Technical Help Please.

Hi,
My present situation (last 15 months) has been driving me crazy. And before you ask, yes I've asked my FP and he doesn't know!

Currently (past year) my distributions are half my withdrawals. That means my capital is shrinking. I can imagine this is happening to a lot of retiree's.

This portfolio is rebalanced in May. I withdraw X$ every month and am payed 1.5X$ every three months.

I wish to choose from two options. I realize that a lot investors don't rebalance. But I do. Please consider A. or B.


A. Rebalance Yearly. Reinvest distributions quarterly. Withdraw monthly (taken evenly from each fund)


B. Rebalance Yearly. Distributions sent to my bank account. Withdraw difference(living expenses) from Cash management fund.


The purpose of my funds are, to support me as long as possible. I wish to spent the minimum in buy/sell costs, Tax and CG tax. I am stumped at the moment. If you can help, or need more info, Please reply.


Thanks, Johny.

 

Hi Johny,

It sounds like your not in the correct asset allocation or your drawing too much. I'm a little surprised as your FP doesn't know what to do...Maybe looking for another one?

Cheers,

Dan

 

Johny,
I am not a FP so this is not specific advice.
Rebalancing is a concept, thats all it is. Whether it works or not and whether it should be applied rigorously or not needs to be considered.
To minimise your transactions costs of trading and your CGT, then consider why you are rebalancing annually.

I agree with Dan, a good FP should be able to guide you here.

To support yourself long term there are three components, investment return (meaning risk return), transactions costs (buy/trade/CGT/FP fees etc) and how much you are drawing. You need to consider each and perhaps change the mix of some or all three.

If you are only considering A or B, B is a preferred option due to flexibility. Doing A may mean that you are withdrawing from better performing funds than worse performing and as you are rebalancing annually anyway, you correct the problem. It should also reduce transaction costs.

Good luck
Greg

 

Thanks for your response,

The simply answer to my shrinking capital, is that I am withdrawing Too much. However, I have living expenses to consider. These costs cannot be reduced. I am happy with my 60/40 stock/bond mix.


Johny.

 

Johny,
The other option some of my clients consider is drawing equity from their property via a reverse mortgage product if they are over 65. Used wisely, it can preserve share fund capital. If you have a property growing at 8% pa and withdraw half of that gain, it may make the difference.

Let me know if you would like some examples or detail of how to use this and the costs. It is not the beast that ill-informed financial commentators make it out to be.

Greg

 

Thanks Greg,

I am renting at the moment and own no property. I am living a frugal and minimal lifestyle. It's hard to plan ahead with so many forces happening in the world.


Johny.

 

Still not sure of A. or B.





Johny.

 

Not so simple

Jhonny,

I'd suggest your not getting any takers for A or B as neither is the right (or necessarily wrong answer). I'd suggest being a little more flexible on how often you rebalance. For my clients I do it constantly but taking into account the market conditions, costs, tax implications etc. Having said that there are occasions and circumstance where not rebalancing for many years may be appropriate. If you find you are drawing a lot of cash you will need to sell growth assets form time to time to avoid being too aggressive with your portfolio. If you are in an Account based pension you shouldn't have a tax issue.

This is general information only and you should consult a licensed professional before making any investment decisions.
regards

Jason
Brisbane Financial Planners | Financial Advice | Financial Advisor