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Asset Allocation

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
Kantwebefriends
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Re: Asset Allocation

#519328

Postby Kantwebefriends » August 2nd, 2022, 10:45 pm

Sternumator wrote: The two diversifiers that most interest me are bonds and property because they large asset classes that I assume are underrepresented on the balance sheets of listed companies. If you were trying to build a portfolio of all the assets in the world weighted by value, you would be missing out important components of global wealth by leaving out property and bonds.


That's pretty persuasive. The other thing I'd add is to consider biasing investments in favour of the tax efficient - be it income tax, Capital Gains Tax, or Inheritance Tax.

Your owner-occupied property mitigates all three. Gold sovereigns are free of CGT; so are gilts, including inflation-linked gilts.

But I don't know of a satisfactory way of storing sovereigns. Gilts have been poor value for ages. ILGs tend to be overvalued because of regulations that require DB pension funds to hold lots, thus driving the price up.

Maybe the best inflation protection at the moment is to buy "stuff" that you expect to use in future and which you think will rise in price. Happily I enjoy sardines and baked beans (though not in the same meal).

Also, if you know Granny holds index-linked savings certificates persuade her not to cash them in. And don't let her executor do so either.

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Re: Asset Allocation

#519331

Postby GoSeigen » August 2nd, 2022, 11:26 pm

minnow wrote:You're quite right GoSeigen, 3TYL is not a bond. Thanks for pointing that out, I should have been clearer. It's a ETP that gets leveraged exposure to treasuries via the futures market. It's also unhedged, as you point out. Personally I quite like the USD exposure because, in the event of an economic shock, I'd wager on the dollar rallying against sterling but I know opinions differ on that point (Monevator did a good article on that - "Do US Treasury bonds protect UK investors better than gilts?")

Intrigued by your comment about performance, I pulled some stats for IEF (Blackrock's 10Y unhedged treasury ETF). Yahoo has daily prices going back to 2002. With the assistance of LibreOffice, I then took the daily price returns and multiplied by 2x or 3x (simulating the daily reset behaviour). I then calculated the total annual return for a "simulated" leveraged ETF, going back to 2002. Here are the results :

Code: Select all

        1x     2x     3x
2003   6.14  12.02   17.57
2004   5.17  10.16   14.91
2005   2.42   4.64    6.63
2006   2.83   5.55    8.15
2007  10.84  22.42   34.72
2008  13.44  27.35   41.48
2009  -3.36  -7.35  -11.88
2010   8.75  17.58   26.37
2011  16.77  35.39   55.88
2012   2.52   4.81    6.86
2013  -5.29 -10.64  -16.01
2014   9.19  18.94   29.24
2015   1.42   2.42    2.98
2016   0.53   0.76    0.70
2017   2.26   4.39    6.37
2018   1.54   2.93    4.18
2019   8.30  16.95   25.93
2020   9.53  19.35   29.41
2021  -4.25  -8.59  -12.98
2022  -8.75 -17.13  -25.10


Most of the time, it seems that the 3x product does indeed return approximately three times the unleveraged return. Sometimes it's more, sometimes it's less, as you'd expect. Now granted, I haven't attempted to account for fees and the actual returns will undoubtedly be lower. But the numbers are in the right ballpark, I think. The key point is that vol drag isn't a significant issue when you're leveraging something that moves < 1% on an average day. I'm not getting exactly 3x the underlying, but it's close enough for my purposes. And ultimately, I get a bond-like exposure for 1/3rd of the cash that I'd otherwise have had to lock up. That's the theory at least. Whether it works in practice, time will tell !


But 3TYL holders miss out on more than 2.5%pa distributions? (0r 7.5%pa if trebled...). I expect past performance has been flattered by falling yields. Even in the past 4 years, by your figures, 6% gain for 3TYL vs 3.6% unleveraged is not treble the return even if we ignore distributions.

I stick to my view that by holding long term you are losing 2% or more each year versus holding the treasury directly. So no leverage advantage at all and additional losses to boot.

And ultimately, I get a bond-like exposure for 1/3rd of the cash that I'd otherwise have had to lock up.


If this is the justification, buy futures.

GS

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Re: Asset Allocation

#519553

Postby elephanthunt11 » August 3rd, 2022, 6:10 pm

My first question to you would be “what’s your investment horizon?”

Then I read you’re in retirement living off your portfolio.

Honestly, I think we are still very much in a TINA (there is no alternative) phase when looking at stocks.

