As we age, hold more shares?

[Chipp]

yes getting a positive return after real inflation , can be very challenging , a term deposit rarely does it nor does a Treasury Bond , you can be lucky sometimes and do it with ( some ) corporate bonds

Getting that 8% return in the twighlight of your life comes with greater risk . That 20-30% drawdown at the wrong time can devastate income earning ability . The amount of coin required to retire relatively stress free and comfortably is 7 figures . Proactive approaches required and for most thats impossible skillset to learn at this stage of life . Managed funds are hamstrung and the only real way of proactively managing your retirement is SMSF . The average punter has almost zero hope .

 

[divs4ever]

Getting that 8% return in the twighlight of your life comes with greater risk . That 20-30% drawdown at the wrong time can devastate income earning ability . The amount of coin required to retire relatively stress free and comfortably is 7 figures . Proactive approaches required and for most thats impossible skillset to learn at this stage of life . Managed funds are hamstrung and the only real way of proactively managing your retirement is SMSF . The average punter has almost zero hope .

when setting up mine , i wasn't planning any draw-downs , in fact i was hoping to continue in selected DRP s to slowly bulk up the core asset base , in shares like CSR ( no a take-over target ) RFF and such to resist the inflation ( that i knew had to come )

but tapped the portfolio to help buy the current property

going to be trickier now , but have some home-grown produce to offset that

 

[Chipp]

when setting up mine , i wasn't planning any draw-downs , in fact i was hoping to continue in selected DRP s to slowly bulk up the core asset base , in shares like CSR ( no a take-over target ) RFF and such to resist the inflation ( that i knew had to come )

but tapped the portfolio to help buy the current property

going to be trickier now , but have some home-grown produce to offset that

My SMSF is 70- 80% cash a couple times a year , i dont hold stocks that are going down when i can help it . Time in the market is risk in my world and no point risking anything when stocks and or indice are unlikely to go up . I have put a lot into timing the market and it is possible to do with edge . I also will use BBOZ occasionally as well for short exposure although limited size . Its a tough gig ...

 

[divs4ever]

i started in 2011 and down was the trend back then , add in i was a raw novice , small and often seemed better that backing up the truck ( to me )

 

[Value Collector]

Getting that 8% return in the twighlight of your life comes with greater risk . That 20-30% drawdown at the wrong time can devastate income earning ability . The amount of coin required to retire relatively stress free and comfortably is 7 figures . Proactive approaches required and for most thats impossible skillset to learn at this stage of life . Managed funds are hamstrung and the only real way of proactively managing your retirement is SMSF . The average punter has almost zero hope .

imagine hitting 65, knowing that you might live till 95, which is 30 years away and going 100% cash because you were worried about volatility.

so would be eaten Alive by inflation, far more than you would by a temporary 30% draw down.

so if going 100% cash is dumb, being 50% cash is 50% dumb in my opinion.

sure you might see a 30% - 50% draw down at some stage but that is only normally after huge booms, and extra dividends with franking attached more than offsets that risk over time.

———————
I would rather own gold than cash, and as I have said I hate holding gold.

 

[divs4ever]

I also will use BBOZ occasionally as well for short exposure although limited size .

am trying to grab some BBOZ ( at a lower price ) as small parcel as a liquidity insurance if there is a big drop ( surely there will be a top soon , say the lead up to May or June )

had success with reverse index funds 2019-2020 , am still very tempted to avoided buying more ( would rather wait for the retrace and buy GEAR or MVW near a bottom )

 

[Belli]

imagine hitting 65, knowing that you might live till 95, which is 30 years away and going 100% cash because you were worried about volatility.

so would be eaten Alive by inflation, far more than you would by a temporary 30% draw down.

so if going 100% cash is dumb, being 50% cash is 50% dumb in my opinion.

sure you might see a 30% - 50% draw down at some stage but that is only normally after huge booms, and extra dividends with franking attached more than offsets that risk over time.

———————
I would rather own gold than cash, and as I have said I hate holding gold.

This is a screen shot of monthly prices STW from 2007 to 2009. I held this from early 2000's but swapped out (dumb move) to VAS when it listed. The best buying time? Anytime after Jan 2008 to August 2009. Man, the fear was palpable so made it a fabulous time to buy. Not only the index but LICs I still hold and have added to over the years. 2020 was good but not so good as 2008 - 2009. Or 1987, or 1994, or 2000. It's running out of cash to buy is my greatest worry.

 

[Dona Ferentes]

Danny Kahneman insisted that studying the pitfalls and paradoxes of the human mind didn’t make him any better at problem-solving than anybody else: “I’m just better at recognising my mistakes after I make them.”

