Shares or Property?

[DeepState]

A bit embarrassing but I am a bit lost here:
what do you mean I do not know/could not find in any Amibroker meaning for F54 in that context.
Or did I miss a displayed table in a thread?
It will seem a very dumb question when i have the answer but ..
And thanks Value Collector for the rough idea on return of such a system.

I am the embarrassed one. Sorry, I must have forgotten to send an attaching link. The table F4 relates to a set of data from the RBA and it will contain what you need.

http://www.rba.gov.au/statistics/tables/

In any case, I ran the figures anyway:



ASX 200 TR: 9.68% pa
Ben's 50/50: 7.67% pa
RBA Cash: 5.26% pa

 

[DeepState]

The chart was for monthly rebal to 50/50. Not quite what Ben had in mind, so just an illustration only. Will check out the real rule another time.

 

[Value Collector]

Is that 1% on FUM? If so, say a person has $500,000 to invest, the managed fund hauls in $5000 p.a. just to put the money into an index fund. Why on earth would anyone pay that when they could invest directly?

.

Most actively managed funds charge much more than 1%, so less than 1% is not bad, investing directly into the 200 companies in the index would require a lot of transaction fees, and the cost of managing and accounting would be very large.

The whole point of investing in the index is because you don't want to dedicate the time or have the skills to attempt to beat the market return.

 

[qldfrog]

The chart was for monthly rebal to 50/50. Not quite what Ben had in mind, so just an illustration only. Will check out the real rule another time.

Thanks a lot
But that is interesting indeed;
Not surprising but interesting;
really smoothing the curves and the end result is in my opinion quite good for a conservative approach,
I might do a few trial run in Ab and allocate a fixed amount from my portfolio if happy with the results;
I always keep some cash aside just in case, it might be good to have a structured way to do it as an investment strategy.

 

[Value Collector]

The chart was for monthly rebal to 50/50. Not quite what Ben had in mind, so just an illustration only. Will check out the real rule another time.

Nice, it would interesting to see how a 5% rebalance worked compared to a monthly.

 

[mattsharp]

Which do you think is a better investment, shares or property?

My mum keeps telling me that property is the best and l keep saying shares. She sais the bank will always lend you more for property whereas for shares they won't.

She has done very well out of property so l guess she just feels more comfortable with this kind of investing. For me property just seems to be a headache and moves too slow for me.

What are your thoughts?

Thanks Sue

They are different, at various times one may be on average better value, but I'll try to steer clear of present valuations.

Generally property:
* Is easier to understand.
* Is physical (which is a plus and a minus). One of the positives of this is the above point. Negatively it means you have to insure it against all sorts of physical risks, and it "decays" more obviously.
* Is less volatile (which means banks will usually allow a bigger LVR if it is used as collateral).
* Can be used directly if everything goes to crap and you aren't foreclosed on.
* Wont go to zero.

Shares:
* Have smaller unit prices (ie. you can buy some shares with $10k, that wont even get you one property). This also means you can usually invest without leveraging yourself.
* Have smaller transaction costs (ie. brokerage vs stamp duty/selling agent fees).
* Have very small holding costs (no land tax, rates, maintenance, insurance, strata). This makes it easier to work out the net yield.
* Are easier to diversify with.
* Involve less paperwork.
* Are fungible and more liquid.

Ideally you would have both over your investing lifetime. With both, averages can be misleading (there will be over/underperforming suburbs and designs, there will be over/underperforming companies).

In general I disagree with your mum, both that you can't use leverage with shares, and that being allowed more leverage is a good thing.

 

[shezian]

They are different, at various times one may be on average better value, but I'll try to steer clear of present valuations.

Generally property:
* Is easier to understand.
* Is physical (which is a plus and a minus). One of the positives of this is the above point. Negatively it means you have to insure it against all sorts of physical risks, and it "decays" more obviously.
* Is less volatile (which means banks will usually allow a bigger LVR if it is used as collateral).
* Can be used directly if everything goes to crap and you aren't foreclosed on.
* Wont go to zero.

