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Up4
Hi everyone,
just thought I’d introduce myself and share a few thoughts.
I’m an experienced investor, for the most part real estate and Series A/B startups.
Have got to the point in life where our mortgage is under control, super balance good and now turning attention to building an ETF portfolio outside of super.
Found the Rask community after discovering various flavour variations of Owen’s podcasts which have made for excellent listening.
At present I hold a variety of ETFs:
– US T bonds
– US Dividend appreciation
– US Real estate
– A broad based commodity ETF
– A gold ETF
– NASDAQ ETF
My current goal is to get this account to $AUD100k, which will largely come via regular monthly contributions.
Currently sitting at $65k.
I’ll add to the discussion at the end of each month to update.
Up0How many of your holdings are held in the US and how do you get on with their tax reporting rules?
Up0Hi Fraser,
completed a W-8BEN with my broker when applying for US account.
As far as I understand things, 15% withholding tax applies to dividend payments plus a small fee. Noting that dividends are not a large part of my strategy this seemed reasonable.
Up0G’day PB,
Would be interested to hear a bit about your thesis in choosing these asset classes. I note this is outside of super, so am going to guess that these choices are diversifiers away from AU and passive indexes?
Did you have an annualised total return goal in mind?
What do you consider during portfolio construction and sector weightings in relation to the economic cycle and macro impacts on the different sectors?
Compared to Australia, the US has certainly got better control of inflation and their interest rates have stabilised for now without big increases in unemployment. They have had 2 negative QTRs of GDP growth and earnings contractions seem to have reversed. The current stock market rally seems to be much more wide spread than just the Magnificent 7. They also seem to be having a housing shortage
I hold some US listed ETFs (VNQ – REIT, XLF – financials, XLV- healthcare, AVUV – small cap value active ETF and XSD- mid size semiconductors) and have been building individual stocks over the past 1 year. Am glad for the US exposure as AU has been pretty flat. However, will rationalise some of these over time as I’m not sure that theres really any out performance compared to just holding something like IVV or (IHVV if hedging)
PS there is one more factor to consider with US listed holdings which is death/ estate tax….. however it only kicks in when you have multiple millions invested in US companies.
Up0Thanks SLT,
was hoping to trigger a conversation and do some learning on my side. Thanks for the estate tax / death tip – didn’t know that and having millions in the US market might be a good problem to have – other than the death part of the situation.
Yes, diversifying away from super and having some fun with different asset classes.
During construction of the portfolio I considered investing into non-related asset classes – I started off looking at versions of the Dalio all-weather portfolio which may be well known to many of you. If not, that’s a rabbit hole worth going down.
I’ve also sat by and watched the Aussie market go sideways for several years. Dalio all weather felt a bit bland.
So I turned my attention to creating a system with similar levels of drawdown to the broader market and enhanced returns. I understand this may be counter to the prevailing themes of this site, but rest assured I’ve got the vast majority of my net worth in sensible assets – ETFs and real estate. For this system I only looked at high quality ETFs with a long track record.
I turned my system on at the start of November, which happened to be sensational timing – although I did not have much in the market for that month. Went with the system in full at the start of December.
In back – testing I have had one negative year since 2013 – which happened to be 2022, although 2015 and 2016 were largely sideways.
My system has simple entry and exit criteria for executing trades and is currently fully invested. It takes <5 min / day to run with very few trades.
MTD I’m +8.1% – although I expect everyone who is in the markets this month is having a great month.
That’s it for now.
Up0December ETF strategy performance: +2.33%
Been thinking about how to present performance data, as I progressively add more $ into the account, it becomes difficult to express in a % – so I’m just going to play it straight and give the number that Navexia gives me.
Capital gain: + 2.72%
Income: +0.47%
Currency: -0.87%
Balance: $70k
92% invested.
Looking ahead, January has a 50% chance of being a positive month based on back-testing my strategy.
Worst January – 2022 – -12.9%
Best January – 2018 – +14.7%
Average return 0.8%
Regards to all on the forum.
Up0Hi PB,
curious what you use for back testing? Program of some sort? If “ past performance is no guarantee of future” What role does back testing play?
Up0Hi SLT,
thanks for the follow up.
