Asset Allocation?

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ChickenCoop
Posts: 20
Joined: Thu Jun 21, 2018 3:45 pm
Location: Australia

Asset Allocation?

Post by ChickenCoop » Sat Aug 24, 2019 9:35 pm

I've been trying to work out an asset allocation that sits well with me and my Investment time frame.


-I have an investment property that I want to keep in the mix.
-I have about 8 Years until I leave my full time work(may go part time).
-I don't have much tolerance for risk. (or want to offset some of that risk)

I am thinking something like:

10% Gold (hedge only)
5-20% Cash (min two Years exp)
40-55% Equities(40% Min) This may go above 55% as RE drops as a % of portfolio.
30% RE (house I want to keep) This Percentage will drop as the others grow)

I'm currently at:

2.5% Gold
49% Cash
10% Equities
38% RE

This will need to be rebalanced over time. Probably DCA'ing over the next few years(Thanks Wolf).

Thoughts?

Lucky C
Posts: 325
Joined: Sat Apr 16, 2016 6:09 am

Re: Asset Allocation?

Post by Lucky C » Wed Aug 28, 2019 4:59 am

Asset allocation experts often recommend gold allocation in the 5 - 10% range. Some backtested asset allocations show good results with as high as 20 - 25% gold. Since gold is very volatile, I would say 20 - 25% is too high for you. Generally the financial experts I follow have been making good cases to have a higher than "normal" gold allocation for the coming years, as it seems like there is a good chance for it to outperform equities. So without trying to get fancy by running a backtest, trying to optimize along the efficient frontier, etc., around 10% seems appropriate to me.

When I determine my net worth and asset allocation percentages, I don't count the house that I live in. You shouldn't either since you say you want to keep it. Its change in value shouldn't really mean much to you. If you want to have a large percentage in real estate, you should really be buying some other real estate that you don't live in or REITs - but REITs are a type of equity so there is a lot of correlation there.

If you don't have much tolerance for risk, you probably shouldn't have equities as the largest percentage of your portfolio. I assume you are not employing an active strategy and you want an asset allocation where you would comfortable riding equities all the way down even if they drop over 50% in value.

Otherwise in terms of cash/bonds vs. stocks you can find arguments online for everything from 100% stocks to 0% stocks being the best allocation right now. It seems to me that there is always a much bigger extreme range of recommendations when it comes to these asset classes, compared to gold where a 10% allocation seems pretty reasonable (or at least not far from what most think is ideal). Best to read the perspectives and reasoning from a broad selection of investment professionals to help you determine what is appropriate, as opposed to taking the advice of internet strangers. Again, low risk tolerance to me means <50% equities allocation, but that may not be the case for you.

The Old Man
Posts: 386
Joined: Sat Jun 30, 2012 5:55 pm

Re: Asset Allocation?

Post by The Old Man » Wed Aug 28, 2019 6:26 am

Why do you want to have gold?

If it is for inflation protection, then I would argue a better option would be real estate with a fixed rate mortgage. If it is for political risk (i.e. the breakdown of society), then I would consider it to be special and not consider it as part of the portfolio
Last edited by The Old Man on Wed Aug 28, 2019 8:17 am, edited 1 time in total.

ChickenCoop
Posts: 20
Joined: Thu Jun 21, 2018 3:45 pm
Location: Australia

Re: Asset Allocation?

Post by ChickenCoop » Wed Aug 28, 2019 8:10 am

@Lucky C, Thank you for your thoughtful response. I should have been a bit clearer regarding the real estate. The house I mentioned(that I want to keep) is an Investment property, and not the house we live in. I haven't included the family home in this equation. Does this change your thoughts at all?
That makes sense for me to have less than 50% in equities. I will either have to increase % in the others(gold,cash or RE) or add bonds or something else to the mix. I'm just wanting to keep it as simple as I can, and rebalance once or twice a year from my savings(rather than sell to rebalance).

