Your portfolio asset allocation

[SpokaneAl]

Some interesting posts. So im thinking of the following- i have around 15-20 yrs till retirement.

Gold - 10%

Rental property - 30%

Thai stocks- 10%

AA or better US Corporate bonds- 10%

Dividends US stocks (auto reinvestment of dividends)- 15%

Small cap value US stocks- 5%

Other emerging market stocks - 5%

Cash -15%

If any one of these groups increases by more than @ 10% ill sell the profit and reinvest in an underperforming group- this will allow me to sell and take profits and buy lower price assets than i normally do (my biggest investment mistakes - like many others- is to a) get greedy and end up watching my gold/stocks prices increase alot and then fall back down again when i should have sold and taken a nice profit and giving up on a stock/gold etc after the price drops alot and selling it - taking the loss- in order to reinvest elsewhere.

Seems obvious buy low /sell high- but its the most common mistake made by average investors- doing it the other way around - my system aims to ensure i avoid this...lets see in a year how it has done.

"Let's see in a year how it has done."

A year is just a blip when it comes to investments. I tend to look at things over decades and make no conclusions based on a single annual return, and put little weight to any measurements under five years or so at a minimum.

Sent from my iPad using Thaivisa Connect Thailand mobile app

Edited January 21, 2014 by SpokaneAl

[Furbie]

I don't know how long I'm going to live, so I allocate my investments in a manner similar to a university endowment fund that is expected to run effectively for ever.

David F. Swensen (CIO for Yale) writes that one shouldn't hold conventional bonds for the simple reason that the upside is very limited. There may be a case to be made for inflation-linked bonds (as a hedge against inflation), for very short term bonds (providing liquidity) and emerging market bonds (for diversification - though the characteristics are more equity-like than bond-like). I almost completely eschew conventional bonds.

Gold has its fans, but it doesn't have any intrinsic value - it's only worth what someone will pay for it. For 20 years or so its value barely changed. Then its value soared, and now it's crashed from its peak by 40% or so. For me it's not a rational part of any sensible portfolio as an investment (though it may have value purely for its diversification effect - but I believe there are better diversifiers out there).

One important class missing from the 60:30:10 split is physical property (not property shares). It is weakly correlated with equities (correlation of 0.4-0.6 for US according to EPRA report) and so is a reasonable diversifier, and provides a steady, pretty reliable income stream as well as chance of capital appreciation.

Use of high level categories such as "60% stocks" is not particularly helpful. Large cap? Small cap? Value? Growth? US? Europe? Emerging Markets?

I'd also add that articles written in the US have a US-bias, recommending holding mostly US stocks. (And other countries writers have a similar bias.) One needs to reinterpret such articles for the needs of someone living (or planning on retiring) in another country. For me that mean having a substantial part of my portfolio in Asian equities, including an allocation to Thailand.

For what it's worth, my target asset allocations (somewhat simplified) look like this:

Major Market Equity 25% (split UK 10%, Europe 10%, North America 5%)

Asian Equity 30% (split 25% to the "Asian Tigers" and 5% to Thailand)

Emerging Markets Equity 10%

Emerging Markets Bond 5%

Index-linked Bonds 5%

Natural Resources 10% (a long-term thematic play)

Physical Property 10% (in the Asia-Pacific region)

Infrastructure 5%

For me this seems about right - though others will, I'm sure, disagree.

Although you are certainly diversified, that’s a pretty risky portfolio and I do not think the upside reward will justify the downside risk for long-term investing. As for holding mostly US stocks, it is preferred by many because the risk reward calculation most people do (it is also the lowest fee situation).

I see a lot of advice on the amount in equities versus bonds – please note, a lot of recent research shows that 70 – 30 is best for maximizing returns and minimizing risk (as in going to 80% equities does not give you enough upside to justify the increased downside risk). Gold is indeed a fools errand.

I am almost entirely ETF now to keep the fees low, everything index.

My current allocation breakdown (70-30):

Equities:

30% large cap (US)

20% international

5% Europe

5% mid-cap

5% small-cap

5% REIT

Bonds:

10% short-term

5% corporate mid-term

5% mid-term mixed

10% high yield

Keep in mind, you need quite a bit of money to achive a well diversified portfolio given ETF and fund minimums. If I had limited resources I would put 70% into an S&P mirror fund and 30% into a short-term bond index fund - I would not begin to consider allocating to other asset classes until at least USD 100,000 to invest.

[Furbie]

Some interesting posts. So im thinking of the following- i have around 15-20 yrs till retirement.

Gold - 10%

Rental property - 30%

Thai stocks- 10%

AA or better US Corporate bonds- 10%

Dividends US stocks (auto reinvestment of dividends)- 15%

Small cap value US stocks- 5%

Other emerging market stocks - 5%

Cash -15%

If any one of these groups increases by more than @ 10% ill sell the profit and reinvest in an underperforming group- this will allow me to sell and take profits and buy lower price assets than i normally do (my biggest investment mistakes - like many others- is to a) get greedy and end up watching my gold/stocks prices increase alot and then fall back down again when i should have sold and taken a nice profit and giving up on a stock/gold etc after the price drops alot and selling it - taking the loss- in order to reinvest elsewhere.

Seems obvious buy low /sell high- but its the most common mistake made by average investors- doing it the other way around - my system aims to ensure i avoid this...lets see in a year how it has done.

Why would you keep 15% in cash – especially when interest rates are in the toilet? I can only come up with a large emergency fund or trying to market time. One is likely unnecessary and the other a poor idea.

I work very hard to have limited cash on hand. It forces me to keep investing no matter what is happening in the markets. If I ever need quick cash, I have a small reserve, can use my credit cards or pull money out of my investments. Most conventional wisdom urging 3-6 months in an emergency fund is for people who are pay check to pay check. People with large portfolios (in ETFs and mutual funds) simply don’t need that much cash on hand.

