Thoughts on Australian Asset Allocation

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Topic Author
SJF
Posts: 7
Joined: Sun May 22, 2016 3:57 am

Thoughts on Australian Asset Allocation

Post by SJF »

Gday all,

After some opinions on a potential asset allocation. Im 30, have saved $50k for shares, put a minimum $10k in per annum and am about 30 years from retirement. Will reinvest all dividends. Weight, Title and Codes of ETFs as follows:

10% MSCI Small Caps (VSO)
10% Fixed interest (VAF)
20% A-REITs / Property (VAP)
40% Australian shares (VAS)
20% International shares MSCI ex Australia (VGS)

I'm thinking there is too heavy weighting in the A-REITs (VAP), as there'll be some in the Aussies shares ETF (VAS). Im also happy to take some risk with the small caps fund (VSO) although I could change it to the FTSE Emerging Market Shares (VGE) instead

Thank you!
AlohaJoe
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Joined: Mon Nov 26, 2007 1:00 pm
Location: Saigon, Vietnam

Re: Thoughts on Australian Asset Allocation

Post by AlohaJoe »

How does your super fit into this?

Having only 20% of your investments outside of Australia is way too much home country bias for my tastes :)

I agree with your comment about REITs. VAS is 8% REITs and VGS is 3%. So your "true" REIT allocation is nearly 25% of your total portfolio.

Most everything else....I would put down to preferences. But here on bogleheads you're likely to raise eyebrows about your 90/10 stock/bond split.

Huh, I didn't know about VSO. Funny to think of the Star casinos or JB Hifi or Fairfax as "small cap".
Topic Author
SJF
Posts: 7
Joined: Sun May 22, 2016 3:57 am

Re: Thoughts on Australian Asset Allocation

Post by SJF »

AlohaJoe wrote:How does your super fit into this?

Having only 20% of your investments outside of Australia is way too much home country bias for my tastes :)

I agree with your comment about REITs. VAS is 8% REITs and VGS is 3%. So your "true" REIT allocation is nearly 25% of your total portfolio.

Most everything else....I would put down to preferences. But here on bogleheads you're likely to raise eyebrows about your 90/10 stock/bond split.

Huh, I didn't know about VSO. Funny to think of the Star casinos or JB Hifi or Fairfax as "small cap".
Thanks! And that is my super AlohaJoe :D

How would you weight home country v international? Haha, and yes, I know my stock / bond split is pretty low for many! Lets see what other opinions I get!
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jhfenton
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Location: Ohio

Re: Thoughts on Australian Asset Allocation

Post by jhfenton »

I wouldn't question the 90/10 for a 30-year-old. That's right where almost every target retirement fund in the U.S. would put you.

But I would also question the home-country bias. I'm 50% US/50% international. Weighing the size and diversity of your home market against the currency risk investing outside your home market, 50/50 is probably not a bad place to start for anyone.
AlohaJoe
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Location: Saigon, Vietnam

Re: Thoughts on Australian Asset Allocation

Post by AlohaJoe »

SJF wrote:How would you weight home country v international? Haha, and yes, I know my stock / bond split is pretty low for many! Lets see what other opinions I get!
I wouldn't go any higher than 50% Australian. There's not a strong scientific basis to that other than "equal weighting seems to do pretty okay when it comes to regret minimisation".
Engineer250
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Joined: Wed Jun 22, 2016 1:41 pm

Re: Thoughts on Australian Asset Allocation

Post by Engineer250 »

Just my opinions, I am far from an expert.

I agree 90/10 is fine for your age.

Country home weighting: Looks like Australian market weighting internationally is pretty small, somewhere around 3%. Also looks like the MSCI ex-Australia captures only developed countries, and mostly large cap with a little mid cap and no small cap. REIT at 20% seems pretty risky. I don't like more than 5% for a single sector like that, 10% might be on the acceptable range of high end.

I would increase your total international holdings and decrease your REIT. It's hard to say what I would do about my home country index as most folks in the US are overweight in US equity so I don't have the perspective from a different country. I feel like maybe 30-40% total domestic might be appropriate, especially considering your 10% securities are all domestic as well. I'd add in emerging markets for sure. I'd add in an international non-AUS small cap fund if you can find one. So hypothetically like 8% AUS small cap, 32% AUS shares, 10% fixed interest, 5% REIT, 25% international MSCI ex-AUS, 10% emerging markets, 10% international small cap. I could see any of those 3 international funds going up or down by 5% depending on how heavy into developed/emerging large cap/small cap you want to be. If you are happy with your domestic shares at 50% that's probably also fine, certainly your call and none of us can predict the future.
Where the tides of fortune take us, no man can know.
TedSwippet
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Location: UK

Re: Thoughts on Australian Asset Allocation

Post by TedSwippet »

A few years ago Vanguard released a research paper on the effects of home country bias in asset allocations. Australia is one of the countries covered by the report. You can find it here:

https://pressroom.vanguard.com/nonindex ... e_Bias.pdf
Topic Author
SJF
Posts: 7
Joined: Sun May 22, 2016 3:57 am

Re: Thoughts on Australian Asset Allocation

Post by SJF »

Thanks! I really appreciate the time you've all taken!

I dont mind risk but also do what want to keep fees low and not hold too many ETFs. Maximum of 6 (only double the 3 fund models :D )
Topic Author
SJF
Posts: 7
Joined: Sun May 22, 2016 3:57 am

Re: Thoughts on Australian Asset Allocation

Post by SJF »

Also looks like VGE name is "Vanguard FTSE Emerging Markets Shares" but only invests in Chinese companies. Full name on the fact sheet states "Vanguard FTSE Emerging Markets Shares ETF seeks to track the return of the FTSE Emerging Markets All Cap China A Transition Index" and the top 10 held stocks are all Chinese.

iShares on the other hand has IEM: "The index, the MSCI Emerging Markets Index, is designed to measure equity market performance in the global emerging markets."

There does not appear to be an international small cap ETF available on the ASX at the moment.
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