able to afford to pay someone to hold the umbrella for you so there are obviously pros and cons




tech/a said:


> owning or *part owning businesses which can supply a passive* or not so passive *income*




I'm sure a lot of people would be interested in this topic. 

Apart from Property and Shares …. What types of businesses would you consider have the most likely passive income generating potential? (Mainly for us slightly older dudes who need occasional physical assistance/resuscitation) ​


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## Zaxon (8 November 2019)

Belli said:


> I suspect the Will maker would be unable to specify a percentage.  You cannot fetter the discretion of the Trustee and, if it is a Discretionary Testamentary Trust, the Trustee determines the amount of income, if any, allocated to each beneficiary.  Possible Corporate Trustee in which case a beneficiary can be a Director and then guess what can happen?



OK.  This is very interesting.  So we know that rich people set up trusts for their kids who go off to college.  Let's run with that cliche.  They're not a Testamentary Trust.  Possibly they are discretionary.  There are companies that specialize in managing rich people's trusts. I'm assuming that they're prepared to carry out Daddy's instructions verbatim.  Daddy is the Appointor, Professional Trustees Pty Ltd is the Trustee, and Geoffrey is the Beneficiary who receives the funds, but has no say in anything.

Can the same structure be used for a Testeamentary Trust?  Can you not bequeath your assets to any human, but to a trust, have a restrictive trust deed that dictates your exact wishes, and then have it professionally managed?


Belli said:


> It is also possible for a beneficiary to opt out of the Trust in which case they are able to access the capital and do with it what they want.  Also a DTT has a limited span of 80 years from when it first comes into effect.



Interesting.  Certainly a potentially beneficiary doesn't have to accept the proceeds of a will.  But if they do, can they just dissolve the trust?  That sounds odd to me.  I agree with the limited lifespan of a trust.  Still, 80 years is a good run 


Belli said:


> A vast subject and it will cost to get it right initially plus future costs as it will need to be reviewed as circumstances change, eg definition of children (IVF, surrogate, etc), blood line and so forth.



Costs are a big thing.  Yes, unless you're leaving a signficant fortune, it may not be worth doing.


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## Zaxon (8 November 2019)

Bill M said:


> Yes that all sounds doable but it just doesn't always work out that way. When both of you have dementia then you need 24/7 looking after. Unfortunately both my parents were in Aged Care Facilities when they passed and I have had first hand experiences of what goes on at that stage of life. It's not pretty, it is better to be prepared before you get to that point and hope to God that there is someone trustworthy to help you get set up in a nice place.



You're right.  I'm describing a rather benign aging process where the person is still cognatively alert.  Aging may or may not go that way.

My aged parents live in their own home and have a cleaner, via a council scheme, come periodically.  Apparently you can get people to do your lawns, people to shower you.  I'm not sure whether you can get daily help through the council.  I'd suspect not.

My fear is that Australia is well on the way to becoming the Ayn Rand state like the US, where the user pays for absolutely everything.  I suspect that by the time I'm old, there will be no council services, medicare will be a husk, and if you want any aged assistance at all, then you'll pay full, commercial rates.

I see your point about the end of life being very messy, and a dedicated facility might best thing.  Perhaps the best we can do is to stay in our homes as long as possible, pay for limited home help along the way, but have a aged care facility picked out ahead of time for when you really need it.


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## Zaxon (8 November 2019)

Bill M said:


> Yes it is 4% AUM, recalculated on 1/07 each year. What ever the balance is on that date is what the 4% is calculated on, CPI not included. We will do that as long as we can but if we need more and we need to eat into capital then that is what we will do.



It's nice to see someone actually carry out a fixed percentage model in practice.  Do you have any equivalent of a smoothing fund?  From memory, a lot of your investments are income producing anyway, so you mightn't be subject to that much volatility.


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## sptrawler (8 November 2019)

Zaxon said:


> There's a difference.  So book value in ETFs, is the underlying book value of the companies that it holds.
> 
> View attachment 98491
> 
> ...



Thanks for the explanation Zaxon, makes a lot more sense now.


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## sptrawler (8 November 2019)

Zaxon said:


> You're right.  I'm describing a rather benign aging process where the person is still cognatively alert.  Aging may or may not go that way.
> 
> My aged parents live in their own home and have a cleaner, via a council scheme, come periodically.  Apparently you can get people to do your lawns, people to shower you.  I'm not sure whether you can get daily help through the council.  I'd suspect not.
> 
> ...



As the population increases and the industrialisation decreases, the slide to a lower living standard will continue and the benefits of a welfare state will be harder to fund.
It is imperative the productivity increases, or the decline will accelerate.IMO
By the way Zaxon thanks for your lively contributions, it adds a lot of zest to the debate.


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## Sir Burr (8 November 2019)

Zaxon said:


> Using the previous example, we take a "moving average" of the incomes over several years.  So let's say that's $75k. On a year where my drawdown equals $75k (by chance), then the money goes straight from the shares (dividends + capital sales if needed), into my pocket.  The bond smoothing fund isn't touched.
> 
> Any year where my return is >$75k, I keep the 75, and put the rest into the bond smoothing fund.  On years where my return is <$75k, then I top up the amount to $75k from the bond fund.  If I pick that average right, then I should be able to play myself a consistent wage, indefinitely.




Interesting! Is there any studies about this method?

Been reading about the Boglehead Variable Percent Withdrawal. Leaves you with no capital at the end which is fine by me but realistically who knows what will happen as being discussed here. My Mum spent her last years in a Nursing Home too. Mentally she was fine but many others there not so. I think people should spend some time in one of these places, another world and an eye opener.


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## Bill M (8 November 2019)

Zaxon said:


> You're right.  I'm describing a rather benign aging process where the person is still cognatively alert.  Aging may or may not go that way.
> 
> My aged parents live in their own home and have a cleaner, via a council scheme, come periodically.  Apparently you can get people to do your lawns, people to shower you.  I'm not sure whether you can get daily help through the council.  I'd suspect not.
> 
> ...