Also - rather than selling to balance your portfolio, why not use future investments as your means of balancing? This way, you are purchasing cheaper assests (as in, if equities go up, you purchase bonds). Your method generates fees and taxes (depending where you live) which will eat into returns. It also assumes you can time the market.

Edited January 21, 2014 by Furbie

[AyG]

Although you are certainly diversified, that’s a pretty risky portfolio and I do not think the upside reward will justify the downside risk for long-term investing. As for holding mostly US stocks, it is preferred by many because the risk reward calculation most people do (it is also the lowest fee situation).

I see a lot of advice on the amount in equities versus bonds – please note, a lot of recent research shows that 70 – 30 is best for maximizing returns and minimizing risk (as in going to 80% equities does not give you enough upside to justify the increased downside risk). Gold is indeed a fools errand.

I am almost entirely ETF now to keep the fees low, everything index.

Perception of a portfolio's risk very much depends upon the time frame one's considering. My portfolio is designed like a university endowment, i.e. a perpetual portfolio. Over such timescales equities will almost inevitably outperform bonds, and developing markets will outperform more established ones. I'm as confident as I can be that the upside reward justifies the downside risk.

As for holding mostly US stocks, a lot of people do it. However, they are Americans. In England people mostly hold British stocks. And in Japan people mostly hold Japanese stocks. It sort of makes sense if you're living in the country, matching your investments to the local economy. If you're an expat living in Thailand or plan to retire there it's folly to invest primarily in US stocks.

Incidentally, charges are low on American mutual funds, ETFs, &c. for the reason that the market is very well researched so active management can add very little. That is definitely not true in smaller, less well researched markets such as Thailand. Whilst I'd be happy to use a passive strategy in the US, I wouldn't in emerging markets. (Exception: I own EGShares Emerging Markets Core ETF, EMCR, which I think is a well-designed product.)

As for a 70/30 split being best, there is no one right solution. For a perpetual portfolio a 0% allocation to conventional bonds is perfectly reasonable because the upside is very limited. Life stage is also important for many people with a shorter term view, and conventional wisdom is changing. See, for example, http://online.wsj.com/news/articles/SB10001424052702304866904579268332305015074?mod=WSJ_hps_sections_yourmoney or http://alphabaskets.com/turning-asset-allocation-upside-down/ ).

Edited January 21, 2014 by AyG

[SpokaneAl]

I don't know how long I'm going to live, so I allocate my investments in a manner similar to a university endowment fund that is expected to run effectively for ever.

David F. Swensen (CIO for Yale) writes that one shouldn't hold conventional bonds for the simple reason that the upside is very limited. There may be a case to be made for inflation-linked bonds (as a hedge against inflation), for very short term bonds (providing liquidity) and emerging market bonds (for diversification - though the characteristics are more equity-like than bond-like). I almost completely eschew conventional bonds.

Gold has its fans, but it doesn't have any intrinsic value - it's only worth what someone will pay for it. For 20 years or so its value barely changed. Then its value soared, and now it's crashed from its peak by 40% or so. For me it's not a rational part of any sensible portfolio as an investment (though it may have value purely for its diversification effect - but I believe there are better diversifiers out there).

One important class missing from the 60:30:10 split is physical property (not property shares). It is weakly correlated with equities (correlation of 0.4-0.6 for US according to EPRA report) and so is a reasonable diversifier, and provides a steady, pretty reliable income stream as well as chance of capital appreciation.

Use of high level categories such as "60% stocks" is not particularly helpful. Large cap? Small cap? Value? Growth? US? Europe? Emerging Markets?

I'd also add that articles written in the US have a US-bias, recommending holding mostly US stocks. (And other countries writers have a similar bias.) One needs to reinterpret such articles for the needs of someone living (or planning on retiring) in another country. For me that mean having a substantial part of my portfolio in Asian equities, including an allocation to Thailand.

For what it's worth, my target asset allocations (somewhat simplified) look like this:

Major Market Equity 25% (split UK 10%, Europe 10%, North America 5%)

Asian Equity 30% (split 25% to the "Asian Tigers" and 5% to Thailand)

Emerging Markets Equity 10%

Emerging Markets Bond 5%

Index-linked Bonds 5%

Natural Resources 10% (a long-term thematic play)

Physical Property 10% (in the Asia-Pacific region)

Infrastructure 5%

For me this seems about right - though others will, I'm sure, disagree.

Although you are certainly diversified, that’s a pretty risky portfolio and I do not think the upside reward will justify the downside risk for long-term investing. As for holding mostly US stocks, it is preferred by many because the risk reward calculation most people do (it is also the lowest fee situation).

I see a lot of advice on the amount in equities versus bonds – please note, a lot of recent research shows that 70 – 30 is best for maximizing returns and minimizing risk (as in going to 80% equities does not give you enough upside to justify the increased downside risk). Gold is indeed a fools errand.

I am almost entirely ETF now to keep the fees low, everything index.

My current allocation breakdown (70-30):

Equities:

30% large cap (US)

20% international

5% Europe

5% mid-cap

5% small-cap

5% REIT

Bonds:

10% short-term

5% corporate mid-term

5% mid-term mixed

10% high yield

Keep in mind, you need quite a bit of money to achive a well diversified portfolio given ETF and fund minimums. If I had limited resources I would put 70% into an S&P mirror fund and 30% into a short-term bond index fund - I would not begin to consider allocating to other asset classes until at least USD 100,000 to invest.

I agree on all accounts, especially on the minimum investment size. One could also use a single no-load balanced fund from Vanguard for an even simpler solution. Trying to allocate a smaller amount than that among a number of different funds also adds complexity to record keeping, tax reporting and and can make rebalancing more challenging as well.

