Retirees - model share portfolios

[brianwh]

Have recently been reviewing the share portfolio of my SMSF and while my major holdings are mainly ASX top 20 blue chip, the weightings or proportions that each share holding makes up is quite different from for example from the ASX Top 20 or the top 20 holdings in some of the larger Australian Share Funds.

To what extent do others in a similar position use ASX Top 20 etc as a benchmark? Are there model portfolios that one can access without subscribing to a Newsletter?

This is particularly an issue for me at the moment as I'm currently about 40% invested in shares and am planning to take this up to 50% plus in the New Year which obviously would be a good time to address imbalances

 

[gooner]

Have recently been reviewing the share portfolio of my SMSF and while my major holdings are mainly ASX top 20 blue chip, the weightings or proportions that each share holding makes up is quite different from for example from the ASX Top 20 or the top 20 holdings in some of the larger Australian Share Funds.

To what extent do others in a similar position use ASX Top 20 etc as a benchmark? Are there model portfolios that one can access without subscribing to a Newsletter?

This is particularly an issue for me at the moment as I'm currently about 40% invested in shares and am planning to take this up to 50% plus in the New Year which obviously would be a good time to address imbalances

Not a retiree (got 13 years to go before I can access my super), but have similar shares. I put a bit more in the larger cap companies but also skew weightings towards those sectors or companies that I prefer. Personally I would not worry about having weightings different to ASX 20 - you may overperform slightly or underperform slightly. Personally I am underweight banking as I think more regulation and increased competition once crisis eases will restrict growth for the majors.

My SMSF portfolio with weightings is

WPL Woodside Petroleum 9.0
STO Santos 6.0
OSH OIL Search 5.0
ORG Origin Energy 6.0
AOE Arrow Energy 3.0
BHP BHP 10.0
RIO RIO 5.0
WES Wesfarmers 5.0
CSL CSL 4.0
COH Cochlear 3.0
ANZ ANZ 4.0
QBE QBE 3.0
MQG MQG 3.0
AGK AGL limited 4.0
TLS Telstra 6.0
SIP Sigma 3.0
WDC Westfield 5.0
WOW Woolworth 5.0
TOL Toll holdings 3.0
SHL Sonic health care 3.0
CASH 5.0

 

[Julia]

I'm only about 30% in shares and very gradually feeding more in. Don't restrict myself to the top 100. Some of my best gains have been from companies outside this.

Presently have:
BRG (this turned out to be a bad buy when the regulator denied the merger with GUD. However, GUD have now extended the offer which I'll accept. Maybe they have some plan for getting around ASIC's objections. Does anyone know any more about this?)

CBA
Campbell Bros Ltd
Monadelphous Ltd
Maquarie Group
Mac Services Group
Tox Free Solutions Ltd
The Reject Shop
United Group Ltd
WBC
Worley Parsons Ltd.

Will be adding RIO, BHP,WES, LEI, and maybe BKN, CPU as opportunities arise.

 

[brianwh]

Personally I would not worry about having weightings different to ASX 20 - you may overperform slightly or underperform slightly. Personally I am underweight banking as I think more regulation and increased competition once crisis eases will restrict growth for the majors.

Its not only the ASX 20 that I'm at variance with G - I looked through the top 10 or 20 holdings of some of the major Australian Share Funds and find myself quite different from them too in the weightings.

Also, while I share enthusiasm for energy and resources, I would not be comfortable with this level of bias in a retiree fund. And to have such a relatively small holding in the banking sector seems fairly contrarian IMO. I'm underweight there too but am hoping to get up towards 25% as the opportunity arises.

 

[gooner]

I'm only about 30% in shares and very gradually feeding more in. Don't restrict myself to the top 100. Some of my best gains have been from companies outside this.

Presently have:
BRG (this turned out to be a bad buy when the regulator denied the merger with GUD. However, GUD have now extended the offer which I'll accept. Maybe they have some plan for getting around ASIC's objections. Does anyone know any more about this?)