My Mother did all of the above. We had health care workers/cleaners coming in twice a week but things break down all the time. The staff get sick or get injured on the job or take holidays and sometimes there isn't anyone available to come by and help. So then Mum had to struggle to even have a shower. There were some government funded initiatives to help stay in your home longer but it wasn't enough. All family were interstate and she did not want to move out of her home. We were all married and could only come now and again. 

In the end she saw it for herself that it was impossible to stay on in her home and she made the decision to go. So we sold up the house and she went into a very lovely, well run private Aged Care Facility. The fee to get in was $500,000. For this she got a studio room on her own, I liked it and loved coming to visit Mum. The 500K (probably a lot more now) is a RAD (refundable accommodation deposit). This fee reduces the amount per week you have to pay for their services. Yes they took 85% of her pension but the RAD was still not enough to cover the service fee. Instead of the full $1,200 p/w cost she was up for around an extra $200 a Month. So her fees were a 500k RAD (with no interest) 85% of her pension plus $200 P/M of her own savings. It was manageable. This was the best and cheapest course of action we could do for Mum. We were happy that she lived in a nice place. Sorry for rambling but old age gets very expensive. If you have no money and no family then you will end up in a facility that is not so nice and sharing a room with other residents.


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## Bill M (8 November 2019)

Zaxon said:


> It's nice to see someone actually carry out a fixed percentage model in practice.  Do you have any equivalent of a smoothing fund?  From memory, a lot of your investments are income producing anyway, so you mightn't be subject to that much volatility.



Yes we do, I got bitten very hard during the GFC. It was a life changing event for us and I have never forgot. I have got a large cash buffer should another 50% drop come along. It all sounds good and well having ETF's and LIC's or other individual stocks as long term investments but can you survive a 50% drop in capital? This is what all long term investors need to understand and this is what financial advisers should ask each investor. If there is even the slightest murmur or confused look on the investors face then it needs to be explained. They need to know this can happen. A lot of Mum and Dad non professional investors can not envisage a 50% drop in capital. Yep sit it out, ride it out is one option but can they? Are they disciplined or not?

Lets never forget, if an ordinary investor filled up their Super account with Australian share market ETF's in October 2007, they would STILL be suffering capital losses. We still have not passed the previous highs of 2007, that's 12 long years already. Sure they would have picked up 5 to 7% dividends along the way but no capital growth. A lot of older retirees can not "just go back to work". It is the end of work for many of them and their investment decisions should focus on these points. Some people can not wait out 10, 12 or 15 years to recoup their losses.


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## Zaxon (8 November 2019)

Sir Burr said:


> Interesting! Is there any studies about this method?



Here's an article I google at random: https://www.brandonrenfro.com/can-i-withdraw-a-fixed-percentage-of-my-portfolio-in-retirement/

I have read studies in the past.  Though there's not the deluge of material like there is for the 4% Rule.  That's mostly likely because the 4% Rule needs a lot of proof, since the average retiree couldn't possibly, independently prove it works.  We need back testing and academics to do that.

A fixed % drawdown is somewhat more intuitive.  A variation on this has been used by retirees for centuries. Holding dividend paying stocks, owning tenanted properties, having fixed income assets etc: these are all examples of only drawing down the money that you "earn".  A fixed % AUM is a direct extension of that type of thinking.


Sir Burr said:


> Been reading about the Boglehead Variable Percent Withdrawal. Leaves you with no capital at the end which is fine by me but realistically who knows what will happen as being discussed here.



I'm also in favour of drawing down to zero.  I'll use the method I outlined above, but once we're significantly older, we will ramp up the % drawdowns. 

The government has a nice little chart for this they use for super:




I don't know whether this is "best practice", and so you can simply follow that chart, or whether this is the goverment trying to get out of paying as much pension.   I'd be interested to hear whether people think this chart is reasonable or not as something to follow.  I notice they use the 5% at 65+ (same as me).  And these percentages are of AUM, no 4% + CPI here.


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## Zaxon (8 November 2019)

Bill M said:


> My Mother did all of the above. We had health care workers/cleaners coming in twice a week but things break down all the time. All family were interstate and she did not want to move out of her home.



Interesting details there.  My parents moved across the state to live in the same town as their oldest son. It's worked out really well, and now they're over 80, they have someone that can help them out with all sorts of things.

We have no kids, so our end-of-life will look nothing like that.  Still, in theory, the money you save by not having kids, you should put away for aged care 


Bill M said:


> In the end she saw it for herself that it was impossible to stay on in her home and she made the decision to go. So we sold up the house and she went into a very lovely, well run private Aged Care Facility. The fee to get in was $500,000.



OK.  So the key is to own your own home, and sell it to fund your move into aged care.  How much of that 500k was left at the end?  Or does the facilitity get to keep it all?


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## Sir Burr (8 November 2019)

Zaxon said:


> Here's an article I google at random: https://www.brandonrenfro.com/can-i-withdraw-a-fixed-percentage-of-my-portfolio-in-retirement/
> 
> I have read studies in the past.  Though there's not the deluge of material like there is for the 4% Rule.  That's mostly likely because the 4% Rule needs a lot of proof, since the average retiree couldn't possibly, independently prove it works.  We need back testing and academics to do that.




Yes I googled your idea too and ended up setting up a spreadsheet using historical AORD from 1/1/07 thru today (plus nominal amount for interest on bond/cash account) and was surprised how well it did through GFC. Worst case was 82K income but I didn't include dividends. The idea of the MA of 5% (I used 12 a month MA) and drawing or adding to the bond/cash allocation makes sense.

Edit: By the way, these % withdrawal amounts to me are a max. I can see myself pulling less as I'll be using geographical arbitrage too where "most" costs are lower than Oz. Problem with this is exchange rates - retirement gets complicated!