Real return on bonds is awful given the nature of fixed rate coupons. I think playing with options or CFDs is an almost guaranteed recipe for disaster unless you really know what you’re doing.

My investment horizon is very different to yours, I have about 80% stock, 10% cash on account, 10% physical gold. My opinion is that if you can’t hold it, it’s not worth the paper the contract is written on, all while the managers of those ETCs charge you a fee for AUM.

My advice would be to go down the IT route, CTY as an example; having raised dividend payment for 55 years consecutively, they are unlikely to change that soon.

Alternatively, transitioning to something like an HYP, although this feels pointless in the face of CTY’s aim and holdings.

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Re: Asset Allocation

#519658

Postby Kantwebefriends » August 3rd, 2022, 10:48 pm

elephanthunt11 wrote: 10% physical gold.



I'm all ears: how do you store it?

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Re: Asset Allocation

#519872

Postby elephanthunt11 » August 4th, 2022, 5:25 pm

Kantwebefriends wrote:
elephanthunt11 wrote: 10% physical gold.



I'm all ears: how do you store it?

I store it in my safe at home in capsules, as it's in coin form. I usually by it from Sharps Pixley (very reputable bullion dealer in London) or Atkinsons. Sharp's prices seem to have gone up recently and so I will be buying from atkinsons for future purchases.

If you're new to gold stacking - you need to be aware of premiums; being the amount of money you will pay over the spot value. I usually buy sovereigns when I've got a bit of spare cash at the end of the month after making my ISA contributions because sovereigns can be picked up for like 2-3% above spot value.

The reason I like sovereigns is because they're really affordable, cheap in terms of premiums, super liquid if you need to sell and CGT free. CGT exemptions also apply to any UK minted gold bullion coin. I've also got a couple of Britannias.

Bear in mind though, I posit that gold is not an investment. No real return, dividend, you can't eat it etc etc plus, from an investment point of view, given that premiums are a necessary evil this needs to be factored in. I like to think of gold as more of a store of value/ something of a loose insurance against rampant inflation or deflation and generally speaking, it moves contrary to stocks given it's 'safe haven' asset perception and Tier 1 asset class as defined by central banks. It's not going to get me rich, it is absolutely a secondary investment after my equity holdings.

Hope this helps.

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Re: Asset Allocation

#520035

Postby BT63 » August 5th, 2022, 11:03 am

Kantwebefriends wrote:
elephanthunt11 wrote: 10% physical gold.

I'm all ears: how do you store it?


A gold Sovereign the size of a 1p (but twice the weight) is worth about £350 so it doesn't require much space to store.

Bury it in your garden, put it under your floorboards, put it in an under-floorboard safe box (cheap and easy to source from a DIY centre), put it behind/under a kitchen cupboard fascia, wrap it in a dirty cloth under some worthless junk in your shed/garage or in a crack in the wall, tuck it under the carpet in the corner of a room. If it's a small amount you could sellotape it underneath a heavy piece of furniture.
If you're worried about it melting during a house fire, hide it somewhere in a downstairs toilet/wet room or consider buying a small fire-resistant safe and disguise the safe as something else or cover it with junk. Keep any safe keys somewhere else and put a spare one on a bunch of house keys at a friend or relative's house but don't tell the friend/relative what the extra key is for.
Link to B&Q's website page for a simple, under-floor safe box (£48) which screws to rafters/beams from inside (to prevent easy removal while locked):
https://www.diy.com/departments/smith-l ... 467_BQ.prd

Buying gold in ETFs is not as 'safe' as many people think. Many dubious things happen in ETF land and on more than one occasion they have been unable to deliver physical metal to holders who took up that option.
Sometimes the bars which ETFs think they own have been traced as belonging to someone else - in one instance several years ago apparently the same bar had three owners because the custodian bank had sold/loaned/re-sold/re-loaned out the gold supposedly being stored for an ETF.

I don't hold bullion in an ETF form. I also don't recommend others get involved with bullion ETFs.

As for gold bullion dealers, in the past I have been fully satisfied with Baird & Co or Chards, having dealt many times with Baird & Co in particular, but it has been at least several years since I last transacted significant quantities of bullion so the best companies to deal with might have changed in that time.

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Re: Asset Allocation

#520056

Postby mc2fool » August 5th, 2022, 11:46 am

BT63 wrote:
Kantwebefriends wrote:
elephanthunt11 wrote: 10% physical gold.

I'm all ears: how do you store it?

A gold Sovereign the size of a 1p (but twice the weight) is worth about £350 so it doesn't require much space to store.

