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Just a couple of questions if I may

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Bob

Joined
10 January 2006
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Hi,

I am contemplating setting up a blue chip account with ten tickers. Can someone advise what percentage of the portfolio they would allocate to each trade? I have been researching and have come across percentages of 1 or 2 percent. Is that ultra conservative for blue chips?

Also, if the portfolio is geared and the dividends are re-invested (ie no income but capital gains anticipated) if the borrowing then tax deductible?

Thanks for your help/advice
 
I suggest you go to the "Dump it Here" thread and read it.
It will give you ideas about why you would go about doing what you do, and why it would work or otherwise.
As to your last question, always get professional advice as we are only fortune tellers here.
 
Hi Bob

Helpful lot --NOT!
You'll find various opinions mainly based upon "truisms" you'll find in most books with regard
to Risk Management.

The 2% rule is common where you need to be wrong basically 50 times to lose your initial stake.
You lose it earlier than that due to Brokerage and possibly slippage but lets keep it simple.
So in your case you'll be risking 20% on you initial stake.
Not unreasonable in my own opinion.

This is my own opinion and what I have adopted and traded with for over 20 years.
You may find ideas in my thinking that ring true for yourself or you may discard all together.

On penny's Ill use a smaller account and often have only 1 - 3 trades going with most of the account
being traded. I manage risk here by adjusting capital at risk by the position of my stop and as
quick as I can moving it to Break even.

I Ratchet the Stop to decrease the initial Capital at risk as quickly as possible with the aim of getting to Break Even (B/E)
as soon as practical. If the stock moves against me I move the initial stop up and if it moves in my direction
Ill do the same. On a very rare occasion Ill be stopped out at my initial stop, at about half the initial risk and
then quite a few times at B/E ---the rest are on their way.
With smalls Im trading momentum and if its not there instantly and continues instantly then chances are
Im wrong so I move very quickly winner OR Loser.

In the end I've averaged around .4 of my initial risk which makes my Risk reward a lot healthier.
Every now and again an outlier will smash your trades but it is rare!! Right through your stops so
I manually sell most of my stops.

Im personally not a great one for sitting in a trade that wallows between my entry and initial stop.
Im inpatient with trades that dont fly. I can always get back in and I often do.

In my futures trading its not unusual to take 3 or so trades I click out of before I get one that
flies 3+Risk.

In my super Im a bit less ruthless only because of the 50 trades rule.
So trade bigger Blue chips.

Google also Portfolio heat.

Worth going back over Pete's Initial Portfolio he traded to + 100% in a bit over a year
and some of my stuff on Risk if it floats your boat.

Hope this is food for thought.
 
Bob, mate,

You like all of us were, are just starting out and I'd suggest you read through many threads here on ASF using the search and also read one of the popular financial paperbacks on investing, income, CGT, franking and taxation. When I started they used take up a whole rack in bookshops. Just read one though. And keep the receipt to claim off your tax.

Read this.

https://www.ato.gov.au/general/capi...ilar-investments/dividend-reinvestment-plans/

The cash you get to dividend re-invest is treated as income, and the capital is treated as capital on the date you buy it. This is an accountant's dream going through your bits of paper or spreadsheet at tax time ( and your book receipt ). I never dividend re-invest for that reason. I prefer any cash a company gives me to be in my mitts.

All the best on your journey.

gg
 
Hi Bob, If you are going to be re-investing your dividends, you will need to make sure you have adequate cash flow to service your loan or overdraft facility. You should ask your accountant about this, as there are many ways to classify your investments. The way you structure your investments may depend on your final intentions. Do you wish to leave it intact and hand it to your children via inheritance, or cash it all up and splurge it on yourself? Will you reinvest it all, or piss it all up against the wall on a personal jet and a swimming pool full of champagne and strawberries ( sounds good !! ), Because how you set it up now, will have implications on how it is taxed later
 
Div re-investing may suit some people who buy and hold.

I avoid re-investing and don't know the time frames so not sure if this still applies.

Is it possible that you want to sell a stock between Ex div date and receiving the re-invested shares.
This may cause you to delay the sale (which may prove beneficial or not) of the shares or end up holding a small parcel of shares not economical to sell. (Less likely these day due to lower brokerage rates).

To me, less complications the better.
 
That is great, thank you everyone. I will be on my way soon.......
 
rederob said:
we are only fortune tellers here.
Click to expand...

Indeed! I can inform @Bob how to lose a fortune quite easily


Dona Ferentes said:
Bob. Stop asking for advice.
Click to expand...

Bob may asketh DF ... but we cannot giveth!

This is true Bob ... No one is allowed to give specific financial advice on the Forum.

Bob said:
Also, if the portfolio is geared and the dividends are re-invested (ie no income but capital gains anticipated) if the borrowing then tax deductible?
Click to expand...

From the horses mouth (ATO) below Bob:- In a nut shell, yes you can claim the interest on money borrowed to buy and sell Shares as in @Trav. example above using a line of credit over your house etc.

Another consideration re how you structure your situation might be your age/health etc.
Cheers.

Dividend and share income expenses
You can claim a deduction for interest charged on money borrowed to buy shares and other related investments that you derive assessable interest or dividend income from.

Only interest expenses incurred for an income-producing purpose are deductible.

If you used the money you borrowed for both private and income-producing purposes, you must apportion the interest between each purpose.

What you can claim
  • Ongoing management fees or retainers and amounts paid for advice relating to changes in the mix of investment.
  • A portion of other costs if they were incurred in managing your investments, such as:
    • some travel expenses
    • the cost of specialist investment journals and subscriptions
    • borrowing costs
    • the cost of internet access
    • the decline in value of your computer.
  • If you were an Australian resident when a listed investment company (LIC) paid you a dividend, and the dividend included a LIC capital gain amount, you can claim a deduction of 50% of the LIC capital gain amount.
 

That's great. Thanks
 
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