Portfolio Allocation Strategies.

[Basil]

Prudent risk management, something that's been on my mind today.
Not something that gets any real airtime on either channel but something we need to be thinking about, especially those nearing or in retirement looking to take a balanced approach towards managing risk in their portfolio in the years ahead..

Is it time to consider the classic 60/40 share bond portfolio now that corporate bonds are paying real returns above the expected inflation rate again ?

Food for thought.  https://www.ftadviser.com/investments/2024/03/01/re-evaluating-the-classic-60-40-stock-bond-portfolio/

Maybe a prudent well balanced portfolio for someone in their early 60's looks like this:
45% overseas shares (combination of pick your own, ETF's and / or managed funds)
15% N.Z. equities, maybe with a REIT or two for some property exposure
30% Fixed interest bonds, (N.Z. yields are good so invest here)
5% cash
5% Alternate asset class, Gold Silver or some other tangible asset alternative or some combination, (not suggesting Crypto).

 

[Red Baron]

Vell Basil.  An eemportant point you miss eez ze amount of money your portvolio returns verses ze living costs you vace.  EEf you are a gazillionaire, then volatility een your portvolio means your living expenses are covered between 8 or 12 times.  Zo who cares vot your allocation eez?

On ze other hand, eef you are a retired vighter pilot, who lives een a hay barn, to keep a careful eye on heez trusty Vokker Triplane, then allocation to zmooth your eencome can make ze difference between camembert or cowdung cakes vor dinner.  Vortunately I am een a relationzhip vith ze great great great niece of ze Kaiser.  Zo I am never zhort of vood or vine.

But of course zome of us have expensive leisure plans vor our retirement, vhich means ve must 'go for growth' no matter how vell off ve veel.  Vor example, my own ambeetion een retirement eez to conquer Germany.  I vould remove ze zhameful democrateec vrule, and eenstall my partner as 'Kaiserette'.  Zo you zee my need vor eencome eez a little higher than most, vhich eez vhy I am on ze maximum growth path.

RB

[Dolcile]

Prudent risk management, something that's been on my mind today.
Not something that gets any real airtime on either channel but something we need to be thinking about, especially those nearing or in retirement looking to take a balanced approach towards managing risk in their portfolio in the years ahead..

Is it time to consider the classic 60/40 share bond portfolio now that corporate bonds are paying real returns above the expected inflation rate again ?

Food for thought.  https://www.ftadviser.com/investments/2024/03/01/re-evaluating-the-classic-60-40-stock-bond-portfolio/

Maybe a prudent well balanced portfolio for someone in their early 60's looks like this:
45% overseas shares (combination of pick your own, ETF's and / or managed funds)
15% N.Z. equities, maybe with a REIT or two for some property exposure
30% Fixed interest bonds, (N.Z. yields are good so invest here)
5% cash
5% Alternate asset class, Gold Silver or some other tangible asset alternative or some combination, (not suggesting Crypto).

 

For what it is worth...

Personally I'd forgo a little yield (NZ bonds) in favour of more diversification (total bond fund).

And for NZ Equities, assuming you are using a NZ50 tracking fund I think there is plenty of Property exposure that investing in a REIT isn't required - particularly if you already own your own PPOR.

Our asset allocation is currently

80% Global Equities
10% NZ Equities
10% Global Bonds

but we are also 39y and 36y respectively.

As we approach (early) retirement we plan to move to close to a 70/30  equity / bond allocation.    There is also some good analysis that suggests that a rising equity glide path is beneficial after the initial period of high SORR.

[Basil]

For what it's worth, I think your portfolio allocation is spot on for your age.

Have heard a theory your bond allocation should be proportional to your age.  20% at 20 years, 30% at 30 years and so on.  I think that's too conservative.

[Dolcile]

For what it's worth, I think your portfolio allocation is spot on for your age.

Have heard a theory your bond allocation should be proportional to your age.  20% at 20 years, 30% at 30 years and so on.  I think that's too conservative.

Thanks Basil. And I agree, I think of my salary/savings rate as a bond like instrument whilst I'm working.

