Reviewing Asset Allocation

General Discussion / Chit Chat
1

Having completed lesson 2 of LTTP USA and reading the white paper on critical concepts for an investing lifespan over the Christmas break allowed some time take a closer look at how my current investment assets are allocated.

To get a clearer picture of the percentage holding in each class, I created a spreadsheet with pie charts to give a graphic presentation as I wanted to know what my overall holdings are between my SMSF, Trust and personal assets. I have attached it for other members to use for their own purpose if required, (basic instructions below the charts). It does not split the overall assets between Core holding and Satellite so this needs to be done separately.

As can be seen from my combined chart, I have 52% in shares (Australian & USA), 23% in metals, 6% in fixed deposits, 16% in crypto and 3% in cash.

I’m currently in stage 2 of my investing timeline and feel confident in my SPA3 Investor process. This gives me confidence that Sequence of Return Risk (SORR) is limited in my actively managed portfolio, however, I’m considering rebalancing my asset allocation. In particular, I would have liked to have more exposure to property without directly buying bricks and mortar commercial or residential property. The other objective is to optimise fixed-income returns.

In terms of Property, the options are:

  1. Property Reits, like ABG, CIP, CQR, CHC, GMG, MGR, SCG, VCX, etc. My concern with this type of exposure to property is that it is still subject to SORR.
  2. Invest in unlisted private property funds, like Trilogy Property Trust. The current yield is 7.30% p.a and offers indirect ownership with investors funds pooled to acquire and manage industrial properties providing income and potential capital growth.

In terms of Fixed-Income the options I am considering are:

  1. Fixed income funds like those provided by Coolabah Capital investments – Floating rate high yield fund, Active composite bond hedge fund, Long-Short credit fund. They also have an Active Composite bond hedge fund ASX:FIXD.
  2. Bonds like FIIG Monthly Income Fund. The aim of the portfolio is to preserve capital, generate regular income and deliver an income return of 2% per annum above the Bloomberg AusBond Bank Bill Index, which as at 2 September 2024, the index is returning 4.39% which equates to an overall return of 6.39%
  3. Income ETF’s like BetaShares Australian Top 20 Equity Yield Maximiser Fund (ASX: YMAX), Global X S&P/ASX 200 Covered Call ETF (ASX: AYLD) and BetaShares Australian Dividend Harvester Fund (Managed Fund) (ASX: HVST).

My main aim is to strike a healthier balance between core and satellite portfolios. For my core assets, I’m focused on generating strong, consistent returns from non-actively managed investments while preserving capital.

I’m confident in managing my satellite share portfolios in line with the SPA3 Investor process and comfortable executing large trades on both the ASX and US markets but at the same time, I’m considering whether this focus will deliver the best returns while minimising SORR risks.

Other members may have already passed these challenges or perhaps some are in a similar position so it will be an opportune time to discuss as we start the new year.

Total Asset Allocation

2

Apologies to everyone who wanted to access the spreadsheet. I’m not familiar with the settings in google sheets. It has been made public so you all should be able to access it now.

3

Hi Tito,
You have a detailed and very diversified PF which obviously suits you but is way beyond SWS’s scope. In Gary’s book ‘Blueprint to Wealth’ he discusses deworsification (diversification) as it applies to most ‘Balanced’ Funds and how it leads to underperformance compared to the stock indices. Obviously when you set out you were comfortable with this and the extra work that it entails however now, with further SWS training, you are questioning whether you can mix the objective approach defined by SWS with investing subjectively in other asset classes or find someone who has applied Mark Douglas’ theory to other asset classes. Good luck with that!

I suggest it will really challenge your mindset to be objective in shares and subjective in other assets that can be traded.

4

Hi Bruce,
Thank you for your reply which directly addresses my current diversification of assets.
I should have specified that my core portfolio is made up of the precious metals, crypto (unconventional, but it works for me) and fixed deposits – 45% in total. I am not looking to manage those core assets using SWS trading system nor am I looking to apply Mark Douglas’ principles to those assets as they are long-term, set and forget holdings.

That said, I appreciate your input on over-diversification – your reply prompted me to revisit Gary’s book and get a better understanding (confidence) in not needing to shift capital into property or fixed income. If anything, I am getting more comfortable with the thought of reducing some of my core holdings and increasing my satellite share holdings or potentially opening an ETF portfolio.

The next challenge will be determining the ideal Core-to-Satellite ratio that aligns with my risk tolerance and long-term objectives. I’d love to hear from others who have already worked through this transition—how did you decide on your balance, and what factors influenced your decision?