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How is everyone fairing?
#41
CB, the trick is to plan one's life so that by 65 you're not forced to do anything.

It's been a long hard slog for me, starting at zero, without any helping hands but I've made it. Just.
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#42
(05-14-2018, 03:53 AM)andrew_o Wrote: CB, the trick is to plan one's life so that by 65 you're not forced to do anything.

It's been a long hard slog for me, starting at zero, without any helping hands but I've made it. Just.

Hat's off to you. I'm genuinely happy for you.

(05-13-2018, 12:32 PM)aqua Wrote:
(05-12-2018, 03:40 PM)cbeatty Wrote:
(05-12-2018, 01:01 PM)aqua Wrote: On the advice of my financial planner, I got out of the stock market several weeks back.

We will see if he was right.

The world seems to be full of financial planners and financial advisors these days; they seem to be plentiful, even to those of modest means. Most have the same advice: Start now! Asset allocate, diversify and dollar cost average. For this pristine advice, they spent a lot of time and money attaining the education and credentials to advise.

Finding a financial EXPERT, now that's another matter. I've taken to telling the financial types, that I have no interest in a financial advisor or planner, but I am interested in a financial expert. Some are affronted by this. Others, without thinking, immediately set about explaining that are financial experts.

There are financial experts out there. Most have no time for commoners. I hope your financial planner is an expert.

Being a financial planner here means you also have to be a lawyer.

That's a scary thought!
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#43
(05-14-2018, 05:04 AM)cbeatty Wrote:
(05-14-2018, 03:53 AM)andrew_o Wrote: CB, the trick is to plan one's life so that by 65 you're not forced to do anything.

It's been a long hard slog for me, starting at zero, without any helping hands but I've made it. Just.

Hat's off to you. I'm genuinely happy for you.

(05-13-2018, 12:32 PM)aqua Wrote:
(05-12-2018, 03:40 PM)cbeatty Wrote:
(05-12-2018, 01:01 PM)aqua Wrote: On the advice of my financial planner, I got out of the stock market several weeks back.

We will see if he was right.

The world seems to be full of financial planners and financial advisors these days; they seem to be plentiful, even to those of modest means. Most have the same advice: Start now! Asset allocate, diversify and dollar cost average. For this pristine advice, they spent a lot of time and money attaining the education and credentials to advise.

Finding a financial EXPERT, now that's another matter. I've taken to telling the financial types, that I have no interest in a financial advisor or planner, but I am interested in a financial expert. Some are affronted by this. Others, without thinking, immediately set about explaining that are financial experts.

There are financial experts out there. Most have no time for commoners. I hope your financial planner is an expert.

Being a financial planner here means you also have to be a lawyer.

That's a scary thought!

Yeah.  But the laws are so complex and riddled with loop holes, you need a lawyer & a planner to get thru all the hoops..

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#44
Tax and duties are very simple here. No need for lawyers. However financial planners have a terrible reputation and a few years ago the rules were tightened significantly.

Problems included:

Planners getting kick-backs for recommending certain investment products

Poor performance

High fixed fees which wiped out gains

Churn
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#45
(05-15-2018, 12:08 AM)andrew_o Wrote: Tax and duties are very simple here. No need for lawyers. However financial planners have a terrible reputation and a few years ago the rules were tightened significantly.

Problems included:

Planners getting kick-backs  for recommending certain investment products

Poor performance

High fixed fees which wiped out gains

Churn

Some are worse than others.  That's why you need to watch them like a hawk.

The fee-for-service ones here are better than the ones who earn commisions.
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#46
(05-15-2018, 01:03 AM)aqua Wrote:
(05-15-2018, 12:08 AM)andrew_o Wrote: Tax and duties are very simple here. No need for lawyers. However financial planners have a terrible reputation and a few years ago the rules were tightened significantly.