CBA
Campbell Bros Ltd
Monadelphous Ltd
Maquarie Group
Mac Services Group
Tox Free Solutions Ltd
The Reject Shop
United Group Ltd
WBC
Worley Parsons Ltd.

Will be adding RIO, BHP,WES, LEI, and maybe BKN, CPU as opportunities arise.

Julia

Agree that best gains often come from outside top 100 companies. As do worst losses The challenge is picking the winners and not the losers.

AFR had Campbell Bros as one of its "top 10 stocks for 2020" the other day.

 

[brianwh]

I'm only about 30% in shares and very gradually feeding more in.

I would have thought 30% a bit on the conservative side Julia. Do you have an uncomfortable feeling about the future course of the market?

As regards the shares you hold, they make sense to me. But its the weightings you have and the rationale behind them that I'm interested in. In my case the weightings have to a large extent been affected by the performance of the share prices since I bought them e.g. I bought WES very well and also bought into their capital raising and it is now my biggest holding at 12.6% - but do I want 12.6% of my share portfolio in WES?

 

[gooner]

I would have thought 30% a bit on the conservative side Julia. Do you have an uncomfortable feeling about the future course of the market?

As regards the shares you hold, they make sense to me. But its the weightings you have and the rationale behind them that I'm interested in. In my case the weightings have to a large extent been affected by the performance of the share prices since I bought them e.g. I bought WES very well and also bought into their capital raising and it is now my biggest holding at 12.6% - but do I want 12.6% of my share portfolio in WES?

If you are in pension phase and thus are not subject to capital gains tax then it is fairly cheap to rebalance - brokerage costs only. Certainly if I had made a very large profit on one stock and this had caused it to become a particularly large part of my portfolio, then I would personally look to sell some of it and rebalance. However, CGT always makes this decision harder, although the 10% rate in SMSF's helps.

 

[badger41]

Hmm, looks like I have a portfolio not dissimilar to Gooner (we share 8 stocks).

To the nearest 1%, my stocks are:

BHP 11 (average cost $12.48, now $42.47)
CSL 8 (bought for $$2.81 long, long ago, now $32.64)
WES 8 (average cost $9.83, now $30.25)
OST 8 (a/c $1.71, now $3.27)
LEI 8 (a/c $6.73, now $37.54)
STO 7 (a/c $6.43, now $13.99)
ANZ 6 (a/c $10.36, now $22.39)
WPL 5 (a/c $14.00, now $47.50)
NAB 5 (a/c $13.97, now $26.70)
WBC 5 (ex SGB takeover. a/c $6.02, now $25.39)
WOW 4 (a/c $23.62, now $27.42)
UGL 4 (a/c $12.27, now $14.21)
WAN 4 (a/c $5.06, now $8.10)
ASB 3 (a/c $1.30, now $2.24)
ORG 3 (a/c $11.75, now $16.38)
FWD 3 (a/c $7.99, now $7.75)
ORI 2 (new purchase, plan to add. a/c $24.99, now $25.50)

Of the above, only FWD is currently showing a small loss. Cost prices include brokerage.

That's 94% of the portfolio, also hold small parcels of AWE, MCR, OZL, QHL (spec). These are all worth less than I paid, although in the case of OZL, well, at least it didn't "go to God".

Overall, the portfolio is in profit to the tune of 106% - roughly double cost. Many of the shares have been held for well over ten years. CSL, STO, WES were first purchased in 1995.

16% in banks looks okay to me. The portfolio has a resource/energy bias, also a WA bias. Nice to note that so far in this financial year I have recovered all of the losses of 2008/09. I'm about 75% shares, 25% cash. None held within superannuation, costs to high, too much legislative risk. Franking credits eliminate income tax, I think only once in recent years have I had to pay a small (>$1K) tax bill resulting from realised capital gains.

Fingers crossed for calender 2010.

