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What's your retirement asset allocation percentages?

Discussion in 'Medium/Long Term Investing' started by Zaxon, Oct 26, 2019.

  1. Iggy_Pop

    Iggy_Pop

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    This is the key to a happy retirement. I have left the majority of funds in an industry Super Fund for a number of reasons, including these as well as if something happens to me, can my spouse manage a SMSF?? Also the large industry super funds do have access to many investments that you cannot get as an individual. I did model me managing an SMSF for a number of years and I never managed to match the industry super funds returns. I do pay more in fees with this but feel overall I am ahead as well as maintaining a comfort zone.

    Iggy
     
  2. sptrawler

    sptrawler

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    I will probably do the same down the track, my wife isn't interested in investment, whereas I enjoy it.
    Taking into account the franking credits, I find I manage to beat my draw down by enough to cover inflation + a bit.
    As you say fees are a big thing, my accounting and auditing fees are about $900p.a, whereas an example of paying a Fund 1% of $1m is $10,000, which is a lot of income.
    If the SMSF had lost the franking credits, it would be hard to match the Industry Funds, but that was the idea behind taking the franking credits off SMSF's in the first place.
    So my "final" plan will be, enough in each of our names outside super to obtain tax free threshold and the rest in an Industry Fund.
    But hopefully that is 10-15 years away, I guess it depends on an election outcome
     
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  3. aus_trader

    aus_trader

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    Cleanaway Waste Management Ltd (CWY) is a good company, I had it for a while in the past. Now have BIN instead but may also keep an eye on CWY for a possible buy in again...
     
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  4. Zaxon

    Zaxon The voice of reason

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    Very good amount of detail there. So that's 55% stocks, 45% cash and bonds. I think you're our most conservative so far, although not far from the 60/40.
    OK. So it's a market timing approach.
    I have been surprised by the lack of bond holding by most posters so far, since that's what the retirement industry preaches so heavily.
     
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  5. Zaxon

    Zaxon The voice of reason

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    My threads are always a safe space. Nobody will judge you here :)
    I'm very pro index ETFs. Amazingly low fees, and you're investing in "the market", so you avoid any personal stock picking risks. Bonds can be good. Are you thinking corporate or treasuries? LICs are actively manged, so you're increasing risks there. The question is how their return compares against a passive index fund to balance that. Personally, I don't use them.
    Good amount of detail there. VC loves RateSetter, so you'll get a Christmas card from him :) . At 5%, I have no problem with that. 85% in cash. You are in-line with a lot of the baby boomers.
    Yes, good to take things at your own pace. I think going the index fund route is definitely suited to you. If you buy share XYZ and then it crashes, you'll want to sell out of it (and maybe feel guilty for holding it). If you hold an index fund and the market crashes, well that's just what markets do. It will come back up. You'll have to come to terms with the volatility, but you, personally, haven't made any bad picks. But it doesn't have to be a binary decision. You could hold most of your allocation to shares in index funds, and then retain a small percentage to actively stock pick, if you think that would benefit you.

    Thanks for sharing your details. Hopefully, it wasn't too harrowing for you.
     
  6. aus_trader

    aus_trader

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    I would also be aiming for a similar weighting to bonds as Sir Burr's, probably around the 30% mark. So count me in on the conservative end as well Zax. Probably 50/50 in investment grade corporate and treasuries.

    upload_2019-11-5_23-18-44.png
     
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  7. Zaxon

    Zaxon The voice of reason

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    Banks just need to make up their minds. Are they going to gouge their customers and make huge profits, or are they going to bleed it back, have their profits tumble, and cut their dividends. I suspect they'll find new and creative ways of gouging future customers.
     
  8. Iggy_Pop

    Iggy_Pop

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    My experience is that through an industry fund using a mix of balanced and fixed interest options for the last financial year, my fees have been 0.5% but returns were around 9%. My share/bonds/cash portfolio outside of industry super. fees were approximately 0.1% from fees within LICS and ETFs, buying and selling shares held directly and returns were 6.7%. For this year, the industry funds have easily out-performed my own holdings. This has been my experience, maybe some are capable of getting better returns than me, but the reality is it is difficult for me to outperform the industry funds. I plan to move to more LICs and ETFs at an appropriate time. I found prior to retiring, my management of shares would be unlikely to outperform the returns of the industry funds. At the moment I cannot put more into superannuation, and having a holding of shares under my control for interest, diversity and keeping a feel for the market. The main learning for me, is while franking credits are good and will always be part of the plan, i will most likely do better out of US based ETFs compared to fully franked aussie shares.