@The Old Man, Yeah, Its for Inflation protection mostly. I already have one Investment property (the %38 of assets one). It still has a medium sized mortgage on it, about %30 of valuation.

Lucky C
Posts: 325
Joined: Sat Apr 16, 2016 6:09 am

Re: Asset Allocation?

Post by Lucky C » Wed Aug 28, 2019 8:47 am

Oh OK gotcha, yes in that case a house at (eventually) 30% of NW sounds perfectly reasonable to me. I don't have any real estate but would like to have that as diversification.

Another option to consider is gold miner stocks, since they have been beat down in price relative to other equities, and their prices are more correlated with gold than the broad stock market. That way you have an actual company that will hopefully grow, with a price that also grows with gold prices, and some even pay a small (approx. 1%) dividend. They are more volatile than gold, so you would want to own a smaller percent for the same amount of risk. Of course if you go down this route, now you have to have confidence in not just gold but the companies themselves, so definitely do plenty of research so you would be comfortable.

ChickenCoop
Posts: 20
Joined: Thu Jun 21, 2018 3:45 pm
Location: Australia

Re: Asset Allocation?

Post by ChickenCoop » Thu Aug 29, 2019 11:51 pm

I've bumped gold up closer to 8% and will DCA into it a little more over time. Thanks for sharing your thoughts. I also fully understand that I am fully responsible for my decisions/actions(Disclaimer,just incase you feel concerned about influencing others by sharing, lol).

samirol
Posts: 3
Joined: Mon Feb 19, 2018 8:21 pm

Re: Asset Allocation?

Post by samirol » Fri Aug 30, 2019 3:55 pm

What is your perspective around bonds? It seems like if you're looking for a lower-risk asset class that will still give you a return as you get ready to leave work and short-term bonds seem like they would fit what you're looking for.

Seppia
Posts: 1057
Joined: Tue Aug 30, 2016 9:34 am
Location: Italy

Re: Asset Allocation?

Post by Seppia » Fri Aug 30, 2019 8:58 pm

With short term bonds still generating positive yield in the USA, I’d definitely consider some.
I see no point in holding too much cash in such a scenario.

ChickenCoop
Posts: 20
Joined: Thu Jun 21, 2018 3:45 pm
Location: Australia

Re: Asset Allocation?

Post by ChickenCoop » Sat Aug 31, 2019 8:47 pm

I've recently starting following Ray Dalio's Thoughts on long term cycles. Here is some of his his thoughts:

https://www.linkedin.com/pulse/three-bi ... i5hA%3D%3D


One thing I've heard is that Gov's could remove cash from economies and drop cash rates to negative 4-7% if bad recessions hit? How is this different, going from 10% to 5% Or going from 0% to -5%??

Nomad
Posts: 182
Joined: Wed May 16, 2018 5:23 pm
Location: UK

Re: Asset Allocation?

Post by Nomad » Sun Sep 01, 2019 4:04 pm

Personally, I would have
a) more gold
b) less cash - it justs loses value at the rate of inflation.
c) a tiny amount of crypto
d) invest some of your equities into REIT

Wads
Posts: 38
Joined: Mon Feb 06, 2017 7:50 pm

Re: Asset Allocation?

Post by Wads » Mon Sep 02, 2019 2:43 am

Are you getting any yield on the cash? If not consider Money market accounts as they are paying 2% or more right now. I use vanguard's money market to store all cash.

ChickenCoop
Posts: 20
Joined: Thu Jun 21, 2018 3:45 pm
Location: Australia

Re: Asset Allocation?

Post by ChickenCoop » Mon Sep 02, 2019 6:01 pm

The majority of the cash is at only 1.2%. About a quarter of it is at 2.15% currently. I can't move the lower rate cash as it's in a tax advantaged acc. It can be moved to other asset classes, but not to money market acc's. I could move the smaller amount(that's at 2.15%) to an offset acc against the mortgage for the Inv property. That would be offsetting a rate of 4.15% . I'd lose the tax deductability of that portion of the loan, but still be marginally ahead doing that.

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