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## Zaxon (8 November 2019)

Bill M said:


> It all sounds good and well having ETF's and LIC's or other individual stocks as long term investments but can you survive a 50% drop in capital?



That is absolutely the right question to be asking. It comes down to how much you start with.  If you go in "fat", then a 50% drop means you don't go on a cruise that year, or you delay buying that new car for a bit.  If you retire "lean", then a 50% drop means you eat rice and beans until the market recovers.  Two very different outcomes.  I'm not close enough to retirement to predict which way I'll end up 


Bill M said:


> Lets never forget, if an ordinary investor filled up their Super account with Australian share market ETF's in October 2007, they would STILL be suffering capital losses. A lot of older retirees can not "just go back to work". It is the end of work for many of them and their investment decisions should focus on these points. Some people can not wait out 10, 12 or 15 years to recoup their losses.



Oh for the days of the Defined Benefit company pensions.  Modern generations have been thrown into so much uncertainty with Define Contribution, let's "see what happens with the market", plans.

I see the older workers at Bunnings.  And good on Bunnings for hiring them.  And when I previously rented, the guy they sent around for repairs looked about 80, and he had been forced back into work.  But as you say, that's highly undesireable or even impossible for many people.


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## Bill M (8 November 2019)

Zaxon said:


> OK. So the key is to own your own home, and sell it to fund your move into aged care. How much of that 500k was left at the end? Or does the facilitity get to keep it all?



It is called a "Refundable Accommodation Deposit". It has to be paid back in full upon departure from the Aged Care Facility or death. If there are any outstanding bills then they will reduce that amount to cover those bills. They get to use this money interest free and only the capital is refundable. These deposits are government guaranteed to be paid back.


----------



## Zaxon (8 November 2019)

Sir Burr said:


> Yes I googled your idea too and ended up setting up a spreadsheet using historical AORD from 1/1/07 thru today (plus nominal amount for interest on bond/cash account) and was surprised how well it did through GFC. Worst case was 82K income but I didn't include dividends. The idea of the MA of 5% (I used 12 a month MA) and drawing or adding to the bond/cash allocation makes sense.



Good work!  Although I personally never chase dividends, if you look at VAS (ASX 300), it has a dividend off 4.15%.  So there's a lot of your 5% already.

My moving average for smoothing might be calculated on, say, 10 years.  You're after a point where your additions to your bond smoothing fund balances out your withdrawals.  So you're measuring over a complete market "cycle".



Sir Burr said:


> Edit: By the way, these % withdrawal amounts to me are a max. I can see myself pulling less as I'll be using geographical arbitrage too where "most" costs are lower than Oz. Problem with this is exchange rates - retirement gets complicated!



Yes, the 5% is an arbitrary amount.  Some may go lower, for sure.  Some may prefer a much larger smoothing fund than 10%.  It's all a performance vs smoothness continuum.

So where are you retiring to?  Geographical arbitrage is very smart.  For those who already have a foreign connection, it can be a no brainer.  My only concern, personally, would be for medical costs.  While we have a reasonable Medicare system here and good quality hospitals, you'd need to factor that in for your new country.  The other consideration is whether the country of your choice will allow you to move there on a permanent basis.


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## Zaxon (8 November 2019)

Bill M said:


> It is called a "Refundable Accommodation Deposit". It has to be paid back in full upon departure from the Aged Care Facility or death. If there are any outstanding bills then they will reduce that amount to cover those bills. They get to use this money interest free and only the capital is refundable. These deposits are government guaranteed to be paid back.



For the huge saving in monthly fees, that sounds excellent.  I can imagine you'd have to scrutinize the fine print of the place you're going.  There's possibly rogue homes that would tack on fees that would magically eat it all up, I can imagine.


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## sptrawler (8 November 2019)

Bill M said:


> Yes we do, I got bitten very hard during the GFC. It was a life changing event for us and I have never forgot. I have got a large cash buffer should another 50% drop come along. It all sounds good and well having ETF's and LIC's or other individual stocks as long term investments but can you survive a 50% drop in capital? This is what all long term investors need to understand and this is what financial advisers should ask each investor. If there is even the slightest murmur or confused look on the investors face then it needs to be explained. They need to know this can happen. A lot of Mum and Dad non professional investors can not envisage a 50% drop in capital. Yep sit it out, ride it out is one option but can they? Are they disciplined or not?
> 
> Lets never forget, if an ordinary investor filled up their Super account with Australian share market ETF's in October 2007, they would STILL be suffering capital losses. We still have not passed the previous highs of 2007, that's 12 long years already. Sure they would have picked up 5 to 7% dividends along the way but no capital growth. A lot of older retirees can not "just go back to work". It is the end of work for many of them and their investment decisions should focus on these points. Some people can not wait out 10, 12 or 15 years to recoup their losses.



That Bill, is what is called experience, most dont appreciate it, untill they experience it.
I know exactly what you are talking about and have 6 to 7 years of cash available on minimum draw down.
Many would say that is crazy, but when you have experienced what you are talking about, you err on the side of caution. Unfortunately.


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## Zaxon (8 November 2019)

sptrawler said:


> I know exactly what you are talking about and have 6 to 7 years of cash available on minimum draw down.
> Many would say that is crazy, but when you have experienced what you are talking about, you err on the side of caution. Unfortunately.



Although by nature I'm a returns focused investor, and can totally appreciate wanting to make yourself really secure.  The market can and will go through extended down periods.  And knowing the market, on average, performs really well probably is of no comfort when you've had a 50% crash and you still haven't fully recover 10 years later.

My partner would keep 100% of our investments in a bank account, and thinks the market is just this massive slot machine.  So that's the other extreme point of view.


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## sptrawler (9 November 2019)

Zaxon said:


> Although by nature I'm a returns focused investor, and can totally appreciate wanting to make yourself really secure.  The market can and will go through extended down periods.  And knowing the market, on average, performs really well probably is of no comfort when you've had a 50% crash and you still haven't fully recover 10 years later.
> 
> My partner would keep 100% of our investments in a bank account, and thinks the market is just this massive slot machine.  So that's the other extreme point of view.