Exotic investments, while making a great story, often cost boatloads more in ongoing fees, with long term performance records that are frequently less than impressive. I like to remember that the performance numbers that count are those after fees and taxes.

In addition to asset allocation via mutual funds, I also take retirement vs. non retirement accounts into consideration. I do my best to avoid changing individual investment tax implications from being negatively affected by where the investment resides.

For example I keep my bond fund investments in my traditional IRA accounts because either way they are taxed at normal income tax rates. If, for example, I filled my IRA account with growth funds, which are, for the most part, taxed at lower long term capital gains rates, I would negatively modify the resulting tax rates to higher ordinary income tax rates. So I do my best to keep long term growth investments in non retirement accounts.

Any dollar I save via lower taxes or investment fees is an additional dollar in my pocket, and hopefully significantly more than that over the long term.

Of course this discussion may not be applicable to those who are non US citizens.

Sent from my iPad using Thaivisa Connect Thailand mobile app

[ExpatJ]

Some interesting posts. So im thinking of the following- i have around 15-20 yrs till retirement.

Gold - 10%

Rental property - 30%

Thai stocks- 10%

AA or better US Corporate bonds- 10%

Dividends US stocks (auto reinvestment of dividends)- 15%

Small cap value US stocks- 5%

Other emerging market stocks - 5%

Cash -15%

If any one of these groups increases by more than @ 10% ill sell the profit and reinvest in an underperforming group- this will allow me to sell and take profits and buy lower price assets than i normally do (my biggest investment mistakes - like many others- is to a) get greedy and end up watching my gold/stocks prices increase alot and then fall back down again when i should have sold and taken a nice profit and giving up on a stock/gold etc after the price drops alot and selling it - taking the loss- in order to reinvest elsewhere.

Seems obvious buy low /sell high- but its the most common mistake made by average investors- doing it the other way around - my system aims to ensure i avoid this...lets see in a year how it has done.

Why would you keep 15% in cash especially when interest rates are in the toilet? I can only come up with a large emergency fund or trying to market time. One is likely unnecessary and the other a poor idea.

I work very hard to have limited cash on hand. It forces me to keep investing no matter what is happening in the markets. If I ever need quick cash, I have a small reserve, can use my credit cards or pull money out of my investments. Most conventional wisdom urging 3-6 months in an emergency fund is for people who are pay check to pay check. People with large portfolios (in ETFs and mutual funds) simply dont need that much cash on hand.

Also - rather than selling to balance your portfolio, why not use future investments as your means of balancing? This way, you are purchasing cheaper assests (as in, if equities go up, you purchase bonds). Your method generates fees and taxes (depending where you live) which will eat into returns. It also assumes you can time the market.

Some good points. I probably could keep my cash % a bit lower if i tried- but i need to cover from my cash reserves school fees for 2 kids plus, say, a monthly rental payment which would be a combined payment of more than 40,000 US$ once a year plus often 10-15K payments for holidays home & rental etc.

Yes, your point about buying more under performing assets rather than selling well performing assets is another option i would consider savings permitting for rebalancing.

Fees are an issue- though i have just opened a new etrade account in singapore to trade in US market and the fees are absolutely tiny compared to fees we are used to here in Asia for funds/stocks.

Edited January 21, 2014 by ExpatJ

[ExpatJ]

If you're planning on retiring to Thailand, does it really make sense to have so much of your investments in the US geared to the US economy? And what about exchange rate changes over the years? Asia's economies are rising, whilst America's is in long-term decline.

Since you have a long time to retirement you can afford to have almost all your investments in equities at the moment. Gold, bonds and cash are simply a drag on performance. You'll almost certainly not even be beating inflation with cash.

Are all the rental properties in a single town? If so, what happens if the major employer in that area goes bankrupt or leaves the area? Possibly no income and almost worthless property. That would be a very concentrated risk. Far better to invest in a diversified fund offering exposure to physical property.

Im likely to retire to the US but with frequest trips to Thailand/Asia (maybe 6months in each per year).

Re: Gold- i bought a couple of years ago and saw my on paper profits go up,up, up only to get too greedy and ended up watching it all fall - so im keeping that for now.

I think you may be right about bonds- so i might put some money into higher risk country Bond funds (.e.g portugal last year etc) to take advantage of higher interest payments.

I have one rental property- which is giving nice rental returns of 7% per year- i have owned for several years and in another 3-4 years it will have paid for itself (i paid cash, no mortgage loans)- so it was a risk, but has paid off i think. The price of the property itself has also increase 25% on paper, though i have no intention to sell since its easy to rent out.

[SpokaneAl]

I am 63, and fully retired with an annual cost of living adjusted pension. We have a house in Thailand and live here six to seven months each year. The remaining months of the year are spent in our home in the US.

My target stock/bond percentage allocation is 65/35. All investments are in no-load mutual funds. Here is my current actual investment allocation:

Cash - 1.3%

Bonds - 33.3%

Stocks - 65.4%

Bond breakdown -

US Bonds - 88.10%

International Bonds - 19.90%

US Stocks - 69.9%

International Stocks - 30.10%

Stock breakdown -

Large Cap - 64.4%

Mid Cap - 25.3%

Small Cap - 10.3%

International Stocks breakdown -

Europe - 46.3%

Pacific - 28.4%

Emerging Markets - 24.7%

Index Funds - 83.4%

Actively Managed Funds - 16.6%

In that we are now retired, we have our non retirement dividends and capital gains distributions automatically rolled over to our cash account to give us some additional money to spend.

Edited January 21, 2014 by SpokaneAl

[xylophone]

Some interesting posts. So im thinking of the following- i have around 15-20 yrs till retirement.