Cheers, badger

 

[condog]

I suggest anyone contemplating a SMSF direct share portfolio at least read this article....Its not too dis-similar to those portfolios in here:

http://www.theage.com.au/business/the-complete-morons-guide-to-top-10-stocks-20091016-h1b6.html
Disclaimer: this is an external link to Sdney morning Herald article.....follow link at your own perril.This site an I take no responsibility ofr content beyonfd this post.

I think its a good starting point.....Have to agree with Julia, most my non-top stocks have been my star performers.....In relation to the risk though....risk is more a function to do with time and knowledge then the market cap of the company......B&B, Enron, Ansette, etc hmmmm not to safe, plus a few American and European banks.... do your research....knowledge lowers risk.

Badger the only stock you have I really dont like is WAN, its debt is way too high last time I checked...

 

[Julia]

I would have thought 30% a bit on the conservative side Julia. Do you have an uncomfortable feeling about the future course of the market?

Brian, I simply don't know what will happen. I don't think anyone does.
I think there are still a lot of jitters around as can be seen by the fall in markets every time there is a slightly bad news announcement.

My basic approach is to buy stocks in an uptrend and hold them until they turn. There are not too many stocks in a confirmed uptrend at present.
Those real blue chips in my p/f I will hold through dips, but not the mid and small caps.

I've just put half my cash into a TD for five years at 8%. I always keep that much approx in cash so am happy to lock it away for that time. Even if the cash rate goes up considerably I don't think I'll be too disadvantaged with the 8%. The balance of the cash is in an online at call a/c so up for feeding into the market if it stabilises.

As regards the shares you hold, they make sense to me. But its the weightings you have and the rationale behind them that I'm interested in. In my case the weightings have to a large extent been affected by the performance of the share prices since I bought them e.g. I bought WES very well and also bought into their capital raising and it is now my biggest holding at 12.6% - but do I want 12.6% of my share portfolio in WES?

I simply don't focus much on weighting. I may be wrong in this. But I'm happy to have more in stocks which are performing well.
Roughly I have about double in stocks which fall into the top 100, compared to mid and small caps.
Exception is Worley Parsons with which I am very overweight due to its increase in SP. I have no intention of reducing this unless something changes in the fundamentals.

Julia

Agree that best gains often come from outside top 100 companies. As do worst losses The challenge is picking the winners and not the losers.

Indeed, gooner. Or, in my case, getting the timing right so as not to give back too much profit when selling. This happened to me with Oakton (OKN) where I had over 100% profit in about five months, but when I sold that had reduced to about 80%.

AFR had Campbell Bros as one of its "top 10 stocks for 2020" the other day.

Interesting. But 2020? Are you sure you don't mean 2010? I hope the latter.
I've owned this twice. Sold with healthy profit when the GFC was clearly going to happen and had concerns about their debt level for quite a while.

I suggest anyone contemplating a SMSF direct share portfolio at least read this article....Its not too dis-similar to those portfolios in here:

http://www.theage.com.au/business/the-complete-morons-guide-to-top-10-stocks-20091016-h1b6.html
Disclaimer: this is an external link to Sdney morning Herald article.....follow link at your own perril.This site an I take no responsibility ofr content beyonfd this post.

Thanks for that, condog. I'm always interested in Marcus Padley's views.
This is an extract from that article:

The only stocks that don't get an automatic pick in the top 10 include Telstra and Wesfarmers. Telstra because the only sex it offers is a yield, and by rights no one should invest in equities for that.

Equities are for growth in capital - ask any Yank - and if it wasn't for the performance of a protected monopoly called the Australian bank sector that has spoilt us into thinking we can have income and capital growth, the Australian retail investor would realise that.

High yield means low growth, which means a dull share price. Utilities, regulated gambling, property trusts, food, infrastructure, health care. I rest my case.

I've long held this view and will never buy anything just for its yield.