For all his knowledge of how foolish investors can be, Danny didn’t try to outsmart the market. “I don’t try to be clever at all,” he said. Most of his money was in index funds. “The idea that I could see what no one else can is an illusion,” he said.

“All of us would be better investors,” he often said, “if we just made fewer decisions.”

 

[Value Hunter]

What is scary in Australia is whether you look at the market indexes or individual stocks over time the vast majority fail to keep up with inflation in terms of purely capital growth. Yes with dividends reinvested many stocks and the indexes will beat inflation but if you assume you are retired and spending all the dividends (without spending the capital) then in the majority of stocks and indexes you are not keeping up with inflation. You need to either look at a handful of individual high growth companies or look into overseas markets (e..g U.S.A) where growth is higher.

 

[divs4ever]

This is a screen shot of monthly prices STW from 2007 to 2009. I held this from early 2000's but swapped out (dumb move) to VAS when it listed. The best buying time? Anytime after Jan 2008 to August 2009. Man, the fear was palpable so made it a fabulous time to buy. Not only the index but LICs I still hold and have added to over the years. 2020 was good but not so good as 2008 - 2009. Or 1987, or 1994, or 2000. It's running out of cash to buy is my greatest worry.

View attachment 173759

VAS was only slightly superior if you needed to force extra growth ( by going a little out on the risk curve ) as i did back in 2011 ( as a novice starting way late )

flipping into VAS, might have offered little advantage unless Vanguard were offering a fee reduction or some other edge like joining the equivalent wholesale fund ( which i believe incurs no brokerage )

although i wasn't rolling in cash during 2020 , i did have some , and trying to decide what to buy was my biggest problem , and that proved to be a good thing , as i still had some reserves in late 2020 and in 2021 , and ended up with some good prices as the uncertainty remained

 

[Chipp]

I am on a hiding to nothing here but this is a reality that can be lived outside of buy and hold . This is a backtest of exactly what i do , BHP traded from start 2016 , hypothetical 10k starting account compounded size according to strategyprofit with ZERO leverage . Now the total amount is not tax adj so annual return will be a realistic 20 -25% depending on the vehicle used to trade . The max DD on this is 11% over a period BHP had 3 DD of 20% + ( one over 40% ) and a couple close to 20 . Am i going to give you details on how this works ? no but i gave some clues in Skates DUMP thread . Can you time the market ? according to most of the world .. No . If you dont believe it thats fine , i dont really care . I dont think i am in the right place for what i do .. such is life

Being mostly cash at times is not dumb , there you go . Tell me what your gains are total return starting with the same 10k



This will do a mission impossible at some stage

 

[divs4ever]

I am on a hiding to nothing here but this is a reality that can be lived outside of buy and hold . This is a backtest of exactly what i do , BHP traded from start 2016 , hypothetical 10k starting account compounded size according to strategyprofit with ZERO leverage . Now the total amount is not tax adj so annual return will be a realistic 20 -25% depending on the vehicle used to trade . The max DD on this is 11% over a period BHP had 3 DD of 20% + ( one over 40% ) and a couple close to 20 . Am i going to give you details on how this works ? no but i gave some clues in Skates DUMP thread . Can you time the market ? according to most of the world .. No . If you dont believe it thats fine , i dont really care . I dont think i am in the right place for what i do .. such is life

Being mostly cash at times is not dumb , there you go . Tell me what your gains are total return starting with the same 10k

i prefer to take opportunities rather than deliberately exit/re-enter , i tried that early in my journey with mixed success ( even when i sold at a profit , it was very hard to get a good re-entry

reduce/add seems to work better for me ( unless i really want to permanently exit a stock )

 

[Chipp]

i prefer to take opportunities rather than deliberately exit/re-enter , i tried that early in my journey with mixed success ( even when i sold at a profit , it was very hard to get a good re-entry

reduce/add seems to work better for me ( unless i really want to permanently exit a stock )

Reduce/Add better than doing nothing imo , it's half way there

 

[Value Collector]

This is a screen shot of monthly prices STW from 2007 to 2009. I held this from early 2000's but swapped out (dumb move) to VAS when it listed. The best buying time? Anytime after Jan 2008 to August 2009. Man, the fear was palpable so made it a fabulous time to buy. Not only the index but LICs I still hold and have added to over the years. 2020 was good but not so good as 2008 - 2009. Or 1987, or 1994, or 2000. It's running out of cash to buy is my greatest worry.