Gold - 10%

Rental property - 30%

Thai stocks- 10%

AA or better US Corporate bonds- 10%

Dividends US stocks (auto reinvestment of dividends)- 15%

Small cap value US stocks- 5%

Other emerging market stocks - 5%

Cash -15%

If any one of these groups increases by more than @ 10% ill sell the profit and reinvest in an underperforming group- this will allow me to sell and take profits and buy lower price assets than i normally do (my biggest investment mistakes - like many others- is to a) get greedy and end up watching my gold/stocks prices increase alot and then fall back down again when i should have sold and taken a nice profit and giving up on a stock/gold etc after the price drops alot and selling it - taking the loss- in order to reinvest elsewhere.

Seems obvious buy low /sell high- but its the most common mistake made by average investors- doing it the other way around - my system aims to ensure i avoid this...lets see in a year how it has done.

A lot of good posts coming after yours and before this one, so you are not short of good information by the looks of things.

And as a couple of posters have said, they are not aware of your current situation,risk profile, goals etc to make fully informed comments, more to give you food for thought, so to speak.

One point I would like to make is that from what I have seen/read I would have thought that you would be more heavily weighted into shares given that you say you have 15 to 20 years until retirement, although I stress again, I am not aware of your risk profile etc.

If you are around 45, then investing in shares for the longer term is a good bet, however again if your situation is that you are not earning an income, then perhaps you needs to be more conservative, because once you lose it, you have no means to earn an income to replace it.

Agree with others about gold, and have never been a fan of it, because it does nothing other than just sit there, and many times it doesn't even do that, because the paper you have may not have gold to back it up (as has happened in many fraud cases).

Index trackers are good for the low fee structure and you have some experts in that field in the USA.

As for currency risk, well that is always a risk when investing in other countries and even the experts can't always get it right (George Soros made £1 million on a currency bet, then lost it a couple of years later on another one, so what hope do we have as mere mortals!).

As for the cash aspect, will only you can tell if you need to have that much in cash because despite the good points made here, short-term cash/emergency funds are really there to suit the needs of the individual, and only you know what they are. On that note, selling investments to make up a cash/emergency fund shortfall is not always a good move because the value of what you are selling may have dropped, and sometimes other fees are involved.

Good luck with whatever you decide, and as I said IMO there has been some great posts from some very knowledgeable people.

[jbaldwin]

The proportion of my assets in Equities is always 100% less my age - plus or minus 2%.

The basis for this is that a feel that I can time purchase/sale decisions.

Over time, as a get older, should sell equities and take less risk.

When equities go up I sell some - if they go down a lot a buy some.

[fletchsmile]

Some interesting posts. So im thinking of the following- i have around 15-20 yrs till retirement.

Gold - 10%

Rental property - 30%

Thai stocks- 10%

AA or better US Corporate bonds- 10%

Dividends US stocks (auto reinvestment of dividends)- 15%

Small cap value US stocks- 5%

Other emerging market stocks - 5%

Cash -15%

If any one of these groups increases by more than @ 10% ill sell the profit and reinvest in an underperforming group- this will allow me to sell and take profits and buy lower price assets than i normally do (my biggest investment mistakes - like many others- is to a) get greedy and end up watching my gold/stocks prices increase alot and then fall back down again when i should have sold and taken a nice profit and giving up on a stock/gold etc after the price drops alot and selling it - taking the loss- in order to reinvest elsewhere.

Seems obvious buy low /sell high- but its the most common mistake made by average investors- doing it the other way around - my system aims to ensure i avoid this...lets see in a year how it has done.

Looks like you're starting to develop a plan which you're comfortable with which is good.

Worth giving some thought also to:

1) As many people do you're also planning how to reallocate/spend your profits. What you will do if key elements make losses. e.g.

- Will you still apply the same principles? Yes a decrease in one may cause a % increase in others, but say a 10% drop in equities may result in increases spread across the other assets classes, and none of them may increase 10%

- a reasonable stress factor to apply to Thai equities is 40% drop under a stress scenario. Would you automatically buy more if it dropped 10%?

So, worth thinking thru a few more scenarios not just on profits

2) Why limit yourself to only Thai equities/EM and US equities? what about other developed markets?

3) How do you see yourself reallocating weightings on property? Not so easy to buy/sell part of an individual property and you'd probably need some large sums of money/several properties where you are talking being able to rebalance a 10% rise. You might also want to consider REITs or property funds for some of that property exposure

4) Think also of the currency exposures, not just asset classes. Thai Equities = THB, US equities = USD exposure, but what about the particularly cash/property

Cheers

Fletch

[fletchsmile]

x2 deleted

Edited January 21, 2014 by fletchsmile

[Ludacris]

I've been working on two aggressive ETF porfolios for someone who has a 25-30 year investing time-frame. These are designed for maximum capital appreciation and are therefore overweighted in high yield bonds and mid/small caps. If you can sit through 30-50% drawdowns they should outperform most balanced portfolios in the long run. As you can see, I often prefer the smaller, lesser known ETF companys suchs as Guggenheim and WisdomTree since they have been outperforming the more well known SPY and Vanguards over the past 5 years.

Thai investments would be through max'ing out LTF's and RMF's over the same time period.

I found this recent article to be worth a read:

http://seekingalpha.com/article/1954141-small-caps-will-outperform-if-you-give-em-time?source=email_etf_daily_por_str_ass_all_2_3&ifp=0

Feedback and comments are welcome.