Wesfarmers doesn't get in because it's too complicated for most people. You'll find brokers very divided on Wesfarmers. Most are cautious about the big lash on Coles. That uncertainty, and the fact that it has about 10 different business units, puts it in the too-hard basket because no one really knows what it does. But the main bits are cyclical and I reckon that's enough at the moment.

Mr Padley's comment here about WES is interesting. I've only put it into my "probably buy" category since the Coles make-over seems to be finally bearing fruit. Looks as though they are on the right track at long last.
But against WES is possible downgrading of Bunnings when the new WOW owned hardware chain is up and running.

I think its a good starting point.....Have to agree with Julia, most my non-top stocks have been my star performers.....In relation to the risk though....risk is more a function to do with time and knowledge then the market cap of the company......B&B, Enron, Ansette, etc hmmmm not to safe, plus a few American and European banks.... do your research....knowledge lowers risk.

Yes, I agree about this. You were aware of some adverse reports which I missed re OKN, condog. Had I been up to speed with these, I'd not have given back as much profit. So, absolutely, timing is everything.

 

[So_Cynical]

High yield means low growth, which means a dull share price. Utilities, regulated gambling, property trusts, food, infrastructure, health care. I rest my case.

http://www.theage.com.au/business/the-complete-morons-guide-to-top-10-stocks-20091016-h1b6.html

Bollocks to you Mr Padley...i brought into HDF about 6 weeks before he wrote that article and im sitting on a capital gain of about 31% and getting a distribution yield of over 14%

There are no absolutes....anyone sticking to the top 20 is missing out on the big moves and big yields, for the perception of safety.

 

[gooner]

Interesting. But 2020? Are you sure you don't mean 2010? I hope the latter.

Yes it was stocks to hold for 10 years from 2010 to 2020.

 

[condog]

http://www.theage.com.au/business/the-complete-morons-guide-to-top-10-stocks-20091016-h1b6.html

Bollocks to you Mr Padley...i brought into HDF about 6 weeks before he wrote that article and im sitting on a capital gain of about 31% and getting a distribution yield of over 14%

There are no absolutes....anyone sticking to the top 20 is missing out on the big moves and big yields, for the perception of safety.

Dont be so cynical.......lol
Im not suggesting everything he says is right, but merely suggesting its a great starting point for anyone setting up a SMSF equity portfolio....

I agree that anyone sticking to the top 10 or 20 is missing out, but I also think that the best stocks from hte top 10 or 20 should make up a significant percentage of your equity portfolio.

Its called the Moron portfolio, because by default any Moron can find good reasons to put these stock in there portfolio......and id extend on that and say any Moron cna find good reason to make them a significant part of their portfolio......

If your a far more experienced investor then these comments are not aimed at you......

This is not advice, just opinion. Do your own research blah blah blah....you no the rest, but its true.

 

[brianwh]

Hmmm. I am sensing a theme coming through replies to this thread and it is that most of you are experienced investors who have the skill and background to identify "non-moron portfolio" stocks and expect to be able to move in and out of them profitably. But I'm guessing that I'm not alone in seeking to avoid the clutches of the FP industry and as well enjoy having control over my own financial destiny in retirement but don't have the background referred to above. And while I don't expect this expertise will come without effort, I don't want to devote my waking hours getting this experience. And so my portfolio is fairly consistent with MP's "moron portfolio".

However I am enjoying what you are saying and have picked up some very insightful perspectives (on this and other threads in ASF). Thanks for your efforts.

Cheers

 

[So_Cynical]

Hmmm. I am sensing a theme coming through replies to this thread and it is that most of you are experienced investors who have the skill and background to identify "non-moron portfolio" stocks and expect to be able to move in and out of them profitably. But I'm guessing that I'm not alone in seeking to avoid the clutches of the FP industry and as well enjoy having control over my own financial destiny in retirement but don't have the background referred to above. And while I don't expect this expertise will come without effort, I don't want to devote my waking hours getting this experience. And so my portfolio is fairly consistent with MP's "moron portfolio".