Problems included:

Planners getting kick-backs  for recommending certain investment products

Poor performance

High fixed fees which wiped out gains

Churn

Some are worse than others.  That's why you need to watch them like a hawk.

The fee-for-service ones here are better than the ones who earn commisions.

That is true....if you can guarantee the fee-for-service ones aren't still getting some kind of kickback in kind. 

It's very had to pick up - a free holiday, car for the teenage son at college whatever.... 



In these days of low returns we have to invest efficiently and that means avoiding fees. I invest directly and pay the lowest transaction fees on the market. Do your own homework and it will make you a better investor

In fact I spent half the morning spread sheeting dividend returns for what I've got and options for more purchases. Somehow another 100K has appeared in my current account that I must do something with.
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#47
(05-18-2018, 05:36 AM)andrew_o Wrote: In these days of low returns we have to invest efficiently and that means avoiding fees. I invest directly and pay the lowest transaction fees on the market. Do your own homework and it will make you a better investor

In fact I spent half the morning spread sheeting dividend returns for what I've got and options for more purchases. Somehow another 100K has appeared in my current account that I must do something with.

True enough.

But I am at the point in my life that it is time to think about checking out.

So I have to take taxes into consideration.

There are some amazing deals in the US tax code, if you know where to find them.


[Image: DciRu54X4AAYN9D.jpg]
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#48
You're talking about death taxes and ways to avoid them?

I know nothing about that: we don't have them
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#49
(05-12-2018, 06:24 AM)cbeatty Wrote:
(04-21-2018, 05:18 PM)Finster Wrote:
(04-21-2018, 01:46 AM)cbeatty Wrote:
(04-20-2018, 04:45 PM)Finster Wrote:
(03-14-2018, 03:13 AM)cbeatty Wrote: Ditto.

Hmmm ... one year UST yields now up to 2.21%.  My broker is fairly typical in offering 0.05% on cash money market sweep balances.  TBills and TBill funds are more compelling than in years.

At some point, you have to wonder whether they are attractive not only in relation to cash but high priced low yielding stocks as well ...

No wonder necessary. They are. As a rule, no point in owning a high priced low yielding stock. Especially when T-bills close to match their yield.

(04-20-2018, 05:41 PM)andrew_o Wrote: I hit 65 this week.

I suppose it's widows and orphans funds for me!

What I should be doing is spending more time reading and learning about individual shares, rather than just being conservative.

Seems to much work for one man. I've considered joining Edward Jones and paying brokerage commissions. They seem to screen and provide recommendations, with reasoning.

There's only one question to answer. What to buy, and why?

History, not to mention common sense, tells us we should always be diversified.  Another way to look at it is to avoid false dichotomies like owning X means you cannot also own Y.  At the level of broad asset classes, the better question is how much of X, Y etc to own.

A policy of always having at least some stocks, treasuries, and gold can avoid a lot of trouble.  When one or two are down, the other one or two tend to be up, so you always have something that's working.  US stocks are the most conspicuously overvalued of the stock class, while non-US bonds (especially Euro and Japan) are the most overvalued of the bond class.  So a mix of treasuries, gold, and stocks could be underweighted in US stocks relative to non-US.  As a US investor, my stock allocation is around half outside the US.  And given the observations above, short term US treasuries could be overweighed relative to stocks as a whole, and certainly relative to ultra low yielding cash.  The gold and non-US stocks provide some protection against dollar depreciation (inflation) losses to short term treasuries in real terms.  Season to taste ...

But is it worth buying richly valued stocks just to hedge against dollar depreciation. It would take a lot of dollar depreciation to compensate for the current high price of stocks. And short term treasuries offer some comfort at the moment, but it is minimal.

The problem we have is we are caught between the opposing jaws of a risk vice. With current asset values (stocks, bonds, real estate) being high with such low yields, cash would normally be king; yet with our currency being so questionable (thank you FED), holding cash subject to dollar depreciation is risky.