View attachment 173759

You will often see people make statements like long term investing doesn’t work because look at the GFC it took X number of years for the market to get back to where it was.

But look at this chart of the ASX200, shire you can see a big drop during the GFC, that was only correcting a speculative bubble, and the index continued to pay dividends all the way through.

if you had your super 100% in the index, and retired in 2005, you would have had you money growing at a good pace over your working life, and then when the GFC hit it would have only dropped back to about the level it was when you retired 2.5 years earlier, only giving up the Bubble pricing that came about during those 2.5 years, then it would have resumed its steady growth you experienced in the 30years before that. No biggy.

But if you went to 50% cash in 2005, you would have missed a lot of dividends and franking credits, and growth, all for the sake of missing some volatility that you could have just ignored.

unless the average retired joe can go cash right at the peak, he would be better just staying the course.

 

[Belli]

but if you assume you are retired and spending all the dividends (without spending the capital) then in the majority of stocks and indexes you are not keeping up with inflation.

Then it is possible you either haven't invested hard enough or you could be poor at money management. Just an alternative view on that aspect.

I remember when I was working and a pay rise came along. Most spent it as a matter of course without contemplating that they got by at previous pay rates so investing at least part of the pay rise was an option. Same when people were going Yippee! after they paid the mortgage out. Many spent that opportunity to invest.

All the possibilities and information were available to them as it was for me but they basically chose not to look for it and many years later went "Oh but I didn't know..." I suppose their lack of curiosity prevented them from browsing finance in book stores and available media.

 

[Value Collector]

What is scary in Australia is whether you look at the market indexes or individual stocks over time the vast majority fail to keep up with inflation in terms of purely capital growth. Yes with dividends reinvested many stocks and the indexes will beat inflation but if you assume you are retired and spending all the dividends (without spending the capital) then in the majority of stocks and indexes you are not keeping up with inflation. You need to either look at a handful of individual high growth companies or look into overseas markets (e..g U.S.A) where growth is higher.

How is the share market not keeping up with inflation? And would you be keeping up with inflation if you were invested in cash and spending all the interest?

but you are actually wrong, the standard stock index of VAS and VGS both have kept pace with inflation, even if you spent dividends.

you are just cherry picking the data by choosing your entry point at the peak just before the GFC crash, if you enter a year either side of the peak and you would have done well, both to mention that most people would have invested into the market over a long period of time through their super, not just dumped in all their funds at the peak like you assume.

 

[Value Hunter]

How is the share market not keeping up with inflation? And would you be keeping up with inflation if you were invested in cash and spending all the interest?

Cash is even worse. I most certainly would not advocate cash. I am just saying in Australia it would stock picking (and being good at it) to receive a meaningful return. Or investing in other markets.

I do not think I am cherry picking data as you assume. Let's assume that a retiree wanted to receive returns similar to the market but wanted their dividends to be fully franked (highly beneficial for a retiree on a zero tax rate) so let's assume they invested in a LIC that produced a similar return to the market such as AFIC or ARGO or BKI, etc.

For example look at the chart of one of the biggest LICs (that has a low fee) AFI

https://www.asx.com.au/markets/company/afi

It was around $2.90 per share in September 1997!! and today it is $7.37. 1997 was more than 2 years before the tech bubble burst so not at the peak of a market bubble.

According to the offcial RBA inflation calculator https://www.rba.gov.au/calculator/annualDecimal.html $2.90 in 1997 is equivalent to $5.83 in 2023. Officially over that period the offcial CPI index has only compounded at 2.7% annually.
So according to that even if you spent the dividends your capital grew a little in real terms.

However does anybody here feel that their cost of living over a long period has only risen by 2.7% annually? Can anybody on this forum tell me that over a long period (10 plus years) their cost of living has only risen by the level of CPI?

We all here are smart enough to know that governments (the ABS is not independant from the government despite what they may say) tend manipulate inflation statistics downward for various reasons (whether its to make them look good in the polls or to pay less for things such as pensions and government employee salaries, inflation indexed bonds, etc which are linked to CPI).

If you add just 1% per annum compound to the official CPI that would make it 3.7% per annum over that time period (I would even argue adding 2% would be closer to reality but let's stick with 1% for now for argument's sake). At 3.7% per annum $2.90 in 1997 is equivalent to $7.73 today. So the current share price of $7.37 did not even keep up with inflation.

I could give so many other examples but I think the main argument has been demonstrated well enough.

Of course there are many variables exactly what stocks, ETFs, LICs, etc people invested in and during what year and at what price, etc we can all pick individual examples to fit our argument but my general point is that it is far from a given that price performance of the ASX will outperform inflation even over a long period of time. It may happen and it may not it depends on a lot of factors.