Not only can you lose 50% of your capital, as was shown last election, you can lose 30% of your income.
The really scary part was, many were cheering it on.
Take nothing for granted, as per my motto.lol
It is just as easy to cancel the CGT exemption, as the tax free exemption on franking credits, on super earnings.lol
Actually after the last election, super is starting to look like a pool of money, that the politicians can raid later, if required.


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## Zaxon (9 November 2019)

sptrawler said:


> you can lose 30% of your income.
> The really scary part was, many were cheering it on.
> Take nothing for granted, as per my motto.lol
> It is just as easy to cancel the CGT exemption, as the tax free exemption on franking credits, on super earnings.lol



They are excellent points!  If all that legislation got through, entire assumptions about how your retirement would play out, would have been severely under threat.


sptrawler said:


> Actually after the last election, super is starting to look like a pool of money, that the politicians can raid later, if required.



Totally.  These are my predictions about super.  By the time I'm ready to retire, pension age will be 70 (up from 67).  That's virtually stated policy anyway, so that seems likely.  Secondly, having access to your super at 60, giving some people the chance to spend it all, only to be fully reliant on the pension later on, seems to be a "loophole" the goverment will stamp out.  So, access to super would also be raised to 70. 

I'm not suggesting that any of these things have merit.  Just that the government is highly motivated to reduce their pension bill, no matter what the social cost.


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## Belli (9 November 2019)

Yep.  Super is an odd beast.  Base an income on something which changes in price from minute to minute let alone year to year.

Always considered it a back up to have investments outside of super.  Sure the capital value can go down but generally the income from dividends don't so much.  If I remember correctly there was a 50% drop on the CG but dividends from the LICs I held, and still do, were affected by way, way less; something of the order of 10%.  No great income impact for us really.  The one and only ETF I held (STW) did have a comparatively massive drop in distributions but when I looked at it later on the distributions during the previous 4 or 5 years were abnormally high with companies shuffling out lots of dividend payments.

I thought the 2008 period was a great time and filling my boots as much as I could with stuff which I considered were at bargain prices.  Working at the time so was also moving cash in to the SMSF to buy as much as we could in it.

As usual, one person's approach and attitude is different to another's.  Met a few who skedaddled from the share market and still are so fearful they have been in cash since then.  When I've met them in recent times they are not too happy and are struggling a bit.  I do feel for them to some degree but they made a choice so they have to deal with it I guess.


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## Belli (9 November 2019)

Zaxon said:


> Costs are a big thing. Yes, unless you're leaving a signficant fortune, it may not be worth doing.




True but I took the view it wasn't about me.  I won't be here so it was all about doing the best for those I care about.  For that, I didn't consider the cost exorbitant.


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## Sir Burr (9 November 2019)

Zaxon said:


> For those who already have a foreign connection, it can be a no brainer.  My only concern, personally, would be for medical costs.




Yes, zero tax on capital gains is a benefit but the medical is a big one with expensive expat health insurance. Also, something related as sptrawler mentioned:



sptrawler said:


> Not only can you lose 50% of your capital, as was shown last election, you can lose 30% of your income. The really scary part was, many were cheering it on.




The government is looking at updates to the residency rules: https://cdn.tspace.gov.au/uploads/sites/70/2018/09/BoT-Residency-Consulation-Guide-FINAL.pdf

Who knows what that will bring.


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## Sharkman (10 November 2019)

Zaxon said:


> That is absolutely the right question to be asking. It comes down to how much you start with.  If you go in "fat", then a 50% drop means you don't go on a cruise that year, or you delay buying that new car for a bit.  If you retire "lean", then a 50% drop means you eat rice and beans until the market recovers.  Two very different outcomes.  I'm not close enough to retirement to predict which way I'll end up
> 
> I see the older workers at Bunnings.  And good on Bunnings for hiring them.  And when I previously rented, the guy they sent around for repairs looked about 80, and he had been forced back into work.  But as you say, that's highly undesireable or even impossible for many people.




to my understanding, the terms "fat" and "lean" refer to how extravagant your planned lifestyle is, rather than how badly you would be affected by a market crash. but there probably aren't any official definitions, it can be whatever you want it to mean i guess. i do think there are 2 separate factors to consider here though, rather than a single fat <--> lean spectrum: how extravagant your lifestyle is, and what margin of safety you have to maintain that lifestyle.

to me, fat means travelling a lot, eating out a lot, frequently buying new gadgets and forms of entertainment etc. lean means mostly or even entirely avoiding consumerism, maybe even growing your own vegetables, DIY fixes, and partaking in forms of recreation that don't cost much (or anything at all).

you can be lean yet still keep the same lifestyle even if the market drops eg. your yearly expenses are 25K and you retire with 1 million for a 2.5% drawdown. or you can be fat but have to compromise your lifestyle in the event of a downturn eg. your yearly expenses are 100K but you retire with 2 million for a 5% drawdown.

but if you are lean with a low margin of safety/high drawdown, then a market crash could result in your portfolio being unable to sustain even a minimalist lifestyle, and you have to return to the workforce. if that happens after you've been retired a few years, your knowledge will have become outdated and your skills will have decayed, making this a difficult ask unless, as you say, there's an employer like Bunnings willing to give you a go.

this is a horrifying proposition in my eyes, i'm petrified of this happening to me when i get old, and it's that fear that helps me find the willpower to suffer thru a few more years of the corporate treadmill in pursuit of the ideal combination - fat FIRE plus a high margin of safety.

funny that you should mention rice and beans. i grew up in a lower income household, and that is _literally_ what we often had for dinner until i was in my early teens - rice, beans (or some other vegetable) with a bit of oyster/fish/soy (whatever was on sale at the time) sauce thrown in for a modicum of flavour. that's it. sometimes we had meat if that was on special, sometimes we didn't.

i have no desire to return to a diet like that ever again, so i guess that's also a factor which nudged me towards chasing fat FIRE with a 2.5% drawdown. i figure if there is a GFC-esque 40-50% drop, that 2.5% becomes 4% temporarily, and i can wait it out, continuing to eat well until the recovery.