Bury it in your garden, put it under your floorboards, put it in an under-floorboard safe box (cheap and easy to source from a DIY centre), put it behind/under a kitchen cupboard fascia, wrap it in a dirty cloth under some worthless junk in your shed/garage or in a crack in the wall, tuck it under the carpet in the corner of a room. If it's a small amount you could sellotape it underneath a heavy piece of furniture.

I recall a Fool, either here or on TMF, who said they stored their sovereigns in PVC drainage pipes (of the under-sink variety) connected, physically although not liquid wise, to their indoor plumbing setup such that it just appeared as part of the normal installation. :!:

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Re: Asset Allocation

#520062

Postby JohnW » August 5th, 2022, 11:55 am

After all, there, there have been plenty of times in history when a 60/40 went sideways for a decade or more (in real terms)....
To try and correct this imbalance I have recently started nibbling at various commodity ETFs….I’m also exploring concepts like risk parity portfolios, tail protection, alternative risk premia… …2022 has been a fairly rough year for me in P&L terms, but on the plus side it has opened my eyes to a whole new way of thinking about investing.

Yes, and it’s call your ‘at risk’ portfolio. When we moved from defined benefit to defined contribution pensions we took on the risk that assets with price fluctuations have. But we need a steady, guaranteed, for life income in retirement from our investments - or at least from some of them for our minimum needs. Step back one step and take an overview of the posts, including mine, in this thread; it’s all been about using an ‘at risk’ portfolio for retirement. But there’s another way and a Nobel laureate has been one championing it.
You quantify how much income you need from your portfolio for a basic, or your ‘minimal’ existence, then you spend what you need to buy that income. Usually that would be an inflation adjusted lifetime annuity. Any left over investments can be in an ‘at risk’ portfolio that provides for the luxuries, without heartache if it fails. https://doczz.net/doc/8871437/applying- ... -economics
Merton’s contention is that as we now focus on our defined contribution pensions during accumulation and retirement, our focus is on how much they’re growing each year and by extension how much they’ll be worth at retirement and how much income we can safely get from them given their fluctuating value. But what really counts in retirement is ensuring a safe, dependable keep you alive income, and we should be looking at our investments in terms of how they can provide for that.

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Re: Asset Allocation

#520151

Postby Hariseldon58 » August 5th, 2022, 5:35 pm

JohnW wrote:
After all, there, there have been plenty of times in history when a 60/40 went sideways for a decade or more (in real terms)....
To try and correct this imbalance I have recently started nibbling at various commodity ETFs….I’m also exploring concepts like risk parity portfolios, tail protection, alternative risk premia… …2022 has been a fairly rough year for me in P&L terms, but on the plus side it has opened my eyes to a whole new way of thinking about investing.

Yes, and it’s call your ‘at risk’ portfolio. When we moved from defined benefit to defined contribution pensions we took on the risk that assets with price fluctuations have. But we need a steady, guaranteed, for life income in retirement from our investments - or at least from some of them for our minimum needs. Step back one step and take an overview of the posts, including mine, in this thread; it’s all been about using an ‘at risk’ portfolio for retirement. But there’s another way and a Nobel laureate has been one championing it.
You quantify how much income you need from your portfolio for a basic, or your ‘minimal’ existence, then you spend what you need to buy that income. Usually that would be an inflation adjusted lifetime annuity. Any left over investments can be in an ‘at risk’ portfolio that provides for the luxuries, without heartache if it fails. https://doczz.net/doc/8871437/applying- ... -economics
Merton’s contention is that as we now focus on our defined contribution pensions during accumulation and retirement, our focus is on how much they’re growing each year and by extension how much they’ll be worth at retirement and how much income we can safely get from them given their fluctuating value. But what really counts in retirement is ensuring a safe, dependable keep you alive income, and we should be looking at our investments in terms of how they can provide for that.


This question of the minimum income is an important factor, not running out of money in hard times !!!

The state pension for two adults would cover most of the de minimus cost of living for our household, given these pensions are not yet due, my present holdings of TIPs would easily cover our expected de minimus income before pensions are due and as the top up. ie rather than an annuity, index linked bonds would easily cover this liability for our expected lifetimes. IE our risk portfolio is additional to this de minimus income.

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Re: Asset Allocation

#520158

Postby Kantwebefriends » August 5th, 2022, 5:42 pm

My thanks for the advice from the three gold-stashing experts.