Again I would say it comes down not to whether but to how much.  We can handicap the odds of future returns, but we can't say with certainty what will happen.  And since it's mostly US stocks that are really richly priced, that leaves plenty of room for non-US stocks.  And of course other non-dollar assets like gold and commodities.  As I've been saying short term UST are more attractive than in years.  But they're denominated in dollars (Federal Reserve Notes), and as you recognize, whose issuer is practically promising to devalue by at least 2% annually, so putting all your assets in dollars doesn't seem like a good bet either. 

We have a limited menu of options on our investment menu, and just as you wouldn't make a whole diet out of any one item on a restaurant's menu, you wouldn't try to make a whole portfolio out of any one asset.

Are you familiar with the global market portfolio?  You can make a good argument that for all but short term horizons, it's the least risky portfolio possible.  A true GMP is impractical, but it makes a reasonable starting point for allocating a real portfolio.

https://www.forbes.com/sites/phildemuth/...d8eb2570d1

http://mebfaber.com/2015/05/30/chapter-6...portfolio/
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#50
https://www.irishtimes.com/business/pers...-1.2423050

Quote:Diversification: what is the size of the ideal stock portfolio?

Everyone knows the old cliché about not putting all your eggs in one basket. A diversified portfolio might consist of different asset classes such as bonds, property and commodities, but what about equities? Exactly how many stocks are enough? Can you be too diversified, or should you aim to hold as many stocks as possible?

Even novice investors can grasp the simple logic underpinning the case for diversification. An individual stock may easily fall by 50 per cent or more in a short space of time, but a portfolio consisting of dozens of stocks is much less likely to do so.
Unfortunately, research has long indicated that investors don’t heed this basic advice. A 1974 study found only 11 per cent of investors held more than 10 stocks, and little improvement was evident over the following decades.
A 2004 study examining more than 60,000 accounts at a US discount brokerage over the 1991-1996 period found the average investor held just four stocks. More than one-quarter held just one stock. Younger, less wealthy and “less sophisticated” investors were especially guilty, while underdiversification also tended to be “more severe in retirement accounts”. These investors paid the price for their over-confidence, badly underperforming their diversified counterparts.

Stock portfolios
So how many stocks are enough? For decades, researchers believed a portfolio consisting of roughly 10-30 stocks, diversified by sector, was sufficient. Burton Malkiel’s classic 1974 bestseller, A Random Walk Down Wall Street, argued a portfolio of 20 stocks from different industries largely sufficed; adding more stocks, said Malkiel, does not result in “any significant further risk-reduction”.

Earlier this year, money manager Andrew Wellington argued there are obvious “psychological and behavioural” reasons why a 30-stock portfolio is preferable to a 10-stock portfolio. He gave the example of a coin-flipping game where you win $500 if it’s heads, but lose $100 if it’s tails. Any investor will take that bet - a 5:1 payoff on a 50:50 bet is a good deal. However, if the bet is tweaked so that you win $5 million on heads but lose $1 million on tails, few investors will take the bet.
“There are fantastic risk/reward opportunities that you are willing to do at 3 per cent of your portfolio that you might be unwilling to do at 10 per cent,” noted Wellington. “When a position gets that big, you look for perfection and there’s no such thing. You become overly sensitive to the downside, remote as it may be. And for every unit of downside you eliminate, you tend to sacrifice multiple units of upside and, over the long run, end up with lower returns.”

Not enough
True, but 30 stocks may not be enough, says Burton Malkiel.

