Are there people who are 100% index (like ETF) investors? How frequently do you rebalance?
What is the best way to stay on top of when to rebalance? Do you have a tool to set alerts, triggers, etc?
My super is 100% ASX 200 index for about the last 3 years, I don't rebalance into cash or anything else at all. If the market got super over heated, I might bring it back to 50% ASX200 / 50% fixed interest rebalancing after moves of 5%, but if there was a move down ward and things became value again I would go back to 100% asx 200.
Ok ... so you shift between 50% - 100% ASX 200 Index (and cash) ... there is no hard rule on when to rebalance. Just when you think stocks is over heated then you sell off 50% of your holding in ASX Index?
How do you determine things are over heated and when things settle down? Based on ASX 200 PER or another measure? and why 5% shifts?
it's not something I pay close attention to, as I said my super fund has been 100%asx 200 for years, these are not definite rules, but yes, If I got the feeling the market in general was way to high, I would probably pull 50% back into cash or anither asset class.
The PE of the market would be one factor, but I would generally have an idea of where the market is by the work I do managing my investments outside of my super, I only use indexes inside my super.
but to me an index is a set and forget investment, you don't need to micro manage it dancing in and out. I won't need my super for many years so it could just sit 100% without rebalancing and it would do fine.
Are there people who are 100% index (like ETF) investors? How frequently do you rebalance?
What is the best way to stay on top of when to rebalance? Do you have a tool to set alerts, triggers, etc?
With Super: I am invested 100% into VTS.AX (US equities) from last 4 years. Once a year (Jan), I buy more with the amount accumulated in super during the year. By not selling to rebalance, I can ensure that I do not realise any capital gains tax.
I still have more than 35 years to go before I can access my super so this arrangement serves me fine. If I was closer to retirement I would probably have 70-30 allocation between stocks and bonds, in which case I would rebalance on annual basis. Regardless.
I would avoid a rebalancing strategy where I try to judge (overvalued-undervalued)/time the market.
Cheers,
Steve
do you mean you invest your super from among the ASX200, or the index itself?
Just my opinion but I thought that since it's a superfund you wouldn't touch for a while yet, it'd make more sense to take a longterm view and select individual stocks rather than play it "safe" and put them into an index.
Anyway, just me and since I got little capital and still years away from retirement, am taking the chance and use the superfund to invest and learn from now.. .will probably diversify approach into other asset classes and maybe an index close to and into retirement.
Hi Steve
on rebalancing, my idea is not about timing the market but sticking to an investment strategy (asset allocation mix). Some research in the US showed that rebalancing should happen based on a % deviation from target allocation, rather than a time based one (ie once per year), to really get the benefit that rebalancing is suppose to provide (some say that you get an extra 1-2% return over time ... however, this doesn't take into account the 10% tax your super would have to pay for investment income
in your case, I guess the rebalancing is only moving cash back into US stocks, assume all the dividends you accumulate throughout the year sits in a cash account?
I get their point about rebalancing for that effect, However, if your investment mix includes asset classes who economics will mean they generate a high return over time, wouldn't you rather that growth compounds at the higher rate, rather than always pruning the high performing class to help build up the slow class just so your portfolio meets an arbitrary allocation number.
I would prefer a strategy where a certain percentage of the funds you contribute go into different classes, but each class is allowed to retain and compound it's earnings.
Hi Steve
Why 100% US equities? If you live in Aust and plan to retire here, there is a bit of FX & single market risk you are taking on ... but i'm sure you've done well in the past 4 years
on rebalancing, my idea is not about timing the market but sticking to an investment strategy (asset allocation mix). Some research in the US showed that rebalancing should happen based on a % deviation from target allocation, rather than a time based one (ie once per year), to really get the benefit that rebalancing is suppose to provide (some say that you get an extra 1-2% return over time ... however, this doesn't take into account the 10% tax your super would have to pay for investment income
in your case, I guess the rebalancing is only moving cash back into US stocks, assume all the dividends you accumulate throughout the year sits in a cash account?
Investing in index funds (ETFs) is based on an underlying assumption - overall the market will continue go up with time.
Not really, dividends are a major factor in the compounding of a long term index strategy, and over time you will do better if the index goes through periods where it doesn't rise or even falls, Because each time the underlying companies you hold pay dividends, in an accumulation index these dividends will be used to purchase more shares in the index, if the market is down when this happens you will be buying a bigger piece of the pie.
Outside of super I hold some US stocks, I have The Walt Disney company and Berkshire Hathaway. the same is true for these, Disney Buy backs it's own shares, sometimes Berkshire does too, long term these buy backs will do more for me if the share price is lower than it was 12 months ago.
I agree that temporary dips in the market provide an excellent buying opportunity for the long-term investors given that the market continues to go up over the long term.
What if the stock market takes the same turn as it did for Nikkei Index, where even after 25+ years of waiting, the index is at 50% of what it was in the peak of 1990. In fact, between 1987 to 2015, over a period of 28 years (quite long term), you would have just broken even. Nikkei Index has been in a long term decline over those 28 years. Under such a scenario, would the dividend income be sufficient to cover up for loss of capital? (As of today, the dividend yield is 1% on Nikkei index fund).
Going by your analogy, under such scenario, you would be buying a bigger share of ever shrinking pie.
The Nikkei is an extreme case.
When in reality if the allocation had been done 5 years either side of the peak, and the dividends consistently compounded back into the asset class, the investment would have done ok, and out performed cash.
But also Japan is a shrinking pie, and also has issues that affect shareholder returns, I wouldn't put my money into a Japanese index.
However, the USA, Australia and the world in general is not a shrinking pie. See the link below.
http://www.census.gov/popclock/
What in your opinion cause the market in Japan to behave the way they did?
What in your opinion cause the market in Japan to behave the way they did?
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