Aussie Firebug

Financial Independence Retire Early

Nothing written below is financial advice. The questions and answers below are for general information only and should not be taken as constituting professional advice. You should always do your own research when making any financial decisions.

Question (06:50)


Hi AFB,

If you had to employ any hedging strategies against your investments, what would you go with? I recognise your strategy is long-term share investing, which understandably will go through up and downs, but keen to understand if you think about how ways to minimise the downside (besides just buying more when the market is down).

Thanks and keep up the good work!

Jeff

Firebug’s Answer


Hi Jeff,

Short answer, not really. Long…er answer is we invest in two unhedged ETFs (VTS, VEU) so that provides some form of hedging against the AUD but we never choose this intentionally, it’s just that those two funds happen to trade in USD, but I like the fact that they do.

I would never pay extra to buy the hedged version of an ETF either but that’s just me. I’m pretty comfortable with the ups and downs and only really rely on our dry powder store (cash) to fall back on in turbulent times.

I understand that a lot of portfolio managers allocate some gold and other classic hedging asset classes to portfolio’s to smooth out the peaks and troughs but I’d rather go for bigger returns atm and just stomach to big falls (like last year).

I’ll also add that I like to have a little bit of debt on our books to hedge against inflation. We have a PPoR now and I don’t think we’ll ever pay off the loan completely. We plan to debt recycle the loan and pour it into the markets. Having this tax-deductible loan is actually comforting to me in the event of inflation going crazy.

And that’s about all I can think of atm mate. I’m sure there are other hedging strategies I don’t know of (see futures and derivatives) but I’m happy with how we’re currently investing.

Cheers,

🔥🐞
Question (13:49)


Hi,

I’m in the process of selling my investment property (still keeping my PPoR)

Capital growth has actually gone backwards (however recent post covid boom is softening the blow) but after the tax benefits, I’m not really taking too much of a loss.

Anyway, my main question is… Do you personally have less stress and enjoy investing in ETF/stock portfolios instead of having a property portfolio? I’m talking about the entire picture, what is more stressful? And what has provided the best returns in your situation?

Thanks!

Harley

Firebug’s Answer


Hi Harley,

Thankfully you got a little back with the Covid boom. Who would have thought a global pandemic would send house prices soaring right?! Crazy times.

To your questions…

Absolutely!

Shares have been basically stress-free. I think you’d have to be dead not to have a slight concern during the COVID drop last year but that’s about as bad as it’s been for us during the last 5+ years investing in shares.

There are just so many issues/problems that came up with our properties that made them a lot more work. In fact, the more I think about shares vs property, the more I think you can’t really compare them at all. They’re just too different.

Property is more similar to running a small business. Shares on the other hand are 99% hands-off. Returns are a bit tricky to calculate too. I’ve had better after-tax annualised returns with our properties but they’ve been a lot more work. I’d say there’s more opportunity with property than there is with shares. As retail investors, we would be hard-pressed to outperform institutional investors (and even they get it wrong more often than not) because they have a whole bunch of fancy tools, experts and massive budgets to get the edge. But a multi-million dollar real estate conglomerate is never going to bother buying a run down $650K two bedder in the outskirts of Syndey and doing a reno… but plenty of tradeis/mum and dad investors would, not to mention Australia’s favourable tax breaks for PPoR’s.

But again, the work involved with real estate almost makes this incomparable.

IMO…

Shares = Hands off passive investing with a decent return
Real Estate = Greater risk but greater reward with a lot more work thrown in

Cheers,

🔥🐞

Question (33:27)


*Harley’s second question

Also, do you re-invest dividends immediately? Or sit on them to buy in larger parcels to avoid some extra commissions?

Firebug’s Answer


We don’t. It’s a psychological reason though. We like seeing the dividends hit our account. Stupid I know lol. We add those to our savings and try to invest around $5K each month.

Question (37:33)


*Harley’s third question

Do you have an exit strategy with your ETF’s or plan on living off dividends? Do you plan on selling them to realise capital gains?

Firebug’s Answer


No exit strategy. We plan to hold the portfolio forever and live off a combination of dividends/sell-offs.

 

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