Position sizing with regular savings - Aussie Stock Forums

# Thread: Position sizing with regular savings

1. ## Position sizing with regular savings

The goal is \$1M by the time I'm 40.

Using the Compound Interest calculator at http://www.fido.gov.au/fido/fido.nsf...tment?OpenPage I've determined the following plan.

Target: \$1,000,000
Initial Investment: \$25,000
Regular Investment: \$300 / week
Rate of Return per year: 20%

This will take 12 years and 28 weeks. That's a bit over me being 40, but OK for me. I assume I can increase my regular savings by more than CPI.

So I'm trading a trend following system developed by a professional that has an average annual rate of return of over 20%. I realise that some years will be negative and other years will be greatly positive.

Currently I use a simple excel spreadsheet to determine my position sizing. Position Size = Equity Balance / Number of Positions
Where;
Position Size = The dollar amount to open the next position
Equity Balance = Available Cash + Current Value of Assets
Number of Positions = Number of positions I divide my initial capital into (in this case, 25)

So as my equity grows (and sometimes shrinks) my next position size also grows (and shrinks).

So my question is; How do I accurately position size when I am adding to my Equity by regularly saving and adding \$x a week to my Available Cash balance.

Do I simply manually add \$300/week to my Available cash on my spreadsheet? Then when a new entry signal is given I look at my position size formula and enter into the new position using the calculated position sizing?

Is there an issue if there is significant time between entry signals? e.g. position 1 is \$1,000 of ABC shares. Position 2 say 15 weeks latter would be \$1,180.00. (15 weeks x \$300 / 25 positions = \$180).
Assuming the market has be stagnant then the the value of the second entry is, 18% more than the value of position one.

Is this an issue?

I'm guessing not; as it will all even out in the wash over 12 years.

2. ## Re: Position sizing with regular savings

If you are using cash and not leverage or margins, I don't see what the worry is. You could make your spreadsheet more dynamic to reflect the value of your weekly deposits and changing value of your current positions, but I'd be more concerned with managing the trade than some precise position size if trading with all your own cash.

3. ## Re: Position sizing with regular savings

Remember that you'll need to pay tax each year on your profits, so your 20% ROR will actually be significantly less.

And don't forget commissions too.

4. ## Re: Position sizing with regular savings

So I'm trading a trend following system developed by a professional that has an average annual rate of return of over 20%. I realise that some years will be negative and other years will be greatly positive.
Trend following?? The trend down??

5. ## Re: Position sizing with regular savings

Originally Posted by gav
Remember that you'll need to pay tax each year on your profits, so your 20% ROR will actually be significantly less.

And don't forget commissions too.
Only if liquidated.

Originally Posted by Wysiwyg
Trend following?? The trend down??
Trends can be traded both ways.

6. ## Re: Position sizing with regular savings

Originally Posted by tech/a
Trends can be traded both ways.
Would that be short and long?

7. ## Re: Position sizing with regular savings

The goal is \$1M by the time I'm 40.

Using the Compound Interest calculator at http://www.fido.gov.au/fido/fido.nsf...tment?OpenPage I've determined the following plan.

Target: \$1,000,000
Initial Investment: \$25,000
Regular Investment: \$300 / week
Rate of Return per year: 20%

This will take 12 years and 28 weeks.
Not if you're paying tax on your profits it won't! Conveniently, that compound interest calculator neglects to take tax in to account.

When you're losing nearly half your profits to tax, it'll take a lot longer than that!

8. ## Re: Position sizing with regular savings

Yeah, bummer about tax. Good point. Still, it's the dream.

9. ## Re: Position sizing with regular savings

so what do i have to do to get \$1m by the end of the year?

10. ## Re: Position sizing with regular savings

Originally Posted by AlterEgo
....When you're losing nearly half your profits to tax, it'll take a lot longer than that!
Anyone losing 1/2 their profits to tax seriously needs to get a decent accountant (salary earners exempt - they are slaves to the system).

SLAVE
Earn
Pay tax
Spend

INFORMED
Earn
Spend
Pay tax

11. ## Re: Position sizing with regular savings

Originally Posted by Largesse
so what do i have to do to get \$1m by the end of the year?
Give it to me, I look after you fren.

12. ## Re: Position sizing with regular savings

Originally Posted by WaveSurfer
Anyone losing 1/2 their profits to tax seriously needs to get a decent accountant (salary earners exempt - they are slaves to the system).

SLAVE
Earn
Pay tax
Spend

INFORMED
Earn
Spend
Pay tax

Interesting post... You mean earn through a company/trust and then have the company trust buy all your toys etc and let you use them (fringe benefits tax?) and then have the company/trust pay you a little measley dividend which you then pay tax on?

13. ## Re: Position sizing with regular savings

I have similar goals and only just started the journey

Once a level of confidence have been gained, I will be looking to use leverage to speed up the process. Is this something you have considered? How about borrowed equity against an asset (e.g. house)?

14. ## Re: Position sizing with regular savings

So 2 months on RazzaDazzla...how are you travelling?, are you on target for this year..have you achieved a 3.3% return over the last 2 months?

15. ## Re: Position sizing with regular savings

Originally Posted by So_Cynical
So 2 months on RazzaDazzla...how are you travelling?, are you on target for this year..have you achieved a 3.3% return over the last 2 months?
Hahaha no where near where I need to be!

A quick tally shows I am about -18% since December last year. I thought this trading game was all about big never ending winners?

Seriously though, this is within (just) the expected draw down of the system so I'm hanging in there. I'll report back when I finally break even!

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