However I am enjoying what you are saying and have picked up some very insightful perspectives (on this and other threads in ASF). Thanks for your efforts.

Cheers

That's a very non-moron post brianwh and going on the insight displayed in that post im sure you will successfully manage your portfolio and grow your experience....one theme that comes through strongly on this forum is
the need for investors to make better decisions, even if that's simply to get a better FP or a second or third opinion.

Retirement now days can go on for 30 or 40 years, its a long time to be retired and i would think managing your investments and thus income would be a great way to keep the mind active while maximising your returns and minimising your risk.

 

[brianwh]

Thanks for the encouraging words So_Cynical. The issue I have which would have come through from my posts above is that I have a portfolio of a dozen plus blue chips which I have for the most part bought quite well but I don't have a rationale for what I am doing that I am comfortable with. I have shares across the main sectors but the balance is by default - I didn't plan it, it has just happened. And I have never sold all or part of a blue chip holding. And I am finding now that the blue chips I want more exposure to eg banks are getting expensive.

Perhaps this is how many retirees operate the equities part of their SMSF. As I said earlier, I get the impression that the people posting on these forums are very competent and experienced but I do wonder if there is another large sector out there who would like the assurance of some model or guidelines on which base their portfolios.

Cheers

 

[Julia]

Thanks for the encouraging words So_Cynical. The issue I have which would have come through from my posts above is that I have a portfolio of a dozen plus blue chips which I have for the most part bought quite well but I don't have a rationale for what I am doing that I am comfortable with. I have shares across the main sectors but the balance is by default - I didn't plan it, it has just happened.

OK. So now that it has happened, are you unhappy with what you are holding? Is the SP of these companies increasing at a rate you are happy with?

To go back to the beginning, what do you need your p/f to do for you?
Is your primary aim to grow your capital, or to provide an ongoing income?
(the latter could be derived either from cashing in some of your capital gain, or from dividends and franking credits).

Presumably you are using the tax advantages of super to maximise your returns?

Is the p/f satisfactorily achieving this/these requirements?

Looking at the fundamentals of each of the companies you own, do you have any concerns or reservations about any of them?

Does the p/f allow you to sleep at night?

In other words, are you actually unhappy with what you are doing, or are you rather trying to address some vague feeling that you could be doing things better?

And I have never sold all or part of a blue chip holding. And I am finding now that the blue chips I want more exposure to eg banks are getting expensive.

The inference from this is that to buy the banks e.g. you would need to sell some of your existing holdings?

Re how expensive any stock is at present, I imagine someone would have said that about e.g. CBA when it was $10. Just think about it. You seem to have a very long term approach.

Perhaps this is how many retirees operate the equities part of their SMSF. As I said earlier, I get the impression that the people posting on these forums are very competent and experienced but I do wonder if there is another large sector out there who would like the assurance of some model or guidelines on which base their portfolios.

None of us were experienced when we first started out, Brian. Maybe if you address the questions above, you will provide for yourself the first step in moving ahead if that's what you want to do.
I have sent you a PM.

 

[brianwh]

OK. So now that it has happened, are you unhappy with what you are holding? Is the SP of these companies increasing at a rate you are happy with?

To go back to the beginning, what do you need your p/f to do for you?
Is your primary aim to grow your capital, or to provide an ongoing income?
(the latter could be derived either from cashing in some of your capital gain, or from dividends and franking credits).

Presumably you are using the tax advantages of super to maximise your returns?

Is the p/f satisfactorily achieving this/these requirements?

Looking at the fundamentals of each of the companies you own, do you have any concerns or reservations about any of them?

Does the p/f allow you to sleep at night?

In other words, are you actually unhappy with what you are doing, or are you rather trying to address some vague feeling that you could be doing things better?

Just to place my comments in a perspective I am a retiree fully self-funded taking an accounts based pension from my SMSF since Sept 08. I have a bit over 40% of my holdings in Australian equities and the rest in TD's and cash.