Portfolio 1:

Bonds + Income (20%)

FAX Aberdeen Asia-Pacific Income Fund

HYG IShares High Yield Corporate Bonds

PGP PIMCO Global Stocks + Income Fund

Real Estate (10%)

KBWY PowerShares Premium Yield REIT

RWX SPDR International REIT

US Equity (35%)

RPV Guggenheim S&P 500 Pure Value

VXF Vanguard Extended Market (Mid & Small Cap)

CSD Guggenheim Spin-off

DVY Dow Jones Dividend

International (35%)

PGJ PowerShares US Listed China

PIE PowerShares Emerging Markets (China, Latin America, SE Asia)

VPL Vanguard Asia-Pacific (Japan & Australia)

GULF WisdomTree Middle East Dividend

Portfolio 2:

US Equity (50%)

RPV Guggenheim S&P 500 Pure Value

CSD Guggenheim Spin-off

VXF Vanguard Extended Market (Mid & Small Cap)

EZM WisdomTree Mid Cap Earnings

RZV Guggenheim Small Cap Pure Value

International (50%)

PGJ PowerShares US Listed China

DFE WisdomTree Europe Small-Cap Dividend

DLS WisdomTree Int. Dev. Small Cap (Europe, Japan, Aus)

DGS WisdomTree Int. Emg. Small Cap (Asia Dev&Emg, Latin Amer.)

ASEA Guggenheim ASEAN 40

GULF WisdomTree Middle East Dividend

[ExpatJ]

Some interesting posts. So im thinking of the following- i have around 15-20 yrs till retirement.

Gold - 10%

Rental property - 30%

Thai stocks- 10%

AA or better US Corporate bonds- 10%

Dividends US stocks (auto reinvestment of dividends)- 15%

Small cap value US stocks- 5%

Other emerging market stocks - 5%

Cash -15%

If any one of these groups increases by more than @ 10% ill sell the profit and reinvest in an underperforming group- this will allow me to sell and take profits and buy lower price assets than i normally do (my biggest investment mistakes - like many others- is to a) get greedy and end up watching my gold/stocks prices increase alot and then fall back down again when i should have sold and taken a nice profit and giving up on a stock/gold etc after the price drops alot and selling it - taking the loss- in order to reinvest elsewhere.

Seems obvious buy low /sell high- but its the most common mistake made by average investors- doing it the other way around - my system aims to ensure i avoid this...lets see in a year how it has done.

Looks like you're starting to develop a plan which you're comfortable with which is good.

Worth giving some thought also to:

1) As many people do you're also planning how to reallocate/spend your profits. What you will do if key elements make losses. e.g.

- Will you still apply the same principles? Yes a decrease in one may cause a % increase in others, but say a 10% drop in equities may result in increases spread across the other assets classes, and none of them may increase 10%

- a reasonable stress factor to apply to Thai equities is 40% drop under a stress scenario. Would you automatically buy more if it dropped 10%?

So, worth thinking thru a few more scenarios not just on profits

2) Why limit yourself to only Thai equities/EM and US equities? what about other developed markets?

3) How do you see yourself reallocating weightings on property? Not so easy to buy/sell part of an individual property and you'd probably need some large sums of money/several properties where you are talking being able to rebalance a 10% rise. You might also want to consider REITs or property funds for some of that property exposure

4) Think also of the currency exposures, not just asset classes. Thai Equities = THB, US equities = USD exposure, but what about the particularly cash/property

Cheers

Fletch

For losses, i plan to buy more of that asset if it falls by 15% + to bring the portfolio into balance. On the property i bought a condo a few years back in Jakarta so you are right, i cant really balance that part of the portfolio- probably just remove it from the bundle (btw jakarta is a great place for high rental returns, especially compared to bangkok though legally foreigners cannot yet own a property , arrangements can be made with third parties (risky but good returns).

[AyG]

Feedback and comments are welcome.

Just a few observations:

1. Why is the property investment there? If it's supposed to be for diversification, it's not a good diversifier because both the ETFs invest in shares and so are highly correlated to the broader market. Physical property is a much better diversifier.

2. You don't give percentages for each investment, but you do seem to be particularly interested in China. Personally I think the market is heavily overbought and don't invest in it. Too many investors chasing too few good companies.

3. I would definitely not invest in China through an ETF - there are so many outright bad companies (particularly banks) that are best avoided. Here I would definitely go for active management. The same pretty much goes for emerging markets.

4. I presume that the Middle East ETF is for exposure to frontier markets. A couple of countries there are about to be moved from "frontier" to "emerging" status. This is going to lead to forced buying of those countries' stocks, for example by emerging markets ETFs. This in turn will lead to the shares being overvalued. This is an area best accessed through an active manager who has the flexibility not to be forced to buy/sell when such changes are made. And if the aim is for frontier markets exposure, there are products out there that provide a broader exposure including frontier Africa and eastern Europe.

[SpokaneAl]

I've been working on two aggressive ETF porfolios for someone who has a 25-30 year investing time-frame. These are designed for maximum capital appreciation and are therefore overweighted in high yield bonds and mid/small caps. If you can sit through 30-50% drawdowns they should outperform most balanced portfolios in the long run. As you can see, I often prefer the smaller, lesser known ETF companys suchs as Guggenheim and WisdomTree since they have been outperforming the more well known SPY and Vanguards over the past 5 years.

Thai investments would be through max'ing out LTF's and RMF's over the same time period.

I found this recent article to be worth a read:

http://seekingalpha.com/article/1954141-small-caps-will-outperform-if-you-give-em-time?source=email_etf_daily_por_str_ass_all_2_3&ifp=0

Feedback and comments are welcome.

