Where to start when it comes to trading/investing?

[nomore4s]

Thanks for your earlier post. I have done a lot of research on this dividend reinvestment method and on particular shares that may fit its critera. Learning a lot thus far.

Another question on the income & compounding portfolio, though.

This one obviously has a "never sell" philosophy (unless the income stream suffers serious decline or dries up completely.

So the recent market pullbacks / crash / other fancy word would not phase you within this portfolio.

But do you see this as a time to top-up? At 3800 some of the yields for companies that consistently see dividend growth are very enticing. Or do you have an overall "Technical view" of the market and even use it within this portfolio?

The current pullback has no effect on how I manage this portfolio, I don't even look at the capital gains component as that makes it easier to ignore the swings.

I have an overall technical view that we could very well go lower but I also don't look a gift horse in the mouth and have been buying for this portfolio after the strength shown on Tue as with that sort of rebound we could very well have seen the low for this year. Also with CBA going ex div on Monday has helped.

A capital base that is workable.

Hahaha yeah.

 

[Ves]

Cheers, in my own reckoning it is almost the perfect "crossroads" to start a portfolio like this. I have started drip feeding my salary into some smaller positions based on the higher yields of the banks. I am leaving a decent chunk of cash on the side for buying opportunities at levels 3800 and below.

View attachment Retirement-Calculator (Dividend Investing Model).xlsx

I found this calculator on an American website called "Dividends4life."

Obviously it has a flat dividend growth rate and in reality the fluctuations are going to produce different results, but even when using very conservative figures it demonstrates the power of such a reinvestment compounding strategy. It's a good counter-part to the spreadsheet that you produced for CBA.

It confirms the Richest Man in Babylon virtues of discipline and consistency.

 

[nomore4s]

It confirms the Richest Man in Babylon virtues of discipline and consistency.

Yes it can be a very powerful portfolio but it is very very hard to put into practice.

It requires a lot of discipline and the ability to ignore market fluctuations over many years and the swings that brings with your open equity. It also can be difficult for the first 3-5 years as you see very little reward for this period.

I look at it as my private superfund and only put in money I allocate to my retirement and will not need till then but obviously the more I can pump into it now the better it will be in 20 years time.

 

[Ves]

It requires a lot of discipline and the ability to ignore market fluctuations over many years and the swings that brings with your open equity. It also can be difficult for the first 3-5 years as you see very little reward for this period.

Agreed; but very easy if you have a vision for your future (not just "I want to retire") and the determination to succeed. I guess my personality type helps too. I am a big picture, long-term over instant gratification type thinker. If you have a vision and can set realistic goals toward achieving them it is very possible.

Thanks for your help. I am finding the long-term passive income portfolio idea the easiest to plan and formulate. The basic criteria (which will develop further to my tastes over time) make good sense to me.

Still working on some ideas for a "technical or trading" type fund, but as tech/a and yourself have said already this is not something that I will be able to implement nearly as quickly due to the learning curve. I may find that I never put this in place if I do not feel comfortable understanding the risk management side of things.

 

[nomore4s]

Still working on some ideas for a "technical or trading" type fund, but as tech/a and yourself have said already this is not something that I will be able to implement nearly as quickly due to the learning curve. I may find that I never put this in place if I do not feel comfortable understanding the risk management side of things.

This type of trading is a lot harder because it requires a fair bit of knowledge, skill and experience to pull off. IMO you really need to treat it like doing an apprenticeship, it takes years of purposeful studying & practice to become a skilled trader. Study the basics first before trying to formulate a strategy.

 

[nomore4s]

Agreed; but very easy if you have a vision for your future (not just "I want to retire") and the determination to succeed. I guess my personality type helps too. I am a big picture, long-term over instant gratification type thinker. If you have a vision and can set realistic goals toward achieving them it is very possible.

Thanks for your help. I am finding the long-term passive income portfolio idea the easiest to plan and formulate. The basic criteria (which will develop further to my tastes over time) make good sense to me.

