Working out % Equity allocation

pip895

Canuck01 said:

Hi Pip...It does seem you are struggling to figure out if the property investment is a good thing to do at the present time.  It seems like a quite complex investment if people would struggle to get a mortgage on it, plus buying from a friend etc.  I remember reading a book on real estate investment once and the advice that stuck with me was something like.  'Never forget all of the value of your investment is realized when you first purchase that property'.  The more research and thought you put into this the better, before you part with your hard earned cash.

I think I am pretty committed to the purchase - its just the apparent effect on my portfolio I was puzzling over.  I have been considering a second rental property for some time. To be fair this one probably wouldn't have been on my radar if it wasn't for the plight of our friend. 
I probably shouldn't admit on a money saving forum that both my sister and I are quite willing to loose a bit of money on this if necessary.  Our friend has been trying to move for a couple of years and has had three buyers pull out - the last one just before exchange because the mortgage company pulled the plug.  It is the uncertainty regarding the property downstairs that is causing the issue.  I really can't see anything going in there that would devalue us more - a sex shop I suppose, but given that its opposite the local primary school I think we are safe

Prism

RoadToRiches said:

17% for the UK is way too much in my opinion and nothing for the powerhouse of the USA

Lots of different ways to get returns. I am around 35% UK equities in my SIPP which has enhanced my returns and volatility rather than impede it.

Thrugelmir

RoadToRiches said:

17% for the UK is way too much in my opinion and nothing for the powerhouse of the USA

A geographical analysis of revenue/profit needs to be performed to arrive at a true picture.  

Canuck01

In your position for a 65 to 70% equity split you can only say the average you expect is around for example 6%, could be a lot more or less in a given year but should average out over ten years.  Then I would go through all of the possible cash flow options for your money that you are investing in the property and try to predict how much better or worse off you will be.  Worrying about tweaking your investment portfolio gets you nowhere.
When I owned rental property I found it more like a part time job than an investment.  I also found it very hard to predict cash flow as I was not approaching it as a business, and bad tenants cost me a lot of money.  In the end I made more back from the property going up so worked out well.
Seems like you have great ethics so hope it works out well for you all.

[Deleted User]

Albermarle said:

Deleted_User said:

pip895 said:

Deleted_User said:

Houses and rentals would be classified as “illiquid assets”.  REIT is really equity under “liquid assets”. “Wealth preservation” is not an asset class but a marketing term.  You should X-ray the fund to figure out your asset allocation.  

Wealth preservation is my term to cover a range of funds & trusts which have wealth preservation as part of there core mandate.  I have picked them based on there relative success in achieving that end in the past. I am well aware that past success is no guarantee that they will all perform well in the future - which is why there are four rather than just one.   
They are bond alternatives - if bond/gilt yields improve I may well transfer to bonds/gilts but until that time I prefer these.  Many use complex arrangements - derivatives etc. to achieve their aims I don't think analysing them to work out the equity/fixed interest in them would help even if the x-ray tools could do it which on the whole they can't.

“Wealth preservation” funds as “bond alternative” = self-deception.  I understand your concerns about bonds but if you think that a marketing gimmick has anything to do with asset allocation then you are kidding yourself. 

I personally do not see the very well established Wealth Preservation funds in the UK ( Personal assets , Capital Gearing etc ) as just a marketing gimmick . They are actively managed funds with a very clear remit . Preservation of Capital as a priority , modest long term growth above inflation as a secondary objective . They are not particularly expensive, and they have so far proved themselves in difficult market conditions.
You are right of course that they are not an asset class in themselves though.

The funds might be solid investment options (or not) but the name is a marketing gimmick.  Every single fund under the sun has an objective to preserve “wealth”.  At least I have never come across any marketing material claiming “our objective is to destroy your wealth”. And I doubt they refuse investments from people who are not wealthy. The name is designed to play on our vanity and fear of losses. 

More to the point, these funds are not bonds, nor fixed income and should not be treated as such when allocating assets. 

pip895

Deleted_User said:

More to the point, these funds are not bonds, nor fixed income and should not be treated as such when allocating assets. 

Why do we bother investing in bonds at all?

For me its so that when equity goes down I have an asset that either goes up or doesn't go down as much, so reducing overall volatility and giving me something I can sell in a downturn, either to retain an income stream or to buy discounted equity if I think that is appropriate. These funds do the job better than many bonds - so whats the problem?  I also see inflation as a significant risk going forward - I may well be completely wrong about that, but I believe these assets have a better chance of dodging that issue if it arises than straight bonds. 

pip895

Deleted_User said:
Every single fund under the sun has an objective to preserve “wealth”

On the contrary most funds have the primary objective to grow wealth.  These funds are willing to sacrifice growth in the good times to preserve it in the bad times. There objective is not to make as much money as possible but to avoid loosing much which is distinctly different.   

Thrugelmir

pip895 said:

Deleted_User said:

More to the point, these funds are not bonds, nor fixed income and should not be treated as such when allocating assets. 

Why do we bother investing in bonds at all?

Historically Government bonds paid a higher yield than was available on equities.  Yields on equities were also lower than BOE base rate. Equities as a consequence didn't offer the same initial attraction as they do today.  Equities therefore carried a genuine volatility risk.

[Deleted User]

The vast majority of funds sacrifice growth in good times to preserve it in bad times.  That goes for every single “balanced”, “conservative”, “low volatility” and a multitude of other funds which are not 100% growth stocks.  

Never mind. 

bostonerimus

Deleted_User said:

Albermarle said:

Deleted_User said:

pip895 said:

Deleted_User said:

Houses and rentals would be classified as “illiquid assets”.  REIT is really equity under “liquid assets”. “Wealth preservation” is not an asset class but a marketing term.  You should X-ray the fund to figure out your asset allocation.  

Wealth preservation is my term to cover a range of funds & trusts which have wealth preservation as part of there core mandate.  I have picked them based on there relative success in achieving that end in the past. I am well aware that past success is no guarantee that they will all perform well in the future - which is why there are four rather than just one.   
They are bond alternatives - if bond/gilt yields improve I may well transfer to bonds/gilts but until that time I prefer these.  Many use complex arrangements - derivatives etc. to achieve their aims I don't think analysing them to work out the equity/fixed interest in them would help even if the x-ray tools could do it which on the whole they can't.

“Wealth preservation” funds as “bond alternative” = self-deception.  I understand your concerns about bonds but if you think that a marketing gimmick has anything to do with asset allocation then you are kidding yourself. 

I personally do not see the very well established Wealth Preservation funds in the UK ( Personal assets , Capital Gearing etc ) as just a marketing gimmick . They are actively managed funds with a very clear remit . Preservation of Capital as a priority , modest long term growth above inflation as a secondary objective . They are not particularly expensive, and they have so far proved themselves in difficult market conditions.
You are right of course that they are not an asset class in themselves though.

The funds might be solid investment options (or not) but the name is a marketing gimmick.  Every single fund under the sun has an objective to preserve “wealth”.  At least I have never come across any marketing material claiming “our objective is to destroy your wealth”. And I doubt they refuse investments from people who are not wealthy. The name is designed to play on our vanity and fear of losses. 

More to the point, these funds are not bonds, nor fixed income and should not be treated as such when allocating assets. 

I roll my eyes when I see funds marketed as "Wealth Preservation". They are just multi-asset funds. Capital Gearing Trust has a bunch of Index Linked Government Bonds, short term bonds and then around 40% in equities.