Hi Folks,
I was hoping to get some advise around my asset allocations and investment strategy on a not so usual portfolio!
What's everyone's thoughts here?
You are getting the very conventional advice here, which will work for anyone starting from zero investments and an income. You said it in the first line - you have a not so usual portfolio and are already retired for all intents and purposes. Congratulations - what you have done has already won the game. You have double what you need to maintain your desired spend rate. You should give thought to avoiding loss - getting sued, divorce, defrauded - all weapons of mass financial destruction.
From what you have posted, my thoughts are:
- You say you need about $130k a year to spend. I assume that's after tax, so spending $130k, not the post tax equivalent of $130k? A lot of the advice on here ignores the impact of taxes on returns, as when drawing a low lifestyle (say $30-40k) the impact of taxes is minimal. Want a higher burn rate and you need to factor in more tax. I assume the trust means you can split income as needed and will end up with $65k post tax for each you and your wife. So splitting this to $65k post tax for you and your wife you need your pre-tax income to be closer to $90k each, for $180k total and $50 to the tax man, if its all from earnings. Moving $50k a year into super from capital (as I think you are doing) will help offset this a bit.
- The super fund would have enough earnings in it to support your lifestyle, with zero earnings in your own name, you have assumed from 65 (18 years away)
- You already have $20k earnings from the granny flat. You could spend capital for the remaining $110k for 18 years (call it $2m) and take zero risk on that if you chose. To me, that's the absolute maximum you should have in fixed income/bonds/bank deposits - anything above this is just gravy. So, at a minimum you should put the other $2m into some form of growth assets. I prefer shares, but you appear to know and prefer commercial property, so pick your flavour. I personally can't get resi real estate to stack up.
- I fear losing portfolio value to inflation far more than market volatility. Over the long term, the difference between cash and equities has been 4-5% per year. Post tax, cash has almost always had a negative real return - a slow, almost guaranteed loss. Hence I prefer an asset allocation heavily skewed to growth assets.
I'm also semi-fired with enough assets to support double my burn rate - albeit about 10 years younger, with a toddler and a still working spouse. I've done what I can to optimise structures via smsf, company and trust. I have my asset allocation as mostly shares (albeit more Aus biased than I think I should have), with a couple of years worth of spend in cash. The dividends roughly double what I need to spend at the moment, so I reinvest what I don't need and let it keep rolling. The thing is, when you are drawing under 2% of a portfolio (including super value here), you need to see a massive cut in dividend income to need to draw capital, and even if you do, the amount you would end up drawing has limited impact on the portfolio.
If I were in your shoes, I'd leave the SMSF as it is, putting future earnings/contributions into share. I'd put $2m of the trust that is currently fixed income to work in growth assets (shares make sense to me, but if you prefer property go for it, but consider non-resi). $1m in term deposits and bonds is still a decade of your burn rate, with zero other earnings.
I'd also give some thought to what you enjoy and want to spend your time doing. Sipping cocktails is fun for a while, but gets a bit boring after a year or so. No point having the worlds best asset allocation if you lose your mental of physical health.