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Re: Asset Allocation

#520251

Postby JohnW » August 6th, 2022, 1:37 am

rather than an annuity, index linked bonds would easily cover this liability for our expected lifetimes.

You don’t need me to guide your planning, but for those looking on we need to remember that a large proportion of people will live beyond their expected lifetimes. So if we’re planning financial instruments to cover absolute ‘must-have’ expenses for life, it has to be ‘possible lifetimes’ not ‘expected lifetimes’. That could add 20 years. Wherein lies an advantage of an annuity; the provider only needs to plan for the expected lifetimes of all its annuitants.

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Re: Asset Allocation

#520253

Postby 1nvest » August 6th, 2022, 2:19 am

BT63 wrote:I don't hold bullion in an ETF form. I also don't recommend others get involved with bullion ETFs.

The liquidity of ETF's/tight spreads is useful. If otherwise you might pay a 4% physical gold spread, buy the ETF instead, and if 25% of your portfolio and the portfolio is up +5% real over the next year then count that as a +4% real year and convert ETF gold to physical for 'free' (other peoples money). Buy a large O ring metallic curtain rail and fill that with your coins for storage, or wherever (no subsequent ongoing storage/fund fees, no counter part risk, a non-fiat currency (and a commodity) that might hedge fiat currency/counter-party risks).

If/when some is to be sold, look to those that might otherwise pay +4% above spot to buy, offering them a trade at +2%.

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Re: Asset Allocation

#520268

Postby BT63 » August 6th, 2022, 9:08 am

1nvest wrote:
BT63 wrote:I don't hold bullion in an ETF form. I also don't recommend others get involved with bullion ETFs.

The liquidity of ETF's/tight spreads is useful. If otherwise you might pay a 4% physical gold spread, buy the ETF instead, and if 25% of your portfolio and the portfolio is up +5% real over the next year then count that as a +4% real year and convert ETF gold to physical for 'free' (other peoples money). Buy a large O ring metallic curtain rail and fill that with your coins for storage, or wherever (no subsequent ongoing storage/fund fees, no counter part risk, a non-fiat currency (and a commodity) that might hedge fiat currency/counter-party risks).

If/when some is to be sold, look to those that might otherwise pay +4% above spot to buy, offering them a trade at +2%.


Due to the way ETFs and their custodians operate, one day there could be a default.

It is also very likely that certain custodian banks use, or allow the use of ETF stored metal for strategic 'hits' on the precious metals markets, temporarily selling large quantities (shorting) at vulnerable times to knock out the stops of speculators (the banks know where the stops are because the speculators are their clients) then buying it back after they've run the stops.
There's huge evidence for it and that's almost certainly what has been happening in July.

So by buying ETFs you're helping price manipulation and ultimately helping to get yourself stopped-out or scared out of your positions, costing you money.
There's also the serious concern that ETFs seem all too often unable to actually deliver the physical gold which their prospectus says clients can request delivery of.

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Re: Asset Allocation

#520279

Postby BT63 » August 6th, 2022, 10:02 am

From as far back as 2011 there were question marks over the integrity of precious metal ETFs.

'......CNBC yesterday ran a cheerleading, anti-conspiracy piece on the SPDR GLD ETF, in an attempt to convince gold bugs that the trust actually holds physical gold.......As can be seen in the photo above, CNBC's Bob Pisani toured the GLD warehouse, and presented this bar marked ZJ6752 as proof that GLD holds the phyzz......Well, until somebody had to go and check SPDR's full GLD bar list, and discover that ZJ6752 is nowhere to be found in SPDR's inventory.....'

'...We have now confirmed that the ‘GLD’ bar marked ZJ6752 is listed in the bar list for the EFTSecurities fund, as stated by Ned Naylor-Leyland.
Screen shot of the EFTS bar list including bar ZJ6752 is included below.
We now have indisputable evidence that the gold bar held up by Bob Pisani as a ‘GLD’ gold bar is actually owned by ETF Securities!.....'

https://www.silverdoctors.com/gold/gold ... -gold-bar/
https://silverdoctors.blogspot.com/2011 ... iracy.html

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Re: Asset Allocation

#520283

Postby BT63 » August 6th, 2022, 10:11 am

Ned Naylor-Leyland, mentioned in my previous post, is manager of the Jupiter Gold and Silver Fund (OEIC).

His fund's bullion positions are held by Sprott.

https://www.fidelity.co.uk/factsheet-da ... /portfolio


Disclaimer:
I have a few percent of my portfolio invested in this fund.


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