P.S. I picked AFI as an example because the was no VAS or VGS in the 1990s and that would (along with ARG) would have been the closest thing to VAS or VGS at the time.

 

[Value Hunter]

Value Collector even going by the graph you posted if you invested in 2006 when the index hit around 5200 (far from its peak in late 2007) then at the end of 2023 that would be equivalent 8135 according to the RBA inflation calculator website. The index finished the year around 7900 so again below inflation and that is without even considering adding a buffer to account for the fact that CPI inflation is understated. Also that doesn't take into account ETF/product management fees, tracking error, slippage, brokerage fees, etc because you posted a chart of the All Ords (because there was no VAS or VGS back in the 1990s when the graph starts)

 

[Value Collector]

Cash is even worse. I most certainly would not advocate cash. I am just saying in Australia it would stock picking (and being good at it) to receive a meaningful return. Or investing in other markets.

I do not think I am cherry picking data as you assume. Let's assume that a retiree wanted to receive returns similar to the market but wanted their dividends to be fully franked (highly beneficial for a retiree on a zero tax rate) so let's assume they invested in a LIC that produced a similar return to the market such as AFIC or ARGO or BKI, etc.

For example look at the chart of one of the biggest LICs (that has a low fee) AFI

https://www.asx.com.au/markets/company/afi

It was around $2.90 per share in September 1997!! and today it is $7.37. 1997 was more than 2 years before the tech bubble burst so not at the peak of a market bubble.

According to the offcial RBA inflation calculator https://www.rba.gov.au/calculator/annualDecimal.html $2.90 in 1997 is equivalent to $5.83 in 2023. Officially over that period the offcial CPI index has only compounded at 2.7% annually.
So according to that even if you spent the dividends your capital grew a little in real terms.

However does anybody here feel that their cost of living over a long period has only risen by 2.7% annually? Can anybody on this forum tell me that over a long period (10 plus years) their cost of living has only risen by the level of CPI?

We all here are smart enough to know that governments (the ABS is not independant from the government despite what they may say) tend manipulate inflation statistics downward for various reasons (whether its to make them look good in the polls or to pay less for things such as pensions and government employee salaries, inflation indexed bonds, etc which are linked to CPI).

If you add just 1% per annum compound to the official CPI that would make it 3.7% per annum over that time period (I would even argue adding 2% would be closer to reality but let's stick with 1% for now for argument's sake). At 3.7% per annum $2.90 in 1997 is equivalent to $7.73 today. So the current share price of $7.37 did not even keep up with inflation.

I could give so many other examples but I think the main argument has been demonstrated well enough.

Of course there are many variables exactly what stocks, ETFs, LICs, etc people invested in and during what year and at what price, etc we can all pick individual examples to fit our argument but my general point is that it is far from a given that price performance of the ASX will outperform inflation even over a long period of time. It may happen and it may not it depends on a lot of factors.

P.S. I picked AFI as an example because the was no VAS or VGS in the 1990s and that would (along with ARG) would have been the closest thing to VAS or VGS at the time.

Take Look at the chart I put up, you can see the ASX200 was below 2000 in 1995, it only had to be slightly under 6000 to beat your enlarged inflation rate of 3.9% but it’s now close to 8000, so since 1995 just the index price has beaten inflation.

But as you state you are ignoring dividends (god only knows why), but these dividends have been more than the value of the index over that time, and have been growing with inflation also.

Again I think you just have a screwed up way of looking at it.

The reason to put money into shares for your retirement is to get more cash back over time than you would just holding cash, the dividends are a huge part of that. Saying oh but they would just spend the dividends is not rational, because if they held cash they would have to spend the cash pile anyway.

 

[Value Collector]

Value Collector even going by the graph you posted if you invested in 2006 when the index hit around 5200 (far from its peak in late 2007) then at the end of 2023 that would be equivalent 8135 according to the RBA inflation calculator website. The index finished the year around 7900 so again below inflation and that is without even considering adding a buffer to account for the fact that CPI inflation is understated. Also that doesn't take into account ETF/product management fees, tracking error, slippage, brokerage fees, etc because you posted a chart of the All Ords (because there was no VAS or VGS back in the 1990s when the graph starts)

Again you are irrationally ignoring dividends, but no one invests all their retirement at once like that anyway, the recommendation is always to dollar cost average in over time, someone that retired in 2006 would have been putting in funds for many years before that, and someone that started saving in 2006 would have bought some through the peak but lots after it at lower levels.