No worries.

You will no doubt adapt the strategy to suit your personal goals and requirements, I have pretty much only discussed the basic outlines, the details are up to you. Good luck.

 

[Tysonboss1]

A very simple but effective portfolio policy for the defensive investor is the 50/50 cash vs index fund approch suggested by benjiman graham.

It is a rather mechanical approach in which the defensive investor holds 50% of his funds in cash and 50% in a stockmarket index fund,

Each time market movements upset the balance by 5% the investor adjusts the portfolio back to 50/50 ratio by either selling or buying the index.

So in an advancing market the investor steadily sells stock and in the declining market he steadily buys stock.

 

[So_Cynical]

A very simple but effective portfolio policy for the defensive investor is the 50/50 cash vs index fund approch suggested by benjiman graham.

It is a rather mechanical approach in which the defensive investor holds 50% of his funds in cash and 50% in a stockmarket index fund,

Each time market movements upset the balance by 5% the investor adjusts the portfolio back to 50/50 ratio by either selling or buying the index.

So in an advancing market the investor steadily sells stock and in the declining market he steadily buys stock.

That's really smart...buying and selling when you should be and always having funds to take advantage of the moves...perhaps a 30 (cash)/70 (stocks-index) ratio along with mechanical moves in and out at every 6 or 7% mite be more aggressive.

Further..spreading the stocks across 3 or more ETF's would also give some scope for getting CGT discounts by selling the oldest index shares first, i suppose with 50 to 70% of your money in index funds and only ever selling a little at a time there will always be shares held for over 12 months to get the discount anyway.

And now would be a great time to start!

 

[craft]

Great thread nomore2+2s

I am finding the long-term passive income portfolio idea the easiest to plan and formulate. .

My focus is Nomore4s 1st Strategy. Maybe a new thread to discuss just that strategy could be started. I think there is a bigger agenda for this thread.

Still working on some ideas for a "technical or trading" type fund, but as tech/a and yourself have said already this is not something that I will be able to implement nearly as quickly due to the learning curve.

Even if your long term focus is strategy one. There is an enormous amount of learning about yourself, the market and risk management that can be leant quicker and safer through GOOD Technical Analysis trading. Don’t let focus become tunnel vision.

 

[craft]

A very simple but effective portfolio policy for the defensive investor is the 50/50 cash vs index fund approch suggested by benjiman graham.

It is a rather mechanical approach in which the defensive investor holds 50% of his funds in cash and 50% in a stockmarket index fund,

Each time market movements upset the balance by 5% the investor adjusts the portfolio back to 50/50 ratio by either selling or buying the index.

So in an advancing market the investor steadily sells stock and in the declining market he steadily buys stock.

Crank up excel and do some random generation models of rebalancing. Rebalancing does add a little over non-rebalincing but the yield differential doesn’t have to be too much before you are better off going 100% for the highest yield option so long as you have a long enough time frame to ride out volatility.

 

[ROE]

Cheers, in my own reckoning it is almost the perfect "crossroads" to start a portfolio like this. I have started drip feeding my salary into some smaller positions based on the higher yields of the banks. I am leaving a decent chunk of cash on the side for buying opportunities at levels 3800 and below.

View attachment 44031

I found this calculator on an American website called "Dividends4life."

Obviously it has a flat dividend growth rate and in reality the fluctuations are going to produce different results, but even when using very conservative figures it demonstrates the power of such a reinvestment compounding strategy. It's a good counter-part to the spreadsheet that you produced for CBA.

It confirms the Richest Man in Babylon virtues of discipline and consistency.

Chuck in some conservative number when I retire
Richest man in Babylon rules are golden ... I pretty much set my goal according to
his golden rules...

GFC, Crash, Melt down these timeless wisdoms lives on

- Your portfolio's market value will be: $8,220,480
- Your portfolio's cost basis will be: $5,356,746

- Your portfolio's current yield will be: 4.50%
- Your portfolio's yield-on-cost will be: 6.91%

- Your portfolio's annual income will be: $369,922
- The above income In today's dollars will be: $187,436

Could you live on $187436 today?