Completely agree that past performance cannot guarantee future returns. And aware that what I might be about to suggest is not mainstream thinking on this site.
I use Realtest – which is available online, with data feed from Norgate.
I find myself asking questions such as:
* What level of draw-down am I comfortable with?
* Could portfolio draw-downs be limited by simple ETF entry and exit rules
* What effect would that have on portfolio returns
There are many other questions, of course, in particular what is the best ETF mix that can be answered in a historical context.
And I find that historical market data helps answer some of these questions.
So yes, I do find backtesting useful!
In particular, I understand the historical performance of the system that I’m trading, it’s parameters,
Up0SLT,
been thinking overnight about how I might better answer your question.
My method does not have any view on the value of the underlying assets – it simply places some guiderails around when I’ll be in the market and when I’ll be out.
By placing simple exit and entry criteria around an individual stock or ETF, I hope to limit my downside whilst getting most of the upside. I go to cash when market conditions are not favourable according to my own programmed set of rules.
You’ll see in the attached equity curve of a single ETF running my system – IVV vs SP500 – that I would miss out on the worst of the 2008 crash and about half of the 2020 drawdown.
Since 2003, running this system I would have an ROR of 8.06% with a DD of 20.8% compared to the market – 8.21% with a DD of 56.7%
Hope that helps.
One of the reasons I’m doing this here publicly is to own my results over time.
Up0Hey PB!
Do you mind if I ask your age?
My wife and I are 46 / 45, and I am also building an ETF based portfolio, primarily IVV / VAS / VEU (yup that’s where it stops until I have a bit more of a hunt for a few satellites I like)
I’ll be watching your posts with interest.
I had two questions for you, one general and one specific about your investments:
- Are you maxxing out your Super contributions first before investing outside of it (we’re actively looking at this question ourselves
- How are you factoring brokerage and CGT costs / losses in your calculations?
Up0Hi Dan,
thanks for joining in – 54.
Nice portfolio – no problem keeping it simple I reckon.
In answer to your questions:
1. Super – yes – maxed out contributions x2 + some additional contributions
2. Brokerage – if my system works in the wild as it did in back testing (and ultimately that’s the big if), it’s < 1 trade / week – so holds a lot long term. Brokerage is a part of the equation but ultimately trivial I think.
3. CGT – a good problem to have – haven’t factored into calculations, like everything if you’re paying tax for making money it’s OK. Clearly a buy and hold strategy has advantages in this regard.
Cheers
PBUp1G’day PB,
I started responding to your post awhile ago, then forgot about it….so there’s a bit of an essay to follow now.
I thought your portfolio may have been based on the Golden Butterfly, this and the All Seasons portfolio are one of many asset allocation strategies out there. For those interested, this website gives a summary of popular ones – Portfolio Charts. There’s a lot of charting and comparison tools on the site, I stumbled upon it early in my investing career and got thoroughly confused. It is interesting to look at and consider how they apply over time and different geographies.So with back testing, entry and exit rules, looks like you’re exploring market timing to some degree. You ‘re trying to protect capital and look for asymmetric entry to maximise upside potential. This is more of a “Traders” approach to investing rather than the “Investors” buy and hold, DCA approach. The software you use is also used by Nick Radge “The Chartist” who has been interviewed a couple times on AIP I believe. I’ve also been exploring some technical analysis indicators to help with decisions on individual stock purchases and setting stop losses, especially for small cap stocks. Subscribed to the Motion Trader service last year and trialling VectorVest this year.
Looking at your chart, I can appreciate the peak drawdowns can be stomach wrenching (Allweather-20.8%) and sphincter clenching (IVV-56.7%), but if you do not sell, the up and to the right trend continues and your Total Return (TR) is similar to the Benchmark (IVV) return (8.06% vs 8.21%). Does a problem only arise if you need to sell during a major drawdown?