Shares:
* Have smaller unit prices (ie. you can buy some shares with $10k, that wont even get you one property). This also means you can usually invest without leveraging yourself.
* Have smaller transaction costs (ie. brokerage vs stamp duty/selling agent fees).
* Have very small holding costs (no land tax, rates, maintenance, insurance, strata). This makes it easier to work out the net yield.
* Are easier to diversify with.
* Involve less paperwork.
* Are fungible and more liquid.

Ideally you would have both over your investing lifetime. With both, averages can be misleading (there will be over/underperforming suburbs and designs, there will be over/underperforming companies).

In general I disagree with your mum, both that you can't use leverage with shares, and that being allowed more leverage is a good thing.

I prefer trading to property anyday, after how l see her struggle with banks and tenants, etc etc. But because thats all she knows she feels the most comfortable.

 

[ROE]

I prefer trading to property anyday, after how l see her struggle with banks and tenants, etc etc. But because thats all she knows she feels the most comfortable.

And there is no trouble in the stock market?
fraud? bad management? insider trading? pump and dump etc...etc...

 

[DeepState]

Nice, it would interesting to see how a 5% rebalance worked compared to a monthly.

Have just gotten around to do the numbers.

Just two asset classes: ASX200 (accum) and 30Day T-Bills
Period: 18/1/2001 - 14/8/2014 Daily.
Basic strategy is 50/50 between the asset classes

If you do not rebalance, the accumulated value of the portfolio is $247 (starting from $100)

If you rebalance on different thresholds, the figures are as follows:

0% (rebal daily) / 253
1% / 252
5% / 260
10% / 257

The benefit from rebalancing arises through excess volatility in the ASX200 and the fact that the effects of rebalancing are stronger than the trends in the market. This effect would be more noted if more assets were introduced and these were not very highly correlated to the ASX200 and/or each other. This period is also notable for its strong trends in both directions, yet a reasonable improvement in performance has been achieved for something which requires very low management. In sideways markets, the effect is more pronounced.

A chart outlining the 5% example is shown below:

 

[qldfrog]

Thanks RY, so as I understand, this last set is for rebalancing at different thresholds, whenever these are reached, not restricted to monthly check?
potentially in case of a big fall rebalancing more than once in a single month period;
Interesting anyway and showing here as well the interest of such a "system"

 

[DeepState]

Thanks RY, so as I understand, this last set is for rebalancing at different thresholds, whenever these are reached, not restricted to monthly check?
potentially in case of a big fall rebalancing more than once in a single month period;
Interesting anyway and showing here as well the interest of such a "system"

Hi qldfrog

This analysis rebalances daily. Hence, it is technically feasible for the thresholds to be hit many times in a month.

Rebalancing is easy. Besides buy-hold, it must be the next simplest "system". You can see there is some benefit arising from just two assets, only one of which could be said to be volatile. There is more likelihood that it yields a favourable outcome as the time period extends. It will fail if equities just moves in virtually straight lines in any direction and never reverts. Possible, but ridiculous in likelihood. It will succeed most when the equity market bounces backwards and forwards in a range of +/- 10% each day. That will yield incredible profit. Outcomes in reality will be between the two and favour rebalancing.

BTW, does your field of engineering involve stochastic processes, stochastic control or turbulence in some way?

 

[qldfrog]

Hi qldfrog

This analysis rebalances daily.

Ok my understanding and what i implemented
As discussed previously, I have started to manage separately a token amount that way and this is exactly what is planned
a round figure split in:
50% cash at ubank, 50 % shares: I used asx300(VAS )28.6% and index ex US (VEU)21.6%
The choice was a little biaised (asx 300 and not 200 or all ord and the choice of VEU but that is to manage exposure based on my other invesments)
the system was filled by the 07/08/14
I will only increment the interest on cash monthly for simplicity.
we will see what happens this is on for the long term

 

[BeanJumbler]

Have just gotten around to do the numbers.

Just two asset classes: ASX200 (accum) and 30Day T-Bills
Period: 18/1/2001 - 14/8/2014 Daily.
Basic strategy is 50/50 between the asset classes

If you do not rebalance, the accumulated value of the portfolio is $247 (starting from $100)

If you rebalance on different thresholds, the figures are as follows:

0% (rebal daily) / 253
1% / 252
5% / 260
10% / 257

The benefit from rebalancing arises through excess volatility in the ASX200 and the fact that the effects of rebalancing are stronger than the trends in the market. This effect would be more noted if more assets were introduced and these were not very highly correlated to the ASX200 and/or each other. This period is also notable for its strong trends in both directions, yet a reasonable improvement in performance has been achieved for something which requires very low management. In sideways markets, the effect is more pronounced.

