Growth funds in a sideways market

[willoneau]

Hi Frank,
I have read a few of your posts, how is your trading education coming along?
Are you taking responsibility for your decisions? if so how?
or are you wanting to use financial advisors and stock tipping services?

 

[tinhat]

Hi Frank, well hopefully you are getting some professional financial advice tailored to your specific circumstances. You say you are looking to retire in 3 to 5 years. Given that time frame you may not be wanting to put all your money into growth if you are hoping to then transfer all those funds into income earning investments in that time frame of 3 to 5 years because, as you state, you can't be certain that a entering a growth strategy portfolio at this time will guarantee capital gain within a three to five year period. My view is that it is likely to, but there is always risk and how much risk you take on depends on your circumstances.

Personally, I am bullish on the XAO but, like everyone else, I can't predict the unknown and I am more risk tolerant than many. It's all about risk management. You might find that it would suit your needs better to only put some of your available funds into growth and/or look at the traditional balanced funds that invest across the different investment classes.

The most important feature of superannuation is the tax perks, especially no capital gains tax once in pension mode. So one of the most important things for you, I would suggest, is making sure that you are getting the right amount of retirement funds under the superannuation umbrella. There are some significant changes to contributions rules that came into effect this financial year such as no work test for super contributions for those aged 65 to 74 and changes to the carry forward rules (which should be considered in combination with the contributions reserving strategy if you are running a SMSF).

Anyway, back to the XAO, the market cycle and growth stocks. Overall, I don't think the market is particularly over or under valued at the moment. The dividend yield is at its historical average. The PE ratio of the market is a bit above average (mildly bullish territory) and the inverse to the PE, the earnings yield is a bit below average. Just because the XAO reached an all time high recently doesn't mean that the market is overvalued. In fact, the charts below would suggest that the XAO was not really overly-exuberantly priced at the 2007 peak (we were in the middle of a once in a generation mining boom after all) but that the GFC market crash event significantly undervalued the market. Which is the risk that concerns you - avoiding a market crash - which is something that can't be predicted, only managed in terms of what an appropriate risk exposure is for you and your circumstances.




I can't see the banks sustaining a big recovery in the short term as their share price is related to their dividend yield and the pressure is downward on dividends. Also, with the open banking protocol and other technological changes, banking is subject to significant structural disruption in the medium term. I am bullish base metals such as copper and nickel because of the coming migration of transport from internal combustion engine to electric motor. Also, in terms of bulk commodities, continued recovery in commodity and base metal prices will lead to significant improvements in GDP.

Except for the fact that we are killing the planet, winding back all the hard fought environmental protections put in place over the past twenty to thirty years; destroying worker equity in the prosperity of what we used to proudly call the Commonwealth of Australia through suppressing wages through importing indentured labour through immigration shams such as overseas student visas and an industrial relations system under which widespread outright wages theft has flourished; enslaving our youth to debt to obtain poor quality vocational training and higher learning; ignoring all that, my outlook for the market is optimistic.

 

[Frankieplus]

Hi Frank,
I have read a few of your posts, how is your trading education coming along?
Are you taking responsibility for your decisions? if so how?
or are you wanting to use financial advisors and stock tipping services?

Trading education is coming along nicely, I've read a few books now.. 'Exploding the myths' and Peter Thornhill's 'Motivated Money'..

I also did sign up for stock tipping services.. The education on The Chartist website was very good I found. I enjoyed that it taught me a lot..

I dabbled in a bit in short term trading.. Speculating really.. I didn't do all that well, I lost a little money but nothing serious. only a few thousand.. I tried to set trading rules and not use emotions.. to set stop losses and to follow signals. I do understand it all but I'm just not too good at it so, I decided to give the idea of short term trading a miss it's not for me.


-Frank

 

[Frankieplus]

Personally, I am bullish on the XAO but, like everyone else, I can't predict the unknown and I am more risk tolerant than many. It's all about risk management. You might find that it would suit your needs better to only put some of your available funds into growth and/or look at the traditional balanced funds that invest across the different investment classes.

Yes I think you are right, balanced might be a better option.

Thank you and everyone else for your posts so far, I read yours and @sprawlers twice to make sure they sunk in, you make a lot of sense. . especially your graph there it's interesting I never looked at the XA0 that far back actually..Thank you for providing that info.


-Frank