In a relative sense I am happy with my share portfolio as our SMSF has increased in value by some 10% in that time after taking the pension. This increase has been from the share portfolio as everyone knows how much TD's were paying until recently.

But because I am doing OK doesn't mean others aren't doing a lot better. And I was really trying to get a handle on the rationale behind the way people structure their share portfolios.

It seems from what is being said here, that structure is not the issue, but rather the focus is on individual shares - if you are confident of the capital growth and income prospects of a share and you have themoney, buy it then hold until you either need the money or see a better option.

 

[condog]

Just to place my comments in a perspective I am a retiree fully self-funded taking an accounts based pension from my SMSF since Sept 08. I have a bit over 40% of my holdings in Australian equities and the rest in TD's and cash.

In a relative sense I am happy with my share portfolio as our SMSF has increased in value by some 10% in that time after taking the pension. This increase has been from the share portfolio as everyone knows how much TD's were paying until recently.

But because I am doing OK doesn't mean others aren't doing a lot better. And I was really trying to get a handle on the rationale behind the way people structure their share portfolios.

It seems from what is being said here, that structure is not the issue, but rather the focus is on individual shares - if you are confident of the capital growth and income prospects of a share and you have themoney, buy it then hold until you either need the money or see a better option.

Structure and focus on shares are both important...as an example imagine if you where in the US and held all bank stocks, because they where the best individual stocks you could identify at a given point in time prior to them going bad.... but on the flip side you can diversify (wosify) so much that you end up holding stocks that dont pass the most fundamental tests......

So ino roder to work out whats best for you you really need to as a starting point:
1. Whats your time frame for the money....or income... If its a short time frame , it shouldnt be in equities or it should be returned immediately in appropriate dividend streams...
2. Assess your own behaviours and attitudes to risk - eg: if you bought 10 stocks today and they went down by 50% tommorrow just because of market sentiment what would your reaction be.....if it is to panic and sell your probably not best suited to being a direct equity investor....if your reaction is to ride it out or find some money to buy more while they are a bargain..... your risk profile is proabably suitable....
3. Whats your investment goals for this money your investing.....Do you need / want growth, income, tax free income, overseas exposure.... If you need tax free income then you need to stick to 100% franked Au shares with good yeild and a history of increasing income and stable / increasing ROE eg the banks etc and most those in the moron portfolio. If its growth you may be more inclined to go with stocks like JBH, BHP, WOW, ORL, Reece, etc that have higher growth profile ....
5. Whats your wealth preservation / insurance strategies / needs.
6. How will this structure affect your tax, social security/ pensions, health care cards, and living standards....

7. this one I like to chuck in......if you worked casually just a few hours or days per week in a job or business / paying hoby you love to do....how could that massively accellerate your: retirment / semi-retirement / standard of living in retirement / enjoyment of retirement / social interactions

This is by no means exhaustive or detailed, but if you at least think about these items and then use this knowledge as a starting point for further investigations and learning you will be on the right track.

As always seek expert advice, and dont act on this information..it is not specific and does not toake your circumstances into considration...

 

[brianwh]

Hi Condog

While I see what you are saying as good advice in a general sense, a lot of it does not apply to me. I am a fully self-funded retiree and therefore pay no tax and do not have to worry about aged pension and other social services eligibilty.

In an attempt to clarify still further what I'm trying to understand, consider the following. Every day (almost) I check the markets and have noted that using the percentage movement in the ASX 200 as a bench mark, my share portfolio underperforms more often than not. For example yesterday, the ASX 200 rose 0.77% and my portfolio rose 0.44%. I know that there are other factors that may offset this descrepancy and I would need to do a more precise analysis to be sure of my facts.

Perhaps I have answered my own question. Have a benchmark against which to measure your portfolios performance and make periodic adjustments accordingly. In my case this will mean increasing exposure to the banks and RIO and BHP.

I hope my questioning is not coming across as too naive - please, any flawed logic, point it out.

Cheers