A chart outlining the 5% example is shown below:

View attachment 59059

Very interesting post, thanks a lot for that.

Just a few questions on how to actually implement the rebalancing.

When you talk about the different thresholds that trigger a rebalance, is it a percentage of deviation away from the starting value? e.g. with a 5% threshold when the stock index rises 7% a sell signal is triggered?

Or is the percentage change relative to the other values? e.g. the stocks rise 3%, the bonds fall 3%, the gap or difference is more than 5% hence a buy/sell signal is triggered?

If it was a 50/50 portfolio of bonds and stocks, what would happen if both rose 5% at the same time? You sell both?

 

[DeepState]

Very interesting post, thanks a lot for that.

Just a few questions on how to actually implement the rebalancing.

When you talk about the different thresholds that trigger a rebalance, is it a percentage of deviation away from the starting value? e.g. with a 5% threshold when the stock index rises 7% a sell signal is triggered?

Or is the percentage change relative to the other values? e.g. the stocks rise 3%, the bonds fall 3%, the gap or difference is more than 5% hence a buy/sell signal is triggered?

If it was a 50/50 portfolio of bonds and stocks, what would happen if both rose 5% at the same time? You sell both?

If I said a 5% threshold, it means that the rebal occurs when one/both of the exposures deviates from the neutral point by an absolute value of 5%. ie. we started at 50%, but sell back to 50% if the weight reached 55%. Otherwise they just drift around.

 

[qldfrog]

If I said a 5% threshold, it means that the rebal occurs when one/both of the exposures deviates from the neutral point by an absolute value of 5%. ie. we started at 50%, but sell back to 50% if the weight reached 55%. Otherwise they just drift around.

my implementation indeed

 

[BeanJumbler]

Cheers!

 

[haledceb]

hey Guys,

I'm 34 and own 7 properties so you can say I'm biased towards property for wealth accumulation, so here's my 2 cents worth if your thinking about investing in property.

First rule: PROPERTY IS A LONG TERM INVESTMENT don't invest in property if you want to make a quick dollar, the entry costs are far too high to make any quick money.

First the CONS:

• As stated before you need substantial money to get started in property- deposit, taxes, conveyancing fees, building inspections
• There are ongoing costs involved with property that will impact your cash flow- management fees, insurances, rates, repairs, loss of rent
• You may experience years of no capital growth or even worse negative growth
• You may get a horror tenant who could trash the place, not pay rent for months, and in some cases it's very hard to evict them
• Your property may be vacant in between vacancies,
  
  Now for the PROS
  • property is a tangible assest and everyone needs somewhere to live
  • Well bought property WILL increase in value over time
  • You can improve the value of property throguh renovations
  • The longer you own property the eaiser it gets
  • Low interest rates fuel demand for property
  • There is potential to make a LOT of money in property
    
  I started buying property when I was 18, and now all my properties have considerable equity and are cash flow positive. I'll give you an example of what's possible with a long term view. My last property purchase I used absolutlety none of my own money. I drew out equity from another property for my deposit and costs. The property is also cash flow positive approx. $150 p/w, whilst giving me half a million exposure to the market. If the property market continues to perform at it's current rate, I plan to retire in 3 years and live off my rental income.

 

[tech/a]

I'm a great supporter of property.

BUT

I really believe timing is everything
I started in 1996 and now have 4 of my original 11
Held free hold.
In 96-02 you could instantly buy a home without deposit
If you had equity and be positively geared.

Housing rose exponentially

Not so now.
Tenants think you owe them something
Most prices stagnant.

Interest will rise.
Don't forget capital gains tax.

Can't see a lot in housing prices rising . Not for many years.
Everything has reverted to the mean
I think the best opportunity is when housing is BELOW the
Mean swinging to way above it.

The opportunity in my view is in developement and
Quick turnover 12-18 mths.

 

[againsthegrain]

Whats your rough predictions on interest raising techa? So far still falling

 

[tech/a]

7% within 5 yrs.