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## sptrawler (10 November 2019)

Sharkman said:


> funny that you should mention rice and beans. i grew up in a lower income household, and that is _literally_ what we often had for dinner until i was in my early teens - rice, beans (or some other vegetable) with a bit of oyster/fish/soy (whatever was on sale at the time) sauce thrown in for a modicum of flavour. that's it. sometimes we had meat if that was on special, sometimes we didn't.
> 
> i have no desire to return to a diet like that ever again, so i guess that's also a factor which nudged me towards chasing fat FIRE with a 2.5% drawdown. i figure if there is a GFC-esque 40-50% drop, that 2.5% becomes 4% temporarily, and i can wait it out, continuing to eat well until the recovery.



It is amazing how good a motivator childhood experience is, I as you lived in a very poor house hold and as you say it drives you to ensure history never repeats.


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## Zaxon (10 November 2019)

Sharkman said:


> to my understanding, the terms "fat" and "lean" refer to how extravagant your planned lifestyle is, rather than how badly you would be affected by a market crash.



"Fat fire" could be defined as having a high cost of living lifestyle that you need to fund, or it could mean that you've retired with enough money to have that lifestyle, but you've chosen not to use it.  Some people would consider a retiree that withdraws 2% instead of 4%, as having fat FIRED. Others could see that as lean FIRE, with a safety net.

In the high cost of living version of fat, you're screwed if the market drops.  In the latter, your previous paranoia has finally saved you.


Sharkman said:


> but there probably aren't any official definitions, it can be whatever you want it to mean i guess.



In some contexts, there can be. Certain influential FIRE books have put out figures which then people run with and quote. Some fat FIRE forums have assumptions about amounts.

Having looked around, these are figures from one source I found, in the US (where the cost of living is much cheaper), and from 2018:




Sharkman said:


> i do think there are 2 separate factors to consider here though, rather than a single fat <--> lean spectrum: how extravagant your lifestyle is, and what margin of safety you have to maintain that lifestyle.



I agree that's a much better definition.  So effectively it becomes a $ amount you're withdrawing for your lifestyle, and separately, a % of AUM (or an equivalent)


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## Iggy_Pop (11 November 2019)

Zaxon said:


> An excellent point!  Which begs the question, when people on ASF say they only draw dawn 3.5% (etc), that couldn't be based only on super.
> 
> Surprisingly, if you retire at the normal age of 65+, you're forced to drawdawn 5%.
> 
> ...




While the drawdown is 4%, I can reinvest a portion via accumulation account in  super, dividend reinvestment on some shares , LICs or ETFs, buying more shares etc.

Iggy


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## sptrawler (11 November 2019)

Iggy_Pop said:


> While the drawdown is 4%, I can reinvest a portion via accumulation account in  super, dividend reinvestment on some shares , LICs or ETFs, buying more shares etc.
> 
> Iggy



Which is exactly how Im working, a degree of flexibilty is the key IMO
Having evetything in pension phase gives a tax advantage, but a massive flexibility loss, also Im not sure how your funds are treated if they are commuted back from pension to accumulation.


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## Zaxon (12 November 2019)

Sir Burr said:


> Interesting! Is there any studies about this method?



Studies you want, then studies you shall have!  This comes from the http://www.cfiresim.com/ calculator, a very popular site for calculating safe withdrawals.

4% Rule

Capital on retirement 1.6 million
4% first year withdrawal increased by CPI on subsequent years
Asset allocation: 60% stocks/40% bonds (that's the typical ratio used)
Over 30 years

Zaxon's 5% Rule

Capital on retirement 1.6 million
5% of AUM each year
Asset allocation: 90% stocks/10% bonds (that's my originally stated ratio)
Over 30 years
*Rate of Failure*
This means running out of money before 30 years.

*4% rule*: 5% chance of failure



*Zaxon's 5% rule:* 0% chance of failure



*Withdrawal Analysis*
All dollar amounts are inflation adjusted (in today's dollars).

*4% rule: *$64k each year.  OK.  That's what we expected.



*Zaxon's 5% rule:* average of $82k increasing to $111k.  Impressive



*Total Payout*

*4% rule:* $1.984 million over 30 years



*Zaxon's 5% rule:* average of $3.127 million over 30 years



*Conclusion*

Is Zaxon's 5% rule safe?  Yes, your portfolio will never go broke.  

Which portfolio gives you the "richest" lifestyle?  Zaxon: 3.12 million vs 4% rule: 1.98 million.  That's a significant difference.
What's the drawback of Zaxon's 5% rule?  Big swings in yearly payments, from low of $30k up to a high of $295k per year (taken from final third)
Is Zaxon's 5% rule better?  Better for me? Yes. Better for those who want to maximize their return potential? Yes.  Better for people who want stability? No.  Better for the average man in the street? Probably not.


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## qldfrog (12 November 2019)

@Saxon
 In your results above, what do you consider for share returns, bond returns and do you include any tax?


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## Zaxon (12 November 2019)

qldfrog said:


> In your results above, what do you consider for share returns, bond returns and do you include any tax?



The share and bond returns come straight from actual, historical returns, monte carlo simulated.  The important thing is that both methods use exactly the same data, making it a fair comparison.




In the original Fama-French "4% rule" studies, it was all assumed to be in a tax free retirement account.  The failure rate over 30 years of the 4% rule tax free is 5%.  I'd expect that to go up if it were in a taxable account, making it less safe.  I'd expect the failure rate of the Zaxon 5% rule (currently 0%) to be unchanged.