Portfolio 1:

Bonds + Income (20%)

FAX Aberdeen Asia-Pacific Income Fund

HYG IShares High Yield Corporate Bonds

PGP PIMCO Global Stocks + Income Fund

Real Estate (10%)

KBWY PowerShares Premium Yield REIT

RWX SPDR International REIT

US Equity (35%)

RPV Guggenheim S&P 500 Pure Value

VXF Vanguard Extended Market (Mid & Small Cap)

CSD Guggenheim Spin-off

DVY Dow Jones Dividend

International (35%)

PGJ PowerShares US Listed China

PIE PowerShares Emerging Markets (China, Latin America, SE Asia)

VPL Vanguard Asia-Pacific (Japan & Australia)

GULF WisdomTree Middle East Dividend

Portfolio 2:

US Equity (50%)

RPV Guggenheim S&P 500 Pure Value

CSD Guggenheim Spin-off

VXF Vanguard Extended Market (Mid & Small Cap)

EZM WisdomTree Mid Cap Earnings

RZV Guggenheim Small Cap Pure Value

International (50%)

PGJ PowerShares US Listed China

DFE WisdomTree Europe Small-Cap Dividend

DLS WisdomTree Int. Dev. Small Cap (Europe, Japan, Aus)

DGS WisdomTree Int. Emg. Small Cap (Asia Dev&Emg, Latin Amer.)

ASEA Guggenheim ASEAN 40

GULF WisdomTree Middle East Dividend

In the US Equity portion of portfolio 2 it would seem to me that your Vanguard Extended Market Fund would cover the mid and small cap worlds and the addition of the other two mid and small cap funds would create substantial overlap of holdings vs. additional diversification.

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[AyG]

Feedback and comments are welcome.

Just a couple of additional comments:

1. As far as I know the Guggenheim ASEAN ETF hasn't been launched yet. No information about which index it will track or what the fees will be. I suspect it will also struggle to raise sufficient capital to survive. The similar Global X FTSE ASEAN 40 ETF only has a market cap of $30 million.

2. Guggenheim Spin-off seems strangely out of place. I personally don't get the logic of investing in spun off companies six months or more after they have been spun off from a parent. The efficient market hypothesis would suggest there's no special case for holding them. What's the thinking there?

[Furbie]

Although you are certainly diversified, that’s a pretty risky portfolio and I do not think the upside reward will justify the downside risk for long-term investing. As for holding mostly US stocks, it is preferred by many because the risk reward calculation most people do (it is also the lowest fee situation).

I see a lot of advice on the amount in equities versus bonds – please note, a lot of recent research shows that 70 – 30 is best for maximizing returns and minimizing risk (as in going to 80% equities does not give you enough upside to justify the increased downside risk). Gold is indeed a fools errand.

I am almost entirely ETF now to keep the fees low, everything index.

Perception of a portfolio's risk very much depends upon the time frame one's considering. My portfolio is designed like a university endowment, i.e. a perpetual portfolio. Over such timescales equities will almost inevitably outperform bonds, and developing markets will outperform more established ones. I'm as confident as I can be that the upside reward justifies the downside risk.

As for holding mostly US stocks, a lot of people do it. However, they are Americans. In England people mostly hold British stocks. And in Japan people mostly hold Japanese stocks. It sort of makes sense if you're living in the country, matching your investments to the local economy. If you're an expat living in Thailand or plan to retire there it's folly to invest primarily in US stocks.

Incidentally, charges are low on American mutual funds, ETFs, &c. for the reason that the market is very well researched so active management can add very little. That is definitely not true in smaller, less well researched markets such as Thailand. Whilst I'd be happy to use a passive strategy in the US, I wouldn't in emerging markets. (Exception: I own EGShares Emerging Markets Core ETF, EMCR, which I think is a well-designed product.)

As for a 70/30 split being best, there is no one right solution. For a perpetual portfolio a 0% allocation to conventional bonds is perfectly reasonable because the upside is very limited. Life stage is also important for many people with a shorter term view, and conventional wisdom is changing. See, for example, http://online.wsj.com/news/articles/SB10001424052702304866904579268332305015074?mod=WSJ_hps_sections_yourmoney or http://alphabaskets.com/turning-asset-allocation-upside-down/ ).

In my opinion, emerging markets are just not worth the risk. I know some people don’t agree with this, but if you are chasing higher returns, several scholarly papers (not the glossy marketing materials from investment companies) have shown that small cap and similar investments in developed markets have higher returns with lower risks than emerging markets for people who hold investments. Granted, past performance if no predictor of future performance, but statistically, it’s been demonstrated that it’s not worth the risk for long-term investors, as there are better, less risky alternatives. Worse, it has been shown that emerging market growth has no correlation to emerging market equity performance. For short-term investment, it depends on your ability to time the market – not an easy prospect. Emerging markets also have the added risk of unpredictable inflation and exchange rates – investment killers.

I would also point out that university endowments have much larger portfolios than you and can get “better” advice to manage their money. Larger endowments are usually invested with hedge funds and other non-equity investments – investments you and I will never get a whiff of. I am not aware of any reference to universities following the allocation you mentioned (though my knowledge is US-based). Endowments also don’t pay taxes – which substantially improves their real returns. But most of all, you are not a univertisy, you will access your money at some point. Universities just want the interest.

[Furbie]

Feedback and comments are welcome.

Just a few observations:

1. Why is the property investment there? If it's supposed to be for diversification, it's not a good diversifier because both the ETFs invest in shares and so are highly correlated to the broader market. Physical property is a much better diversifier.

2. You don't give percentages for each investment, but you do seem to be particularly interested in China. Personally I think the market is heavily overbought and don't invest in it. Too many investors chasing too few good companies.

3. I would definitely not invest in China through an ETF - there are so many outright bad companies (particularly banks) that are best avoided. Here I would definitely go for active management. The same pretty much goes for emerging markets.

4. I presume that the Middle East ETF is for exposure to frontier markets. A couple of countries there are about to be moved from "frontier" to "emerging" status. This is going to lead to forced buying of those countries' stocks, for example by emerging markets ETFs. This in turn will lead to the shares being overvalued. This is an area best accessed through an active manager who has the flexibility not to be forced to buy/sell when such changes are made. And if the aim is for frontier markets exposure, there are products out there that provide a broader exposure including frontier Africa and eastern Europe.

