What's your retirement asset allocation percentages?

[Zaxon]

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.

 

[sptrawler]

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]

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.

 

[Zaxon]

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]

OK. That makes sense.

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.

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.

 

[Value Collector]

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.

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.

 

[Iggy_Pop]

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

 

[Zaxon]

Property Infrastructure - 20%

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

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.

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?

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.

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?

 

[Sharkman]

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.

 

[Sharkman]

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!

 

[Value Collector]

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.

 

[sptrawler]

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.

 

[Iggy_Pop]

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

 

[InsvestoBoy]

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.

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.

 

[Value Collector]

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

 

[Sir Burr]

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.

 

[aus_trader]

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.

 

[sptrawler]

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.

 

[aus_trader]

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.

 

[sptrawler]

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.