Long term ETF investor - Asset allocation questions

[Nath27]

Hey all,

I'm new to the forum and investing in stocks. I've done a fair bit of reading and been to a financial adviser (who actually didnt charge me). I proposed a way forward for investing my capital and he said there wasn't much more he could do for me other than propose the correct asset allocation. So i'm attempting to go it alone and see how I go.

As a long term investor (i'm looking at min 5 years but likely this will form the basis of my investments until retirement). I have tossed up between ETF's and a Vanguard indexed fund. I've ultimately decided to go with the ETF's due to lower fee's and more investment options. As a result of this decision, i've decided to only reinvest every six months or quarterly in order to reduce brokerage costs. I will keep my money in a high interest account until ready to invest.

I'm 31 years old with a pretty reasonable income and intend on investing $100,000 initially.

My intended investment mix is:

VGB (Vanguard Aussie Bonds): 10%
VAS/VHY (Vanguard Aussie shares or Aussie high yield - either one): 40%
VGE (Emerging Markets): 10%
VGS (International markets): 40%

I had a couple of questions regarding the initial investment. I was planning on averaging in my capital in $10,000 increments each month across all asset classes due to the low dollar and relative strength of these markets at the moment.

I've also read in some instances going for a hedged ETF such as VGAD (International index hedged) may be of benefit due to the fact our dollar is likely to rise in the future?

Just wanted to run this past some people before I went ahead in order to get some advise or have someone pick out glaring holes that I cant see at the moment.

Appreciate any thoughts on this asset allocation!

 

[sydboy007]

Hey all,

I'm new to the forum and investing in stocks. I've done a fair bit of reading and been to a financial adviser (who actually didnt charge me). I proposed a way forward for investing my capital and he said there wasn't much more he could do for me other than propose the correct asset allocation. So i'm attempting to go it alone and see how I go.

As a long term investor (i'm looking at min 5 years but likely this will form the basis of my investments until retirement). I have tossed up between ETF's and a Vanguard indexed fund. I've ultimately decided to go with the ETF's due to lower fee's and more investment options. As a result of this decision, i've decided to only reinvest every six months or quarterly in order to reduce brokerage costs. I will keep my money in a high interest account until ready to invest.

I'm 31 years old with a pretty reasonable income and intend on investing $100,000 initially.

My intended investment mix is:

VGB (Vanguard Aussie Bonds): 10%
VAS/VHY (Vanguard Aussie shares or Aussie high yield - either one): 40%
VGE (Emerging Markets): 10%
VGS (International markets): 40%

I had a couple of questions regarding the initial investment. I was planning on averaging in my capital in $10,000 increments each month across all asset classes due to the low dollar and relative strength of these markets at the moment.

I've also read in some instances going for a hedged ETF such as VGAD (International index hedged) may be of benefit due to the fact our dollar is likely to rise in the future?

Just wanted to run this past some people before I went ahead in order to get some advise or have someone pick out glaring holes that I cant see at the moment.

Appreciate any thoughts on this asset allocation!

* The AUD is on it's way down for the foreseeable future. The ToT is still falling and prob has a bit more to fall considering how I/O / Coal / oil / LNG / Copper have all been doing lately.

* IHD may be a better option as they are not quite so heavily weighted to Australian financial stocks.

* WXOZ is another international option.

* You might be better off buying direct bonds as most bond ETFs in Australia are providing pretty thin yields. I do wish there was a decent corporate bond fund.

* Check out AYF. A bit more risk than bonds, but yielding 40 cents + some franking credits each year which aint bad for ~$6.38 (after dividend usually sees the price drop down to around $6.30

* You don't mention how much capital you currently have. if you had around $60K I'd suggest checking our fiig securities as some of the corporate bonds they offer are still yielding around the 6% mark, which is pretty good in the uncertain environment we find ourselves in.

 

[Nath27]

Ive since looked closer at bonds and have decided to exclude this from my long term asset allocation. I'll likely place around 10% in a term deposit... unless anyone has better ideas for the 'safe' part of an investment strategy?

I likely wont go the hedged option, particularly because it does have higher fees. Despite this, as I average in my capital I'll keep an eye on the dollar and may buy a small portion hedged if the dollar continues to fall.

Thanks for your response

 

[sydboy007]

Ive since looked closer at bonds and have decided to exclude this from my long term asset allocation. I'll likely place around 10% in a term deposit... unless anyone has better ideas for the 'safe' part of an investment strategy?

I likely wont go the hedged option, particularly because it does have higher fees. Despite this, as I average in my capital I'll keep an eye on the dollar and may buy a small portion hedged if the dollar continues to fall.

Thanks for your response

What is the reasoning to avoid bonds?

http://awealthofcommonsense.com/real-risk-6040-portfolio/

Gives you an understanding of why bonds are good for an investment portfolio.

The problem is that most investors think in terms of individual securities, funds or asset classes as opposed to considering how something will impact their overall portfolio. Thinking in terms of different buckets can be helpful from a liability perspective, but you always have to consider risk in terms of the total portfolio first and foremost.

It might sound clever to abandon aspects of a diversified portfolio at times when you’re worried about rising interest rates, stock market valuations or geopolitical events. But diversified portfolios are created to balance out the many risks investors face over time. Lower your expectations for future returns, but don’t assume that you’re doomed forever because of low or rising interest rates.

 

[Ryan C]

Hey all,
...
I'm 31 years old with a pretty reasonable income and intend on investing $100,000 initially.

My intended investment mix is:

VGB (Vanguard Aussie Bonds): 10%
VAS/VHY (Vanguard Aussie shares or Aussie high yield - either one): 40%
VGE (Emerging Markets): 10%
VGS (International markets): 40%

I had a couple of questions regarding the initial investment. I was planning on averaging in my capital in $10,000 increments each month across all asset classes due to the low dollar and relative strength of these markets at the moment.

If I had $100,000 ready to go I'd lump it all in. See http://www.bogleheads.org/wiki/Dollar_cost_averaging

I've also read in some instances going for a hedged ETF such as VGAD (International index hedged) may be of benefit due to the fact our dollar is likely to rise in the future?

Just wanted to run this past some people before I went ahead in order to get some advise or have someone pick out glaring holes that I cant see at the moment.

Appreciate any thoughts on this asset allocation!

I didn't use hedged ETFs on mine because I wanted to reduce any added risks.

"The most important issue to consider is the fact that being unhedged in international equities reduces risk in an investor's portfolio," see http://www.morningstar.com.au/etfs/article/to-hedge-or-not-to-hedge/5012?q=printme

I like you're allocation to cover all markets with some home bias too. However I prefered more control of the US Market allocation if I wanted to change it because it's a bigger part of the international share market.

I'd simplify it to VTS, VEU and VGB and that covers nearly everything in 3 ETFs. I'd add VGE if I wanted more exposure to emerging markets and VHY/VAS if I had home bias. You may also want to look at adding some property exposure through REITs - look at DJRE and VAP.

This is not advice and is my opinion only.