I can describe how tax would affect both methods.  Essentially, they both start retirement holding share index funds and bond index funds - the same ones.  I suspect the calculator rebalances them annually.  Neither method trades more than the other.  They are both simple buy-and-hold, index strategies.  Tax should affect them the same.


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## qldfrog (12 November 2019)

Zaxon said:


> The share and bond returns come straight from actual, historical returns, monte carlo simulated.  The important thing is that both methods use exactly the same data, making it a fair comparison.
> 
> View attachment 98541
> 
> ...



Thanks a lot for the precision, being an early retiree, i am fully taxed so any income is significantly reduced..so the will to more to less taxing countries
Add to this the need to offset some real estate assets gain after offload


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## Sir Burr (12 November 2019)

Zaxon said:


> Big swings in yearly payments




Thanks Zaxon!
One thing, does that site take into account adding/withdrawing from your "safe" portion?
I suspect not and would be good to test that idea if possible as I'd think it would help to smooth the ride


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## Zaxon (12 November 2019)

Sir Burr said:


> Thanks Zaxon!
> One thing, does that site take into account adding/withdrawing from your "safe" portion?
> I suspect not and would be good to test that idea if possible as I'd think it would help to smooth the ride



From the bond smoothing fund?  It calculates the return of the bonds, so that aspect is there.  But it doesn't account for how the bond fund acts to smooth out returns.  Sadly, these calculators are too limited. You can, however, download the raw data from that calculator and do further work.

Here is one sample taken from the calculator's data, with the Bond Smooth Fund brought into use.  This uses a 10 year Moving Average.




What we notice is the Spend Amount, which is in today's dollars, is remarkably smooth, and is steadily increasing over time.  So job done.

I see the bond fund seems to have grown pretty large.  This is because the MA is a lagging average, and the withdrawals are growing over time.  In any event, that's a massive safety net should the market crash.  For simplicity, the Bond Smoothing Fund was calculated in cash with no earnings.  In reality, it would be held in bonds which would grow over time, so the bond balance would even be higher.


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## Cam019 (24 November 2019)

100% international equities (index). Why?... because I am in a pooled industry fund, I want something I don't have to monitor, and I want better sector diversification than what the concentrated Australian market can offer. I am also looking for growth.


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## Zaxon (26 November 2019)

Cam019 said:


> 100% international equities (index). Why?... because I am in a pooled industry fund, I want something I don't have to monitor, and I want better sector diversification than what the concentrated Australian market can offer. I am also looking for growth.



I'm the same with my super.  100% international.  That balances out the exposure to Australian stocks I have in my taxable accounts.


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## qldfrog (26 November 2019)

@Zaxon if I can ask: do you put your PPOR as part of AUM or do you exclude it from all computations
If you do , the return on investment is obviously poorer..but you do not need rent money, it is also very inflexible as I can attest now.
Just to clarify and enlight other readers: I actually really like your 5PC principle, better than my indexed 60k a year


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## aus_trader (27 November 2019)

qldfrog said:


> @Zaxon if I can ask: do you put your PPOR as part of AUM or do you exclude it from all computations
> If you do , the return on investment is obviously poorer..but you do not need rent money, it is also very inflexible as I can attest now.
> Just to clarify and enlight other readers: I actually really like your 5PC principle, better than my indexed 60k a year



I think Zaxon will answer more thoroughly, just my 2c is it should not be part of AUM as you need it to live in.


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## qldfrog (27 November 2019)

aus_trader said:


> I think Zaxon will answer more thoroughly, just my 2c is it should not be part of AUM as you need it to live in.



I would err that side too but @Zaxon has studied this thoroughly and keen on confirmation
Ppor can be a huge part of one's assets but is indeed usually removed from wealth computation talks


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## aus_trader (27 November 2019)

qldfrog said:


> I would err that side too but @Zaxon has studied this thoroughly and keen on confirmation
> Ppor can be a huge part of one's assets but is indeed usually removed from wealth computation talks



Agree it can form a very large part of one's assets indeed. However until the potential of that asset is realised either via turning it into an investment property or sold (e.g. downsizing as done by a few retirees I know of) it shouldn't be part of the AUM strictly speaking IMO.


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## Zaxon (28 November 2019)

qldfrog said:


> @Zaxon if I can ask: do you put your PPOR as part of AUM or do you exclude it from all computations
> If you do , the return on investment is obviously poorer..but you do not need rent money, it is also very inflexible as I can attest now.





aus_trader said:


> I think Zaxon will answer more thoroughly, just my 2c is it should not be part of AUM as you need it to live in.




There we go.  Asked and answered well.  With "net worth", your PPOR would normally be included.  With AUM, that's purely measured on investements so I would excluded my PPOR.


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## Zaxon (28 November 2019)

aus_trader said:


> Agree it can form a very large part of one's assets indeed. However until the potential of that asset is realised either via turning it into an investment property or sold (e.g. downsizing as done by a few retirees I know of) it shouldn't be part of the AUM strictly speaking IMO.



Interesting as to the downsizing.  Did they move into a unit?

Personally, I'm unlikely to downsize, and if anything, slightly upsize into a really easy to maintain house, very close to public transport, plenty of room for a shed or two, in a quiet area, close to a good hospital.  If it's my last house, I'm going to want to love it, since I won't be going anywhere in a hurry.


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## aus_trader (29 November 2019)

Zaxon said:


> Interesting as to the downsizing. Did they move into a unit?



One of the retirees being a widower did move into a unit after selling the family home.

Another couple I know of moved into a smaller home with less bedrooms and still got to unlock the sizeable equity that was tied up with their much larger family home that their kids (now all adults with their own families) grew up in.

So I suppose in each case, the remainder of the proceeds from the downsizing move is added to AUM.


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## qldfrog (29 November 2019)

Slightly off topic:
Is there a way to buy US treasury bonds aka etf on the asx?
I know how to own some on the NYSE, and i do, but has anyone found a way on the asx?


