What changes have you made to your portfolio this year?
Have you made any changes to your portfolio this year given the pandemic shock back in March? In this article we review some of our member’s experiences. Some did nothing and kept their cash, others diversified and added alternatives. It would be great if you’d like to share some of your strategies with other investors by leaving a comment in the section below the note.
My portfolio took a 50% hit during the GFC. I was 100% in Australian shares at that time, then determined I would learn more about investing and be prepared for the next big crash.
The first thing I did after retiring in 2007 or 2008 was join AIA, and this has been a terrific resource and one of the best things I did.
As it turned out, I still did nothing this time around. I was overseas on my first luxury cruise in South America and in a different time zone. Every time I looked at my portfolio there were huge drops day after day and I was having such a good time, I didn’t want to get up in the middle of the night to trade.
Now the portfolio is back to where it was. At the time I was berating myself for not selling two speculative stocks that dropped 70-80%. Both stocks are up and one is up 100%.
When I got back from South America in the first week of March, I sold two bank hybrids as I was not happy with the return. Recently some of that cash went into RHCPA, Ramsay hybrids.
I bought BetaShares Australian Equities Strong Bear Hedge Fund BBOZ mid year and have traded a few times since in three portfolios.
I am nervous about the market but am not a panic seller and I still think it is overvalued.
After listening to Jordan Eliseo from the Perth Mint, I opened an account with them for SMSFs. I’m thinking about depositing funds into it next year when a term deposit I have is due to mature. With the account, you can place an order either in dollars or cash but after that I believe you have a portfolio of ounces of gold for transactions.
This is an online account but as transaction fees are so high (0.95% brokerage both in and out) I am considering another account which is more like a traditional phone transaction only account with no % fee, just buy/sell spread.
My current portfolio is still about 75% Australian shares, hybrids, REITs and several LICs. The remainder is in term deposits, and two mortgage funds - Balmain private focussing on individual mortgages, and Balanced Securities, a pooled mortgage fund.
The market is high and due for a shock at some stage, there aren’t many alternatives and I don’t trust property, but I’m happy with pooled mortgage funds and direct mortgages as well.
I am not a trader, but I am an active investor and an avid watcher. I’m always looking. – Joan O’Shannassay
I am happy with my portfolio and haven't made any changes this year. I know that I am over invested in the big 4 banks but I have held them for many years. If I sold them I would have significant capital gains tax to pay and then would find it difficult with less money to invest in other stocks which would give me the same pre-Covid19 income.
For example, I bought CBA at $10.58 in 1995.
- Today's sale price of say $68.52 after selling costs. Then my profit per share is $57.94.
- As I have owned them for more than 12 months, halve for tax purposes = $28.97.
- Tax on this at 32% =$9.27
- Allow for CBA dividends to be reduced to say $3.10 after Covid19.
- Yield on CBA is 310/68.52 =4.524%
- Cash for alternative investment is $68,52-$9,27 = $59.25.
- To earn $3.10 on $58.60 after allowing for investment costs I need a return of $310/58.6 = 5.29%.
- I do not fancy my chances of getting that return from another investment with the security of CBA or one of the other big 4 banks.
I could also lose my other benefits from having either a part pension or a National Seniors Health card which I do not want to do. – Jolyon
2020 has been a year we will all remember, both as investors and citizens.
Like many investors, I thought it was a good time to check my asset allocation was still appropriate.
Changes I made were not drastic, but I did trim or sell some weaker-positioned holdings to raise cash to add to those that would provide a reliable future income. These included individual stocks and funds to bolster my “defences” (selected REITs, plus fixed income and a small gold allocation) in the next year or two and to increase my diversification.
This moved my portfolio to a more “balanced” stance than my previous allocation, which was very heavy in equities. Of course, I’ve missed some of the “recovery” in positions I sold, but my aim was to have sustainable income and lower overall volatility in future. - Richard Cowan
About the middle of last year I decided that I was not confident about investing further funds into the stock market at that time. I thought about bank term deposits, but interest rates were very low and likely to drop further.