[winner (n)]

As long as your portfolio has a Shsrpe Ratio >3 you'll be fine

Use it conjunction with the efficient frontier

[Shareguy]

Nz Super fund only have 5 percent in NZ Equities according to annual report. Also found it interesting that they are not active investors for the most part. Some very interesting stuff here.

https://nzsuperfund.nz/how-we-invest/actual-portfolio/

[Dolcile]

Nz Super fund only have 5 percent in NZ Equities according to annual report. Also found it interesting that they are not active investors for the most part. Some very interesting stuff here.

https://nzsuperfund.nz/how-we-invest/actual-portfolio/

Thanks for that link. I found it interesting that the international exposure was 100% hedged.  I expected to see some diversification away from the NZD.

[kiwi2007]

Nz Super fund only have 5 percent in NZ Equities according to annual report. Also found it interesting that they are not active investors for the most part. Some very interesting stuff here.

https://nzsuperfund.nz/how-we-invest/actual-portfolio/

If you look below at the smartshares ETF returns from the NZ market you'll see that they made a very wise decision.

https://smartshares.co.nz/fund-investor-report

UK pension funds are being heavily critisised by UK investors at the moment for only having a similar 5% in UK shares (down from 52% some time ago). Mind you, most of the same critics probably also voted for Brexit. 

[Basil]

https://www.harbourasset.co.nz/research-and-commentary/long-term-investment-return-assumptions/

[Shareguy]

Caught up with family friend in the weekend. He has a very large portfolio. He made the comment that he has hardly anything left in the NZ market. Said he had just been to a meeting with Milford's who made the comment that there are better opportunities offshore currently.

[Basil]

Investing in the NZX is very similar to fishing near the mouth of the Manukau harbour at what's known as "destruction gully" with the tide ripping out at a phenomenal rate.  You just sit there praying your anchor holds and you catch something worthwhile considering the risk.
When I did that last time in a friend's boat the anchor didn't hold, we caught nothing but thankfully the motor started so we avoided getting washed out into the notorious Manukau bar.

[Shareguy]

Investing in the NZX is very similar to fishing near the mouth of the Manukau harbour at what's known as "destruction gully" with the tide ripping out at a phenomenal rate.  You just sit there praying your anchor holds and you catch something worthwhile considering the risk.
When I did that last time in a friend's boat the anchor didn't hold, we caught nothing but thankfully the motor started so we avoided getting washed out into the notorious Manukau bar.

Sums it up well Basil. There is a lot of investors and even fund managers that have lost large sums on some of these dreadful stocks we have. It's no wonder that a lot of kiwis have a great distrust of equities and favour property. I really like the quarterly reporting in the US and hope that at least the larger NZX companies follow suit here.

I also think though that we are not far away from deploying more funds in the NZ market. Sharks are circling......and they are hungry.

As far as the Manukau, it's a hidden gem that few people venture. The bar which we have crossed over numerous times needs caution, respect and experience. A Coastguard bar crossing course is recommended. However once you get out there, Gamefish galore and some of the best fishing in NZ is waiting for you.

[Breezy]

Sums it up well Basil. There is a lot of investors and even fund managers that have lost large sums on some of these dreadful stocks we have. It's no wonder that a lot of kiwis have a great distrust of equities and favour property. I really like the quarterly reporting in the US and hope that at least the larger NZX companies follow suit here.

I also think though that we are not far away from deploying more funds in the NZ market. Sharks are circling......and they are hungry.

As far as the Manukau, it's a hidden gem that few people venture. The bar which we have crossed over numerous times needs caution, respect and experience. A Coastguard bar crossing course is recommended. However once you get out there, Gamefish galore and some of the best fishing in NZ is waiting for you.

All I own are NZX stocks and none of them are dreadful so you must be talking about another NZX. The pricing of a stock by the market is often far removed from the potential of the business itself. So if you could explain why any of these stocks are dreadful in a factual and logical way I'd be eternally grateful (FPH/SPK/ATM/RYM/OCA) and on the unlisted but still NZ stocks PAZ and SFF.

[Basil]

Agree that a very small number of stocks on the NZX are looking very cheap.
That bar...not for the faint of heart that's for sure !!...not sure it would do my blood pressure much good lol