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## sptrawler (29 November 2019)

Zaxon said:


> Interesting as to the downsizing.  Did they move into a unit?
> 
> Personally, I'm unlikely to downsize, and if anything, slightly upsize into a really easy to maintain house, very close to public transport, plenty of room for a shed or two, in a quiet area, close to a good hospital.  If it's my last house, I'm going to want to love it, since I won't be going anywhere in a hurry.



The problem is, life throws curved balls, especially when it comes to health and family


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## aus_trader (29 November 2019)

sptrawler said:


> The problem is, life throws curved balls, especially when it comes to health and family



And in the case of the widower I was talking about, it wasn't a question of choice as she had most of her wealth tied up in the family home. So to live comfortably with sufficient money she had to downsize and invest the remaining proceeds of the sale to live off... in her golden years.


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## aus_trader (29 November 2019)

qldfrog said:


> Slightly off topic:
> Is there a way to buy US treasury bonds aka etf on the asx?
> I know how to own some on the NYSE, and i do, but has anyone found a way on the asx?



Can't find any ETF's of that, which can be traded on ASX. Only international one that comes close is Vanguard International Fixed Interest Index (Hedged): (*VIF*). Here is the description:

"Exposure to high-quality, income-generating securities issued by governments from around the world, hedged to Australian dollars to reduce fluctuations."


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## qldfrog (29 November 2019)

aus_trader said:


> Can't find any ETF's of that, which can be traded on ASX. Only international one that comes close is Vanguard International Fixed Interest Index (Hedged): (*VIF*). Here is the description:
> 
> "Exposure to high-quality, income-generating securities issued by governments from around the world, hedged to Australian dollars to reduce fluctuations."



Thanks, that is the state of my searches...why?
And VIF is edged..
I want US bond, treasury ones, unedged....
Have to stick with pershing/comsec
A shame


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## aus_trader (30 November 2019)

qldfrog said:


> Thanks, that is the state of my searches...why?
> And VIF is edged..
> I want US bond, treasury ones, unedged....
> Have to stick with pershing/comsec
> A shame



Yes, I think we are limited to the choices we have here in Australia. However the landscape has improved quite a bit in terms of variety compared to when ETF's were first introduced.


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## qldfrog (30 November 2019)

aus_trader said:


> Yes, I think we are limited to the choices we have here in Australia. However the landscape has improved quite a bit in terms of variety compared to when ETF's were first introduced.



I agree but would have thought that an ETF  for raw unedged US treasury bonds would exists, it is a key investment worldwide even for governments..
But yes government do not need ETF nor the 1%


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## aus_trader (1 December 2019)

qldfrog said:


> I agree but would have thought that an ETF  for raw unedged US treasury bonds would exists, it is a key investment worldwide even for governments..
> But yes government do not need ETF nor the 1%



Same here, I think the unhedged version is one of the assets that investors flock onto in times of uncertainty and should be available on the asx as a plain vanilla ETF. The hedged version introduces an additional layer of complexity because investors have to try and predict what the AUD/USD will do as well.


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## Sharkman (7 December 2019)

Sharkman said:


> over time as economies develop in theory they should slowly be shifting towards secondary and tertiary industries. i don't have the data readily available, so i'd be happy to be proven wrong if someone does have it, but to me it feels like that is happening with a lot of other advanced economies, whereas we seem to be slowly shifting back to primary.




bit of a late followup to the point i made earlier in this thread regarding why i prefer investing in international equities over local. maybe this doesn't really belong in this thread anymore, but when i wrote the above, i didn't have any actual data, it was just an impression i had. however, i did come across a concept today that does somewhat quantify it - the economic complexity index.

https://ourworldindata.org/how-and-why-econ-complexity
https://oec.world/en/rankings/country/eci/

from what i understood of it, it looks at both diversity of products an economy produces and how complex those products are to produce. its researchers argue that this is a fairly accurate predictor of long term economic growth.

presumably because of our heavy reliance on mining and agriculture, we are ranked no. 59 - below just about every other advanced nation (even NZ and Canada, which are supposed to be fairly similar to us economically), and quite a few developing ones. whereas the US is at no. 7 and the top 3 - Japan, Switzerland and Germany - are significant components of all-world ex-US indexes.

we still have a relatively high per capita GDP despite this, as can be seen on the last dot plot of the first article. the immediate conclusion would be that we're still enjoying the wealth provided by the mining boom, and our politicians have been asleep at the wheel because of the headline numbers that has provided.

has it been papering over the flaws in the economy in that as a whole, it doesn't produce particularly sophisticated products? so as the benefits of the mining boom fade away over time, per capita GDP will struggle to increase? that appears to be getting borne out by the sluggish wage growth we've been seeing over the past few years as that sugar hit faded.

maybe i'm looking at this a bit superficially, only just read about it so haven't really digested it too much yet. but so far it's only solidified previous thinking that weighting towards international ETFs is the right strategy for me. is it possible for us to keep going the way we are now and realistically expect economic prosperity if we don't get another mining boom to use as a crutch? or are we doomed to stagnate over the course of a few decades and watch other nations overtake us, as the study appears to be projecting?

interested to hear what others think, particularly those who disagree with the study, there might be fallacies in it that i've overlooked.


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## qldfrog (7 December 2019)

Agree on the general economy, and so i i wou be wary of etf wide indexes in Australia
After the crash we  need to have, and pray we have one, we will be among the few western countries with a positive age curve for consumption, so in the next 30y or so building, consumption and general gdp should keep growing, but that is not a given win in term of share market
See Brazil, Argentina or Chile in the last 40y...
Add economic mismanagement and a socialist government and you can screw even the best basis
Overall i i wou edge my bets with some exposure to at least some Australian sectors after the crash


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## sptrawler (7 December 2019)

qldfrog said:


> Agree on the general economy, and so i i wou be wary of etf wide indexes in Australia
> After the crash we  need to have, and pray we have one, we will be among the few western countries with a positive age curve for consumption, so in the next 30y or so building, consumption and general gdp should keep growing, but that is not a given win in term of share market
> See Brazil, Argentina or Chile in the last 40y...
> Add economic mismanagement and a socialist government and you can screw even the best basis
> Overall i i wou edge my bets with some exposure to at least some Australian sectors after the crash



IMO, it is difficult to value our market, we have lost a lot of manufacturing but have gained a lot of mining efficiency improvements, add to this an influx of cashed up Asians makes it difficult to pin down where we are at.
Just my opinion.