There were people in my local AIA group who had invested successfully for some years with a Company called Balmain. Balmain arrange 1st mortgages for experienced property developers, and investors are able to lend money to these borrowers. After checking out the company I decided to invest some funds with Balmain in 1st mortgages.
Balmain have been operating for over 30 years and undertake a detailed and thorough assessment of the credit quality of each and every loan. This includes:
- The borrowers experience and financial capacity. Many of them have been clients for some years.
- The type of security property, location and the market demand for the asset.
- The exit strategy at loan term conclusion.
- Security property’s income producing capacity and the ability to find replacement tenants.
- Risks and the ability to mitigate these by structuring appropriate loan conditions.
The loan to value ratio up to 60%, so if there is a default there is a high chance of getting funds back.
I made an initial deposit with Balmain and have added to my investment twice since. The average return I am receiving is 7.20% which I am very happy with. – Richard Rowe
In the last couple of months, I have made two significant changes to my share portfolio:
1. Over the last five years, I have been very keen on agriculture. It was based on my view that the rising middle class in China would be seeking better quality food and Australia was well placed to satisfy that demand.
Companies like A2 Milk and Bellamys fitted that genre and overall, the sector performed very well. I maintained holdings in a range of listed agricultural companies at between 15% and 20% of the portfolio, a significant exposure. I have recently cut that exposure to between 5% and 10%. COVID will likely cause countries to become more self-sufficient and one of those areas will be in food production.
I am also concerned about our government’s poor relations with China. I believe the US will continue to put pressure on China to accept more of its exports.
Combined, there is significant risk they will put downward pressure on Australia’s agriculture export volumes to China which will in turn dampen the prospects of Australian agricultural export companies.
2. The issue that is driving my current portfolio changes is the overall level of the market. It looks to me that it is priced for perfection. Governments around the world have spent a huge amount of money to dampen the effects of the COVID recession on the general population. Much of this has been financed by central banks.
Socially, this was absolutely the right course for governments to take. From an economic position, this money has been consumed without any long-term economic benefit. Therefore, there is no way that the economy can be in the same position as it was during the latter months of last year before the COVID crisis.
Yet the current level of the share market implies that the economy is as strong. Even if there is a vaccine next year, the damage that has already been done to the economy still makes the market look expensive. Much of the professional investment market believes that the share market is overvalued.
However, in my 40 years of working in the financial markets, there is an important lesson I have learnt. The market never does what the majority of investors believe will happen. So, for me, the surprise will be how long the market holds up. It will fall, but only when the bears have given up waiting for it to happen. Therefore, I am increasing my cash in portfolio, but believe there is no hurry to do this. Any sales can be done into market strength. – Roger Goldsmith
AIA Greensborough Group meet Tuesday evenings at The Diamond Valley Library. Current meetings are on Zoom and likely to continue electronically well into 2021.
Here, they provide their response:
Most members have cash holdings of 50 – 80% with none turning over a large percentage of their portfolios in the last six months.
This begs the question of whether we as retirees are confident with our holdings or perhaps paralysed by fear?
Retirees are in a bind with no interest available from the safe haven of Term Deposits with a government guarantee for bank deposits or bonds. – AIA Greensborough Group
Greensborough Group Discussions usually feature one main topic and a few minor items.
The group subscribes to mainly free newsletters such as Firstlinks, Livewire, Morningstar, The Bull, Wilson Asset management weekly news, Financial Autonomy, AIA Webinars/Events and Macquarie Inner Circle. One utilises Stock Doctor and Vector Vest.
Subscriptions include Marcus Today and Robert Brain.
Activities include Theoretical Portfolios, ASX Share Game, Set Figure to Invest to gain a Return of 8% + and winner reached with half a year plus attending local AIA and Fund events.
To find out more, please contact Terry Fleming on 0408 007 023 or email at email@example.com