So mnay Chinese companies have been de-listed from NYSE and are under investigation. Numerous accounting irregularities. How can anyone trust the Chinese companies? Even if you were inclined to invest, I though foreigners could still not get A shares.

[AyG]

In my opinion, emerging markets are just not worth the risk. I know some people don’t agree with this, but if you are chasing higher returns, several scholarly papers (not the glossy marketing materials from investment companies) have shown that small cap and similar investments in developed markets have higher returns with lower risks than emerging markets for people who hold investments. Granted, past performance if no predictor of future performance, but statistically, it’s been demonstrated that it’s not worth the risk for long-term investors, as there are better, less risky alternatives. Worse, it has been shown that emerging market growth has no correlation to emerging market equity performance. For short-term investment, it depends on your ability to time the market – not an easy prospect. Emerging markets also have the added risk of unpredictable inflation and exchange rates – investment killers.

Thanks for sharing your thoughts. In my opinion, as someone who is now retired in Thailand, I think the risk acceptable. What would be much more risky for me is just to hold, say, US securities. Then I would have "the added risk of unpredictable inflation and exchange rates". By holding both developed and emerging market securities, with diversification between a number of countries in each case, I'm not exposed to the performance of a single market or a single exchange rate - I get a sort of average. I don't reckon I'm smart enough to say that this market or that market will perform best or that a given exchange rate will move in a particular direction.

The case for holding emerging market securities also includes the fact that they are not fully correlated with the US stock market, so provide a measure of divergence (albeit one that has weakened over recent years, which is why I also have a modest allocation to frontier markets).

I would also point out that university endowments have much larger portfolios than you and can get “better” advice to manage their money. Larger endowments are usually invested with hedge funds and other non-equity investments – investments you and I will never get a whiff of. I am not aware of any reference to universities following the allocation you mentioned (though my knowledge is US-based). Endowments also don’t pay taxes – which substantially improves their real returns. But most of all, you are not a univertisy, you will access your money at some point. Universities just want the interest.

It's a tad presumptuous to assume that I don't have enough money to invest in hedge funds. I don't invest in them now, but used to until I was hit by the Weavering Capital fraud (and this was despite having paid for due diligence to be done on the fund). I now feel that too many hedge funds are profoundly corrupt so it's not worth the risk.

No university follows an allocation remotely resembling mine because their circumstances are different. However, the philosophy of aiming to preserve capital and generate income for as long as I live are similar. I don't want to eat into my capital because I don't know how long I'll live. I currently take a conservative 3.5% a year from my investments making it highly unlikely I'll end up destitute.

Finally, like endowments, I don't pay any tax either on more than 95% of my investments, having the advantage of not being a US citizen, having only a small part of my investments in the US, and not holding any of my investments in Thailand. Frankly, it surprises me that more US expats don't give up their citizenship for the tax advantages.

[meand]

About the risk in the emerging markets, all other arguments aside, the risk I don't like is the 100% "risk" I take on capital gains tax with US stocks, and the 0% chance I have on paying them here.

[Furbie]

In my opinion, emerging markets are just not worth the risk. I know some people don’t agree with this, but if you are chasing higher returns, several scholarly papers (not the glossy marketing materials from investment companies) have shown that small cap and similar investments in developed markets have higher returns with lower risks than emerging markets for people who hold investments. Granted, past performance if no predictor of future performance, but statistically, it’s been demonstrated that it’s not worth the risk for long-term investors, as there are better, less risky alternatives. Worse, it has been shown that emerging market growth has no correlation to emerging market equity performance. For short-term investment, it depends on your ability to time the market – not an easy prospect. Emerging markets also have the added risk of unpredictable inflation and exchange rates – investment killers.

Thanks for sharing your thoughts. In my opinion, as someone who is now retired in Thailand, I think the risk acceptable. What would be much more risky for me is just to hold, say, US securities. Then I would have "the added risk of unpredictable inflation and exchange rates". By holding both developed and emerging market securities, with diversification between a number of countries in each case, I'm not exposed to the performance of a single market or a single exchange rate - I get a sort of average. I don't reckon I'm smart enough to say that this market or that market will perform best or that a given exchange rate will move in a particular direction.

The case for holding emerging market securities also includes the fact that they are not fully correlated with the US stock market, so provide a measure of divergence (albeit one that has weakened over recent years, which is why I also have a modest allocation to frontier markets).

I would also point out that university endowments have much larger portfolios than you and can get “better” advice to manage their money. Larger endowments are usually invested with hedge funds and other non-equity investments – investments you and I will never get a whiff of. I am not aware of any reference to universities following the allocation you mentioned (though my knowledge is US-based). Endowments also don’t pay taxes – which substantially improves their real returns. But most of all, you are not a univertisy, you will access your money at some point. Universities just want the interest.

It's a tad presumptuous to assume that I don't have enough money to invest in hedge funds. I don't invest in them now, but used to until I was hit by the Weavering Capital fraud (and this was despite having paid for due diligence to be done on the fund). I now feel that too many hedge funds are profoundly corrupt so it's not worth the risk.

No university follows an allocation remotely resembling mine because their circumstances are different. However, the philosophy of aiming to preserve capital and generate income for as long as I live are similar. I don't want to eat into my capital because I don't know how long I'll live. I currently take a conservative 3.5% a year from my investments making it highly unlikely I'll end up destitute.

Finally, like endowments, I don't pay any tax either on more than 95% of my investments, having the advantage of not being a US citizen, having only a small part of my investments in the US, and not holding any of my investments in Thailand. Frankly, it surprises me that more US expats don't give up their citizenship for the tax advantages.

Sorry, I did not mean to be presumptuous as to your net worth. However, many of the types of investments universities make are only open to institutional investors. No disrespect intended.