    So my experience is fees are one thing but returns are the key.

    Iggy
     
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  9. aus_trader

    aus_trader

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    Yes, thanks VC.

    True about the allocation of a lot of baby boomers, I happen to have a chat with a few who are already retired in order to plan what I need to do. All are conservatively set for retirement in different scenarios. I'll be happy to share a summary with ASF members:

    1. Retiree 1 is just going into retirement and have not got a lot of savings to self-fund retirement so will be leaving the super in the current balanced option that was set up by the industry super fund. He will be accessing the pension and working a few hours a week to supplement it without going over the threshold to cut into his pension. He is happy though when I spoke to him, as he is always positive. He said it's probably better that way as he was worried about going a bit 'loony' if he stopped working altogether as he is very social, Eveready to have a chat.

    2. Retiree 2 is a widow and she has no clue (sorry, but quoting her own words) about investments but has got quite a big nest egg that her husband has helped to accumulate. She gives the whole management of that nest egg to a financial planner and pays an annual fee to keep it safe and grow it conservatively based on having a peace of mind. She also has an investment property that she manages with the help of a real estate agent. Fully self funded and has been for many years.

    3. Retiree 3 is also a widow but was unfortunate to have a large sum of money saved up in investments and super. But she had one last straw to make sure she didn't end up in poverty in her golden years. She sold her family home for multi-7'figures (inner leafy suburbs) and moved into a smallish unit and put the rest of the proceeds into part super, part HISA etc and now in a good position to enjoy her golden years.
     
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  10. aus_trader

    aus_trader

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    Yes, they get you by the throat if you are a customer. If I miss a payment or late on a payment or don't pay the outstanding balance, this is what my credit card charges me on the outstanding balance:

    upload_2019-11-5_23-58-40.png

    In such a low interest rate environment where you can barely earn a nickel on your savings, I think it's ridiculous !
     
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  11. Zaxon

    Zaxon The voice of reason

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    Good stories, so thanks for that. In regards to Retiree 2, I'm hoping that's where ASF members can be better prepared than the average person. If the first time you think about your money is on the day you retire, then no wonder people have no idea what to do. Hopefully, ASFers have been chatting here, reasearching, and investing all along. When we come to retiring, we'll already have a plan in place and plenty of experience.

    And if not, at least we will now you can stick your money in an index fund and not pay an advisor a single cent.
     
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  12. sptrawler

    sptrawler

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    Your observation about ETF's Vs LIC's I find interesting, when I started moving money into that space I compared the performance of low MER funds and found LIC's like MLT have in general outperformed VAS. That and the fact the LIC's tend to focus on dividend, rather than following the market, lead me to chose the LIC's.
    Not that I wouldn't consider an ETF in the future, it was only the research I carried out at that time.
    But if stock picking is a risk, as opposed to following the market, then why not just put all the money in an ETF?
     
    Last edited: Nov 6, 2019
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  13. Sir Burr

    Sir Burr

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    Good topic Zaxon, I'm learning too and not ready just yet :)

    Couple of things, the cash component (10%) might be a bit high but may reduce later. Also, I'm not sure if I should increase the international % from the Aussie but something I might need help.

    About "market timing approach" I've been system trading since the nighties and want to continue into retirement. In my mind it would be years of wasted knowledge if I don't, although as someone mentioned above, you need to think about your spouse. My wife has no idea about trading and having joint accounts may help.

    A good question might be "why not trade all the Aussie component". For the franking within super, the separation and not having it all in one lot.

    Anyway, I am wondering the people who suggest 90-100% stocks. How much money are we talking about for retirement living? 100K, 500K, 1M, 2M etc. Having a possible big drawdown on those bigger numbers is a big number gone in retirement that may take many years to recover.
     
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  14. aus_trader

    aus_trader

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    Yes, I want to be comfortable allocating and managing my own funds as well. ASF has been a wealth of knowledge and quite a few ideas came from some of the threads that you have started. So thank you for the initiative Zaxon.

    I also wanted to see outside of ASF, so that's why I decided to also research outside of ASF knowledge to see what a few real life examples of retiree fund allocations. In Retiree 2 case, she mentioned that her husband used to manage the nest egg and she said they had shares as well in the mix of assets. The investing knowledge was not passed on however (or she didn't have the interest to learn about portfolio management), so it was probably sensible to get a reputable fund manager to take over upon the passing of her husband. If you don't know what you are doing that large nest egg could be shrunk or destroyed in no time.
     