The volatility of individual stocks has escalated sharply in recent decades, he says, causing him to change his mind on the idea of 20-stock portfolios.
Investors might need to hold as many as 200 stocks to get the same level of diversification afforded to them by 20 stocks in the 1960s, says Malkiel.
Financial theorist and author William Bernstein goes further.
“If you think that you can do an adequate job of minimising portfolio risk with 15 or 30 stocks, then you are imperilling your financial future and the future of those who depend on you,” he writes. Even 200 stocks are not enough; only by owning the whole market can investors “truly minimise the risks of stock ownership”.
Bernstein’s says a handful of “superstocks” have historically accounted for the bulk of market returns.
A $1,000 investment in Dell Computers in 1990 would have been worth over $550,000 by the end of the decade.
More recently, the overall market has been powered higher by Apple; a $1,000 investment in Apple shares in early 2003 would be worth more than $120,000 today.
If your portfolio does not hold tomorrow’s superstocks – and it’s very unlikely it will if you are invested in only 20 or 30 stocks – then it runs the risk of serious underperformance, he argues.
Separate research conducted by Longboard Asset Management found that, between 1983 and 2006, 39 per cent of stocks were unprofitable and almost two-thirds underperformed the market. Again, a minority of stocks accounted for all the market gains.
Investors can now access hundreds of stocks by buying an index fund covering a particular market, but a global fund would be better again. Some markets – think Japan, where stocks have roughly halved in value since 1989 – can stagnate for decades.
Others may not be sufficiently diversified across industries. Just three industries account for most of the value of the Iseq, for example. Indeed, the three largest industries account for at least 40 per cent of country capitalisation in 42 out of 47 countries examined in the 2015 Global Investment Returns Yearbook.
Most investors are prone to home bias, the tendency to stick to stocks in their home country, resulting in undiversified portfolios.

Concentrated portfolios
Clearly, investors looking to match market returns are best off with global funds providing them with access to thousands of stocks.

However, anyone looking to beat the market is better off with a concentrated portfolio of, say, 30 stocks. The more stocks you hold, the more your returns will mirror the overall market.
According to a study by portfolio manager Robert Hagstrom, an investor with a portfolio made up of 15 random stocks has a 27 per cent chance of beating the market; the odds fall to 18 per cent for someone with a 50-stock portfolio, 11 per cent for 100-stock portfolios and just 2 per cent for 250-stock portfolios.
In other words, any active fund with 100 or more stocks has little chance of beating the market.
Ironically, research suggests many fund managers are skilled stock-pickers, but they are undone by an insistence that they be diversified. According to a 2010 study, the top holdings of funds – likely to be high-conviction holdings – easily outperform the market.

However, their smaller holdings underperform. Poor fund performance, the study concluded, is due to “institutional factors that encourage them to over-diversify” – that is, they are forced to pick too many stocks.

In such cases, writes money manager and Alpha Architect blogger Dr Wesley Gray, diversification morphs into “diworsification”. He suggests 30-50 stocks is the “sweet spot” active investors should aim for.

“We probably want Warren Buffett to hold 30 or so stocks to ensure he doesn’t completely blow up”, he says, “but we don’t want to force him to hold more than that, because it is unlikely he has more than 30 good ideas.”



Buffett’s thoughts

Buffett himself famously said wide diversification is “only required when investors do not understand what they are doing”, describing it as “protection against ignorance”. However, he believes in “extreme diversification” for non-professional investors, saying “98 or 99 per cent – maybe more than 99 per cent – of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs.”


Buffett also recognises his own fallibility; earlier this year, he admitted he was too slow in offloading his stake in Tesco, saying that “thumb-sucking” cost him $444 million. No doubt, he would be puzzled by those who bet the farm on a handful of stocks. Everyone gets things wrong – even Buffett. That’s why “the only investors who shouldn’t diversify”, to quote another legendary investor, John Templeton, “are those who are right 100 per cent of the time”.

I'm guilty in this regard but I am slowly getting better as I buy more.

I will only buy in the NZ & AU markets because of tax disincentives for buying further afield

I don't want to be diversified to hell and gone - there are some companies I won't touch and some nations I wouldn't trust with a penny of my money, regardless.

The other aspect is not so much diversification as risk management. I have a slice of my wealth in property in various forms and another slice in term deposits. So if things blow up, I'll never be wiped out
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