I agree with you that it is difficult to find uncorrelated investments these days – equities in most developed markets - and bonds seem to be moving in similar directions, making it very hard to do. We’ll have to agree to disagree on the risks of emerging markets, and especially frontier markets, dear God!

Most Americans are too patriotic to give up their citizenship for tax reasons. And even if they did, acquiring new citizenship comes with problems too. Also, just giving up your citizenship does not get rid of your tax burden – you essentially need to buy out of the system first. The US loves to tax.

[Naam]

I tend to view my home as a use asset and not an investment.

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My home turned out to be the best asset I ever had when I sold it.

a home in which one lives should not be considered an asset.

[Naam]

If you're planning on retiring to Thailand, does it really make sense to have so much of your investments in the US geared to the US economy? And what about exchange rate changes over the years? Asia's economies are rising, whilst America's is in long-term decline.

Since you have a long time to retirement you can afford to have almost all your investments in equities at the moment. Gold, bonds and cash are simply a drag on performance. You'll almost certainly not even be beating inflation with cash.

Are all the rental properties in a single town? If so, what happens if the major employer in that area goes bankrupt or leaves the area? Possibly no income and almost worthless property. That would be a very concentrated risk. Far better to invest in a diversified fund offering exposure to physical property.

Gold, bonds and cash are simply a drag on performance. You'll almost certainly not even be beating inflation with cash.

i [not so] humbly beg to disagree in 36 years of investing i only held bonds, never touched any equities and retired quite well-off 24 years ago. i also claim that a healthy pile of cash came always in handy in times of the multiple crises i have experienced.

[SpokaneAl]

I tend to view my home as a use asset and not an investment.

Sent from my iPad using Thaivisa Connect Thailand mobile app

My home turned out to be the best asset I ever had when I sold it.

a home in which one lives should not be considered an asset.

Well, of course a home is an asset. Hopefully over time it is an appreciating asset. My car is an asset as well, albeit a depreciating asset. Both are factored into the equation when I calculate my net worth. The difference in classifying them as use assets is that, for me at least, they are not a part of my investment equation.

[SpokaneAl]

I tend to view my home as a use asset and not an investment.

Sent from my iPad using Thaivisa Connect Thailand mobile app

My home turned out to be the best asset I ever had when I sold it.

a home in which one lives should not be considered an asset.

Well, of course a home is an asset. Hopefully over time it is an appreciating asset. My car is an asset as well, albeit a depreciating asset. Both are factored into the equation when I calculate my net worth. The difference in classifying them as use assets is that, for me at least, they are not a part of my investment equation.

[Naam]

Well, of course a home is an asset. Hopefully over time it is an appreciating asset. My car is an asset as well, albeit a depreciating asset. Both are factored into the equation when I calculate my net worth. The difference in classifying them as use assets is that, for me at least, they are not a part of my investment equation.

assuming your home appreciates... what then? you sell it and build/buy a cheaper one? or move to a cheaper area and acquire an equivalent home?

my questions are not rhetorical. i am really interested why people long for appreciation of the real estate they use for living.

[jbaldwin]

Well, of course a home is an asset. Hopefully over time it is an appreciating asset. My car is an asset as well, albeit a depreciating asset. Both are factored into the equation when I calculate my net worth. The difference in classifying them as use assets is that, for me at least, they are not a part of my investment equation.

assuming your home appreciates... what then? you sell it and build/buy a cheaper one? or move to a cheaper area and acquire an equivalent home?

my questions are not rhetorical. i am really interested why people long for appreciation of the real estate they use for living.

When I retired, I sold a house in London and spent 18% of the proceeds on a condo in Pattaya. The appreciation of my London house makes a large difference to my current standard of living and was a key reason why I was able to retire at 37.

[SpokaneAl]

Well, of course a home is an asset. Hopefully over time it is an appreciating asset. My car is an asset as well, albeit a depreciating asset. Both are factored into the equation when I calculate my net worth. The difference in classifying them as use assets is that, for me at least, they are not a part of my investment equation.

assuming your home appreciates... what then? you sell it and build/buy a cheaper one? or move to a cheaper area and acquire an equivalent home?

my questions are not rhetorical. i am really interested why people long for appreciation of the real estate they use for living.

It sounds like you and I are on the same page. For most home appreciation just adds to the net worth, because they gotta have a place to live. We sold our house last year and bought a smaller one - however it cost us more than we got out of the sale of our previous home. Those who move to places like Thailand can probably net a nice profit that will help with living expenses. My point is whatever you do, one's personal balance sheet should reflect all assets and liabilities to determine an accurate personal net worth.

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[Naam]

Well, of course a home is an asset. Hopefully over time it is an appreciating asset. My car is an asset as well, albeit a depreciating asset. Both are factored into the equation when I calculate my net worth. The difference in classifying them as use assets is that, for me at least, they are not a part of my investment equation.

assuming your home appreciates... what then? you sell it and build/buy a cheaper one? or move to a cheaper area and acquire an equivalent home?

my questions are not rhetorical. i am really interested why people long for appreciation of the real estate they use for living.

It sounds like you and I are on the same page. For most home appreciation just adds to the net worth, because they gotta have a place to live. We sold our house last year and bought a smaller one - however it cost us more than we got out of the sale of our previous home. Those who move to places like Thailand can probably net a nice profit that will help with living expenses. My point is whatever you do, one's personal balance sheet should reflect all assets and liabilities to determine an accurate personal net worth.

Sent from my iPad using Thaivisa Connect Thailand mobile app

i have no idea what our homes are worth, that applies especially to the home in Thailand. that's why it is impossible to consider it an asset or add a fictitious value to our net worth. it would of course be different if we had any plans or due to some circumstances forced to sell. because only then i'd try to find out their actual market values.

shooting from the hip i dare say that 90% of the postings concerning this topic show an unhealthy obsession with appreciation.