Share allocation - opinions welcome

bowlhead99

Drp8713 wrote: »

I agree, I hold 0% in bonds, although i do have a longer investing time frame.

Although I am more likely to buy during a crash than sell, so unless you are at the preservation stage of things, I guess they are only there to reduce volitility for people worried about it.

My only non equities are 5% direct propery, 5% infrastructure and 5% precious metals, but that is more for diversification than anything else.

I guess the obvious question is, if you're the type of person who is more likely to buy during a crash - what are you going to buy with if your 85% equities have crashed?

If you had some bonds which presumably can still crash but not as far and fast as equities, you could use them as your war chest. Obviously the weight of the warchest stops you pressing forward in a bull market. So, reduced volatility would be created at the expense of outright performance but if you can flip money from your diversifiers (including bonds) to equities during the equities' lean times, you can do OK.

You mention infrastructure as a separate class and a diversifier - just curious which sort of funds are you using? There are some funds active in PFI projects with nice stable government revenue streams (e.g. closed ended investment trust HICL has a UK focus), while there are others investing in straight equity ownership of infrastructure businesses like water, power, toll roads, rail, ports etc (e.g. First State's Global Listed Infrastructure has been strong in last couple of years).

The different types of funds that call themselves 'infrastructure' can have quite different return profiles and cyclicality, as although things like basic utilities are pretty robust, rail logistics and ports and airports really don't like recessions and so infrastructure equities don't always do a lot better than other high yielding stocks in a downturn. But the chase for yield at the moment means it's pretty difficult to find any infrastructure that's not priced on a premium.

I tend to think of infrastructure as a kind of halfway house between property and equity. Depending on the type of project or company, the infrastructure business can be giving you revenue streams with an element of cyclicality, but that broadly hold up in the weaker markets - like some good high yield equities ; and a stability from a large fixed asset base and solid revenue streams - like some types of commercial property.

Commercial property can also run the gamut from cyclical stuff to more defensive stuff. I have a couple of healthcare-focussed REITs that I think will be good for defensive yield over the long haul - Primary Health Properties has a lot of primary care facilities with NHS customers, while Target Healthcare has a whole bunch of carehomes (not much track record but if they fill out the portfolio will hopefully start earning as much as they are aiming to pay out in yield). I wouldn't expect them to be as linked to the wider stockmarket as something like warehouses and shopping centres which can really just act as a barometer for the boom/bust cycle.

Obviously specialist REITs as a concept are not super low risk and I'll be keeping an eye on interest rates, as gearing isn't going to stay at today's low prices forever.

Drp8713

I was planning to use cash currently not in investments when there is a crash. It would be interesting to see a study of 100% equity returns versus say 60% equities & 40% bonds, where the bonds are then switched to equities in a crash.


Having said that, you then have a problem of timing when to switch to 100% equities, and I assume when to move back into bonds before the next crash.


My direct property is LXB Retail Properties and infrastructure is HICL.

Ryan_Futuristics

bowlhead99 wrote: »

If you had some bonds which presumably can still crash but not as far and fast as equities, you could use them as your war chest. Obviously the weight of the warchest stops you pressing forward in a bull market. So, reduced volatility would be created at the expense of outright performance but if you can flip money from your diversifiers (including bonds) to equities during the equities' lean times, you can do OK.

Two slightly sobering charts on bond performance, however

The >50% crash in 1981 (and potential we're in a similarly inflated bubble today)



And (I've got a better chart than this somewhere) bond and equities peaking in correlation (which typically gets tighter as rates drop)



There are a lot of blogs still putting the 60:40 portfolio as a "rule of thumb", but many analysts feeling increasing pessimistic about them

I do think fixed income can play an important part in a portfolio though ... If P2P can deliver steady 6-8% returns, it should improve portfolio volatility and returns in many markets ... I just wish I could convince myself to go as high as 25% with it

masonic

Drp8713 wrote: »

I was planning to use cash currently not in investments when there is a crash. It would be interesting to see a study of 100% equity returns versus say 60% equities & 40% bonds, where the bonds are then switched to equities in a crash.

The latter option is easier said than done. When you do switch from bonds into equities - in one go after a 20% fall, or wait for 30%, 40%, 50% etc. Perhaps you mean a simple rebalance to maintain your asset allocation, or maybe make use of a tactical asset allocation based on a valuation metric or some technical analysis?

payless

jimjames wrote: »

Not sure where this rule of thumb comes from, it's not something I've ever used.

Similar view to the Old lifestyling allocation - bonds % to match your age.

Take a look at ftse wma portfolios ( old name was apcims) - although in this climate I would be wary of any long term term uk gilts ( and hence cash is easier) - maybe corporate debt ?

Ryan_Futuristics

Drp8713 wrote: »

I was planning to use cash currently not in investments when there is a crash. It would be interesting to see a study of 100% equity returns versus say 60% equities & 40% bonds, where the bonds are then switched to equities in a crash.


Having said that, you then have a problem of timing when to switch to 100% equities, and I assume when to move back into bonds before the next crash.


My direct property is LXB Retail Properties and infrastructure is HICL.

You can play with automated market timing strategies like that

Here's one I made which switches between the S&P500 and Gold using the (very simple) relative strength index



http://www.etfreplay.com/backtest.aspx

Or if you want to look at much more sophisticated models
https://www.portfolio123.com/app/r2g/summary/1153755

But it takes big balls to run a whole portfolio on a system like that ... Generally you'd allocate a small part (no greater than 25%) to a specific market timing or momentum strategy ... And it's still difficult to beat long-term buy-and-hold with a value tilt

masonic

payless wrote: »

Old lifestyling allocation - bonds % to match your age.

You're not exactly flattering the OP by suggesting 40%!

payless

Wasn't me suggesting 40 - but wants wrong with being 40 anyway

jimjames

payless wrote: »

Similar view to the Old lifestyling allocation - bonds % to match your age.

Take a look at ftse wma portfolios ( old name was apcims) - although in this climate I would be wary of any long term term uk gilts ( and hence cash is easier) - maybe corporate debt ?

I'm aware of the age ratio. Just no age mentioned so far and the 60:40 seemed to be plucked out of the air

Ryan_Futuristics

jimjames wrote: »

I'm aware of the age ratio. Just no age mentioned so far and the 60:40 seemed to be plucked out of the air

60:40 is considered the "standard" benchmark portfolio in the US (at least)

When you're trying to come up with better everyday/permanent portfolios, it's what you've got to beat

But it's never sailed this kind of QE environment before, so it may be about to get a lot less popular