The asset allocation problem (#230)

Investing history teaches us success is all about asset allocation, as Grant Locke explains in this presentation. History is unfortunately annoyingly silent on what precisely the best asset allocation would be. Where does that leave those of us investing for the long haul?

Should we pick a mix and stick to it? Should we adapt our asset allocation mix to suit the current market conditions? While Ash asks this important question in relation to a retirement product, it's a question each DIY investor would have to answer for themselves.

This is an excellent way to end our Fat Wallet year, because we're once again reminded that intentionality and mindfulness matter when it comes to money management. 

2020 gave us all a lesson in having high expectations of a new year, so this year I won't toast 2021. Instead, let's all raise a glass to the end of 2020 and have that be that.

Thanks for listening!

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Ash

I get that you partner with Outvest and their Coreshares offering based on their incredibly low fees. I have since been looking at the passive balanced funds available in the market and have picked up that they are not all the same.

Could you possibly comment on what is termed a "hard-passive product" which invests in ETFs like the Coreshares OUTmoderate Fund that has a Fixed Asset Allocation? vs a "soft-passive fund" like the Sygnia Skeleton Balanced 70 that is able to adjust its asset allocation on a regular basis however it still uses ETFs and low cost passives in its portfolio.

When reading multiple articles online it's seems asset allocation brings in the bulk of your returns over stock picking, so wouldn't it be beneficial being in the Sygnia portfolio that is able to adjust its asset allocation to market risks over time?

A prime example being that Sygnia currently doesn't hold any property in its portfolio vs Outvest with 15% exposure to Property (Domestic and Local).

When looking at their returns it seems that Sygnia may be more expensive by roughly 0.2% per annum but has managed to deliver far better performance because of its flexibility over the last few years making the 0.2% difference probably worth it.

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Win of the week: AN

I started a Stanlib Unit trust when I was 23 and had stable employment. I injected approximately R100k p.a averaged over the 8 year period. The average returns have been about 7%. However, I suspect that I am being too risk averse and losing out on many opportunities.

Please can you help me decide how to progress from this into more diversification. I have opened a TFSA with EE and I will be purchasing ETFS. What amount of my current unit trust should I move over to ETFs as a guideline and what would be the best 2 or 3 ETFS for me to start with?

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Pascal

When you guys mention Interactive Brokers, you imply that it's totally off limits to anyone with less than 100,000 USD.

There is no minimum account balance with interactive brokers. Only a small monthly "inactivity" fee if your balance is less than 100K. It costs 10 dollars a month, minus the cost of each trade made in that month (at 1 dollar a trade).

So if you buy shares of 2 ETF's each month as I do, your monthly fee is 8 USD (excluding the trades). In other words, aside from the 10 dollars a month, you can buy and sell ETFs for free, up to 10 trades a month, so you're never paying more than ~R160 (at current rates) a month.