 

[Tysonboss1]

perhaps a 30 (cash)/70 (stocks-index) ratio along with mechanical moves in and out at every 6 or 7% mite be more aggressive.

He does give scope that a more experianced investor may change the break up to as high as 75% stock and 25% cash when markets proove to be very much under valued and as low as 25% stock and 75% cash when markets are looking to be close to bubble conditions.

He does warn though that if a novice does start to leave the mechanical 50/50 approach and rely a bit more on the subjective market timing 25/75 approach, he is increasing the chance of a mistake and there fore increasing the chance that he will buy of sell at the wrong time and all the emotions of greed and loss will lead him to speculative pursuits to play catch up.

 

[Tysonboss1]

Crank up excel and do some random generation models of rebalancing. Rebalancing does add a little over non-rebalincing but the yield differential doesn’t have to be too much before you are better off going 100% for the highest yield option so long as you have a long enough time frame to ride out volatility.

Rebalancing also gives the defensive investor something to do making them feel that in some way they are reacting positivly to market movements rather than just sitting their on a rollercoaster again being tempted by greed of terrified by fear of loss.

it's not that you will have the smartest idea, but you will achieve a credible return over time and avoid any disasters,

 

[Ves]

Each time market movements upset the balance by 5% the investor adjusts the portfolio back to 50/50 ratio by either selling or buying the index.

I think that this is a really good idea from Graham for people who are building a conservative Growth portfolio.

I am not sure how you would apply it to a portfolio that is chasing dividend growth to build a passive income (rather than primarily capital growth) such as the one that nomore4s is discussing.

My gut feel is that the re-balancing would be detrimental to the yield on cost in this case.

Any ideas?

 

[Tysonboss1]

I am not sure how you would apply it to a portfolio that is chasing dividend growth to build a passive income (rather than primarily capital growth) such as the one that nomore4s is discussing.

My gut feel is that the re-balancing would be detrimental to the yield on cost in this case.

Any ideas?

The cashflow from this portfolio would grow over time, and rebalancing would increase the cashflow. Obviously Both the stock and cash component would be throwing off cashflow.

As the stock market advances and dividend yields decrease some of the stock is sold and put into cash which would probably be paying higher interest than dividends, As the share market falls and dividend yields are increasing cash is transfered back to shares.

 

[craft]

The nominal return for Australian shares since 1900 is 11.7% compared to bonds at 5.3%

An equally allocated portfolio would give you a return of 8.5%

Rebalancing will give you a bit extra. How much is rebalancing worth? Well that depends on frequency of rebalancing and volatility of the investments. But it’s not huge – around ½% (you should model this yourself under different volatility and rebalancing time frame assumptions to verify). Also don't forget about the transaction costs to carry out the rebalnacing.

If you have a time frame and temperament to handle the volatility, you will earn more over the long run with a 100% allocation to the highest yield investment. Rebalancing a diversified allocation will only give you a higher return then a focused allocation when the yield differential is small and the volatility is high.

If you want a balanced asset allocation for some reason (risk management, liquidity, psychological reasons etc) then periodically re-balancing back to that strategic allocation does make sense - it maintains your desired weightings and the boost to return actually comes from closing out the deviations to your desired weightings created by market volatility.

My point is that rebalancing is a tool for getting the greatest efficiency out of desired asset allocation, there is seldom enough in it to make it a good reason for choosing to go with a diversified allocation.

 

[burglar]

Hi nomore4s,

Just revisiting.
Long time, no update.

 

[obdcodes]

One of the biggest mistakes traders make is dipping their toes in the water without any education. First, you need to educate yourself as much as possible about the market you are trading. And second, have sufficient capital to trade. Some traders use "too" much leverage and can destroy their account if they do not know what they are doing. I mainly suggest, that a trader should learn about market economy and chart education.