Boglehead/Vanguard way to retire

[JohnMichael]

I agree Falcon, those returns were very fortunate but unlikely to go on forever.

I was mostly just curious after hearing about such returns yesterday, and I will most likely not be investing with Laminar, or any other such fund. I forgot that having a loan with an offset account or line of credit is a pretty large exposure to fixed interest anyway. Add to that the "dry powder" effect of being able to take advantage of market downturns, and it's looking like a better strategy for someone who is very much still in the accumulation stage

 

[The Falcon]

Yep that's what I do. Still buying but building cash in offset

 

[Phiber]

When it comes to passive investing through index funds, what proportion do you guys do with regards to Aus/international exposure? Australia is a small market relative to the rest of the world, so even though I want exposure to it, not sure how much is too much?
50/50?

I am thinking 40/60 through VAS/VGS - VGS being in AUD.

Thoughts?

 

[xactly]

Aus/international exposure? , not sure how much is too much?
50/50?

The complex answer is a function of time in the market/closeness of retirement age and what you think the $Au will do.

For the best exposition of factors (extrapolate to the Oz investor experience) go to "A random walk down wall street. 10th Ed"
Chapter 14 and 15 is interesting in terms of asset allocation to investment lifecycle.

He is talking about the US centric investor and outlines the specific index fund portfolio of the ageing US baby Boomer:

index funds roughly in the following areas and proportions using ETF/Mfs
-Cash 5%
Bonds 27.5%
RE Equities 12.5
Stocks 55%
- US total stock 27%
- developed markets 14%
- emerging markets 14%

If he is talking about exposure to other areas in the above ratio when the US makes 40% of the world markets it is interesting to speculate what he would make of the Oz investors who are playing in a 2% of the world market pond.

I remember backpacking round the world as a uni student on the then Australian peso. God it hurt.
Got chest pain buying a beer and calculating what it cost in $Au
I worked in London for a while and couldnt travel even on the pound sterling to Iceland as it was horrendously expensive.

Fast forward to post GFC and travelling on the roaring mining $AU to Iceland finally(they were one of the first economies to go under).
Gotta say, would rather travel on the strong dollar than the weak one!

So the thought of being stuck again now that the dollar is diving and the mining boom is over means Ive been buying O/S since the dollar threatened to wobble off parity....

my mix (LICs, Indexs and less and less direct stocks)
30% Oz
40% US and global
15% Emerging
5% stock punts ( I know its not the Bogle way but a small flutter is satisfying)

what originally going to be equal weights Oz and US/Global but rising US and dropping dollar has made it off kilter.
Happy to keep it that way.
For now.

 

[oracle]

He is talking about the US centric investor and outlines the specific index fund portfolio of the ageing US baby Boomer:

The highlighted bit is the most important. It might be safer for an ageing/retiring US baby boomer but for someone still far from ageing/retiring almost all commentators strongly recommend having portfolio with large portion invested in stocks (>= 80%). There is no doubt that over the long term stocks will outperform term deposits, cash and bonds returns albeit with lots of volatility.

Cheers,
Oracle.

 

[xactly]

true.
check the latest motivated money rant as referenced in the high yield thread. Thornhill is doubtful of the conventional wisdom of retiree bonds AS LONG AS VOLATILITY CAN BE HANDLED.
Which is really the point of bonds anyway at the expense of growth.
personally I will use rents for that as a backup, not as the primary source of retirement cash. given RE yield is lousy but stable. I think hey are likely indexed better than bonds will be given they are in trendy areas that yuppies/disposable income players/coffee set like.

I was quoting his ( malkiel) stock holdings and the breakdown by all sectors.

if you exclude bond/ RE and cash then of the 100% he sinks into the markets (as opposed to 55% of the whole portfolio) the breakdown is:

US 50%
developed 25% (insert ASX here)
emerging 25%

which is why Im lighter on the Au specific stocks since we are only a blip on the world stage, we are a bit of a one trick pony economy and the mining boom is over for the foreseeable future

 

[oracle]

which is why Im lighter on the Au specific stocks since we are only a blip on the world stage, we are a bit of a one trick pony economy and the mining boom is over for the foreseeable future

Very true.

My stock portfolio is 100% Australian Index right now. But that will change come 1st July (new FY). I am all cashed up and will start buying US Indexes to diversify.

Cheers,
Oracle.

 

[xactly]

my mix (LICs, Indexs and less and less direct stocks)
30% Oz
40% US and global
15% Emerging
5% stock punts ( I know its not the Bogle way but a small flutter is satisfying)

.

Just realised it only adds up to 90%!
add 10% more to US and global


V interested in others thoughts on this.

 

[Phiber]

Thanks for the thoughts xactly.
Another option is using a global index fund but hedged in AUD.

One could actually use a combination of VGS and VGAD (hedged) depending on entry point of the Aussie dollar.

Any thoughts on that guys?

 

[xactly]

http://wiki.fool.com/Advantages_and_Disadvantages_of_Hedging_in_Finance

Hedging is like religion. Polarising. Argumentative. Means different things to different people

There is a brief foray into that in the middle of the high yield thread.

Personally to manage risk, instead of adding another layer of cost to dilute the returns, I would rather limit the amount risked.

Besides, I can't see the $Au roaring back to parity. So all my overseas holdings are hedge free. Mind you, I started buying when we WERE at parity, so the dollar drops been good to me.

It didn't make sense that we would rise forever. So I bought baby berks and direct S&P.
They look expensive now! And U.S. is at record highs, should be time for another black swan event soon.
I'm tending more towards cash in the offsets.

But there are certainly opposing views and strategies out there. I'm not an expert.

 

[JohnMichael]

Vanguard has some articles on its site all about the "home bias" of Australian equities vs the rest of the world, from a point of view of an Australian. Talks about different asset allocation splits, takes into account things like benefits of franking credits, diversification etc. Gotta dash but Ill see if I can find it later, but if you just google Vanguard and those words it might come up

 

[redwing]

I've just posted this reply to the discussion on cuff links . It's awaiting " moderation " .

Will be interested to see if it goes though .

It went through (minus this)

A link to this article was posted on a property investing forum I am a long term contributor . ( somesoft.com )

No feedback yet though?