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## Sir Burr (8 December 2019)

qldfrog said:


> Slightly off topic:
> Is there a way to buy US treasury bonds aka etf on the asx?
> I know how to own some on the NYSE, and i do, but has anyone found a way on the asx?




https://www.ishares.com/us/products/264615/ishares-core-total-usd-bond-market-etf
https://investor.vanguard.com/etf/profile/BND
https://investor.vanguard.com/etf/profile/BNDX


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## aus_trader (11 December 2019)

I have a question regarding threshold for self-funded vs pensioned as I am not retired yet. If a self-funded retiree loses a lot of his/her/their wealth through a major share market downturn or loss of investment property on their SMSF etc, at what point are they eligible to claim part pension again ? i.e. what happens if their nest egg is no longer enough to live on, or it runs out ?


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## sptrawler (11 December 2019)

aus_trader said:


> I have a question regarding threshold for self-funded vs pensioned as I am not retired yet. If a self-funded retiree loses a lot of his/her/their wealth through a major share market downturn or loss of investment property on their SMSF etc, at what point are they eligible to claim part pension again ? i.e. what happens if their nest egg is no longer enough to live on, or it runs out ?



A big question, it depends if the person is above pension age or below it, if they are married or single and if they own a home or are renting.
The ATO has all the thresholds on their website, but these third party summaries are easier to follow.
https://www.noelwhittaker.com.au/resources/calculators/age-pension-calculator/

The big issue I've heard from my mates on part pensions, is the time taken to process the application and the hoops that have to be jumped through.
With the hit on the banks and their dividends, a lot of SMSF self funded members will be starting to access larger part pensions at the moment, it would have been really interesting if they had lost their franking credits as well.


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## Cam019 (13 December 2019)

aus_trader said:


> I have a question regarding threshold for self-funded vs pensioned as I am not retired yet. If a self-funded retiree loses a lot of his/her/their wealth through a major share market downturn or loss of investment property on their SMSF etc, at what point are they eligible to claim part pension again ? i.e. what happens if their nest egg is no longer enough to live on, or it runs out ?



I spend about one third of my working week dealing with Centrelink for our clients as their correspondence nominee. @sptrawler is right, depends on age, single or couple and whether you own your own home or rent. Pre 01/01/1954, your age pension age is 65, with the age pension age increasing 6 months every 2 years, details can be found here. Most of our clients fall into the couple homeowner situation, @aus_trader  assuming this is your situation, your maximum deemed asset base to entitle you to a part age pension is $863,500 (if this is not your situation, you can find the relevant thresholds here). Just keep in mind though, that if your spouse has reached preservation age (between 55 and 60 depending on when they were born) and is under age pension age (most likely 65) and they do not draw an income stream from their super/pension, their super is NOT deemed by Centrelink for the assets test until they either reach age pension age or start drawing an income stream. Additionally, by this time they would now be entitled to apply for their own age pension as long as your deemed asset levels were under the $863,500 threshold.



sptrawler said:


> The big issue I've heard from my mates on part pensions, is the time taken to process the application and the hoops that have to be jumped through.



I not long ago spoke to a customer service associate through the age pension line who told me that Centrelink have 7 weeks KPI's for processing claims. Effectively this means that no matter how much you demand to have an application processed faster, there is no requirement for them to do so before a minimum 7 weeks have lapsed from the date of application submission. Although, depending on who you get to speak with at Centrelink, after those initial 7 weeks have lapsed, you can ask to have the application escalated and request to have it processed ASAP. I have had a few applications go through quicker from this request and a few say that they can only be escalated if the clients are under financial hardship (there is a definitive definition for this but I can't recall it off the top of my head).


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## Belli (21 December 2019)

Increasing the allocation to International slowly.  Currently sits at 22% and will gradually increase it to the 25% - 30% range.  Will use VGS to achieve it with fresh funds when they come in directed that way.

More interested in increasing income and not focusing on yield.


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## Belli (21 December 2019)

Belli said:


> Increasing the allocation to International slowly.  Currently sits at 22% and will gradually increase it to the 25% - 30% range.  Will use VGS to achieve it with fresh funds when they come in directed that way.
> 
> More interested in increasing income and not focusing on yield.




Did a small exercise to assist my understanding at least why I am not overly focused on yields but income.

Two companies, one a bank, the other not.

The bank in 2009 paid dividends totaling $1.46.  The non-bank $0.53.  No franking taken into account.
In 2019 the bank paid dividends totaling $1.98.  The non-bank $2.48.

Dividends for the bank have remained flat for five years.  The non-bank has increased its dividends by over 200% in the same period.

That's NAB v CSL.


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## Value Collector (17 August 2020)

Value Collector said:


> Yeah, as I mentioned earlier I live of 50% of my investment cashflow (excluding rent)
> 
> 50% of dividends, p2p interest and options profits flows to my spending account, the other 50% gets reinvested.
> 
> Property rental just goes to reducing property loans, however all the costs of maintaining home are fund from the property account Eg rates, insurance, maintenance etc, so it probably works out I am using some where around 50%-70% of net property cashflow for personal housing costs, while the remainder is building portfolio equity by reducing loans.




The below diagram shows how I personally handle my money.

I am in the process of helping a friend set up their investments and accounts for their retirement, and I made a diagram to show them the system I have for handling my cash flow, and how I break it up between spending and making future investments.

I remembered the above discussion so I thought I would post the diagram I made here, it basically explains what I was trying to say a while back here.


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