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  15. Zaxon

    Zaxon The voice of reason

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    If you have specific LICs that continually outperform the market (dividends + capital appreciation), then it's possibly a great investment. The caveat being that often the best performing funds of the last few years go on to be the worst performing over the next few years - reversion to the mean.

    As to buying an LIC specifically for dividends, a cap weighted index fund isn't specifically focused on dividends. So I can see an alternative investment could be relevant. You can, however, get ETFs which specifically invest in higher dividend paying stocks.

    Having said that, the dividend yield on VAS (ASX300), is 4.15%. So if you follow the 4% SWR (for instance), that index fund would provide all the withdrawals you would need.
     
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  16. aus_trader

    aus_trader

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    Well, in my case, by the time I retire I had an earlier plan of around 1M or somewhere close to it since 1M is not easy to achieve.

    Let's say I did hit that 1M, then based on my naïve plan (the same plan many to be retirees were relying on by the way), retirement would be easy. Just put the whole thing in the bank as a mix of savings and Term Deposits and you get 5% which equates to roughly 50K per annum. Maybe slightly less after taxes but in retirement taxes would be low so it wouldn't be too significant a reduction. Most people (including me) would be quite comfortable with that income, even enough for a little luxury or travel every now and then. The problem is we got screwed with the interest rates. So it's not so easy any more.

    That's why the portfolio asset allocation becomes important to generate income while taking on a bit more risk and volatility in the portfolio in order to achieve it.
     
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  17. Zaxon

    Zaxon The voice of reason

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    That's very true. And you can do exactly that, and live happily ever after.
     
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  18. aus_trader

    aus_trader

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    Well theoretically it's possible to live off it. But putting 100% in to an Index ETF means could be in for periods of high volatility and draw-downs at the mercy of the stock market. One needs to be comfortable to handle that as well.

    That's why a mix of diversified assets is better in my opinion. The draw down fluctuations could be less and smoothed out, while still maintaining an income from the portfolio of assets.
     
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  19. Zaxon

    Zaxon The voice of reason

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    Very good.
    In retirement, cash has two purposes. Firstly, smooth out volatility. In which case holding 10% is about right. Secondly, because you're afraid of stock market losses, and you only trust cash. Some people are like that. In which case, you'd be in almost all cash.
    Historically speaking, though it depends on over what period, the S&P 500 > ASX 200 > word ex US and AU. I think holding all AU or all US or any mixture should be OK. You'd be safer holding both of course. I'm not yet convinced holding world ex US and AU is actually needed. I think if the US has a meltdown, the rest of the world will have too, and probably be worse of.
    Very good. I strongly recommend that people who are interested in investing/trading, practice before they retire, and then take all those skills into retirement. This would assume you can equal or better the index over time. If not, then it's probably better that you play lawn bowls :)

    The number of post I've seen on ASF saying, "I retired. I got bored out of my skull. My life has no purpose anymore" is alarming. So I think if you have a passion for investing, take that into retirement with you. Watch the markets, read forums, watch investment videos. "Making bank" is your new purpose. Oh, and visiting country cafes for scones and cream.

    As to the spouse question, my partner is a few years younger than me, so statiscally I'll probably go to the Happy Investing Ground in the sky first. So I've told him, when I die or become too old to invest, sell everything and cash out. By then, we'll be so old it will be time to drawn down on your money anyway.
    Interesting question. For me personally, I'd ideally retire with 2M. But I can't promise that, so I'll take it as it comes.

    The drawing down, or sequence of returns risk, is real, but often over inflated. After you retire, you have 30+ years to live. That's plenty of time for the market to crash a few times, recover, and reach record highs. But, you have to have thought through a strategy of how you're going to make your withdrawals, which I can discuss further if you want.
     
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  20. Zaxon

    Zaxon The voice of reason

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    You're welcome.
    I'm in the same situation. I have explained all the ins and outs of investmenting to my partner. We've been together for 20 years, and I love to chat about everything I do. But he has zero apptitude or interest in investing, and wouldn't know a share from a hole in the ground. Such a waste. lol.

    After we retire, my life will continue exactly as it is now. I want to be like Warren Buffett, still actively investing at 89. But when I feel my health slipping, I'll covert everything over to index funds, and write baby step instructions on how to withdraw money from it. Or if we're super old, we'll just convert everything to cash.
    That part I'm not a fan of. Index funds have replaced the need for fund managers. You're paying someone for "advice" and skill you can get for 7 basis points in an ETF, so virtually free. You'd need to have a brokerage account and know how to press the buy and sell button, but that's about it. Perhaps not everyone can do that. But you'd think a knowledge family member could help them out.
     
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