Of course, everyone’s sleep at night factor is different and finding the drawdown you are comfortable with is important. I’ve trained myself tolerate big drawdowns by initially buying speculative mining, green energy and biotech stocks that have lost 60-80% in value 🤣 ! (Luckily I discovered RASK not too long after)
Share Price (and ETF price) IS influenced by sentiment in the shorter term (1-3 years). I think it’s useful to utilise momentum to your advantage if possible. A couple of simple ones to use are the 50 and 150 period (days/weeks/ months) Exponential Moving Average (EMA) trend lines and watching where they crossover. One can’t time the top or the bottom, but you can see when the trend start starts to change. I have observed that when a stock is in a down trend, it can definitely go down further and not a good time to buy until the longer term trend turns up. Market Index, Commsec and Self wealth allow you to plot these. (Yes Owen, I am dabbling in FiSciFi….. but it’s all part of the learning curve….)
Trend lines can be charted for ETFs too. I’m as yet undecided how to apply this to diversified, passive index ETFs/ LICs as they are much less volatile than individual stocks. Even if 50D/150D crossover indicates a significant down trend, it usually recovers at some stage.
I don’t think I’d sell out completely because of triggering CGT. This depends on tax environment one is subject to. If not needing that money to spend and instead planning to re-invest, the CGT paid becomes a return hurdle to beat. A recent Morningstar podcast calculated this return hurdle could be anywhere from about 9.25 (held > 12 mo so 50% CGT discount applies) to 22.7% ( held < 12 mo ) on a $1000 profit assuming 100% gain on a $1000 initial purchase price @ 37% tax rate.
What seems to make sense to me is to continue to regularly invest into passive ETF when it’s in an uptrend and be cautious when trend turns down. I DCA $2000-3000 every 2 months currently. I might consider skipping/ delaying DCA buying when an ETF is in a clear downtrend and buy more when the trend turns up again, using the trend lines to guide a “buy the upwards trending dip”. To avoid the risk of failing to buy regularly, I’ll ensure that if an “optimum” time to buy has not eventuated after 3 months, I’ll just buy anyway. I’ve no idea how to back test this idea though.
And Dan, I reckon keeping things simple is great. My goal this year is to simplify and trim thematic ETFs and LICs. ( So I can buy more individual stocks instead…😀)
I have also maxed out super, contributing to my partners too whose balance is well below mine.
Up0All good points SLT – thanks for taking the time.
I did, indeed start thinking about this as an All Weather strategy – hence the name on the chart I posted above. But I got to thinking about what would be possible if I accepted the general level of market downside, and went searching for better upside? And then how might I achieve that upside. So I built a simple ETF strategy that takes <5 min / day to run.
So I’ve strayed a long way away from the All Weather principles which are designed to achieve a modest return in all market circumstances if I understand things correctly.
It won’t surprise you to know that I have read a lot of Nick Radge’s stuff which has lead me to this place, his twitter profile is worth a follow if you haven’t already done so.
I do have buy and hold in a much larger portfolio and agree with all your points that you have made with regards to that – and would also note that here, with this, I’m going to document my journey over time so that I can look back and see what my thoughts were.
To be clear, I’m absolutely prepared to abandon this if it underperforms or some other catastrophe arises! Given that it’s widely accepted that timing the market is a pathway to misery. that is clearly a non zero chance.
Some other points to note (mainly for myself):
– struggling a little bit to understand how Navexa calculates returns – particularly as I add to positions
– January so far:
Capital gain: + 3.77%
Income: +0%
Currency: +3.07%
Balance: $101k
95.4% invested.
Owen and Kate’s end of year podcast related to “finding your North star”. It really resonated with me. Although I do, perhaps think there can be a series of stars along the journey. Having achieved my first North star – $100k in the account, I move onto my next one – $200k. Which I hope to meet prior to the end of 2024 – obviously largely driven by adding to the account.
Up0OK just a quick one:
Jan 2024;
Capital gain + 1.58%
Currency: +2.82
Total: +4.4%
Was looking even better prior to the last two sessions!
Looking ahead – Feb historic range between -9.7% and +9.6% let’s hope for something closer to the positive end.
All the best everyone.
Up0Hi all
greetings from 37,000 feet between Perth and Melbourne.
Feb report:
Capital gain +8.97%
Income +0.08%
Currency gain +1.14%
Total +10.19%YTD
Capital +10.61%
Income +0.08%
Currency +3.42%
Total +14.11%Was getting nervous towards the end of the month that January would repeat and I’d give most of it back.
Current balance $128k.
Next North Star: $200k
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