A new player has joined the game!
Our very first LIC (Listed Investment Company) made its way into the fold in September after we officially transition our portfolio to Strategy 3. This is the dividend focussed portfolio that will mainly consist of Aussie shares through a mix of BetaShares A200 ETF plus AFI and Milton LICs.
That doesn’t mean I’m going to sell the international part of our portfolio (VTS & VEU). Oh no no no. It simply means that we are focussing on the above combo for the foreseeable future.
Although less diversified, and slightly less tax efficient than Strategy 2, Strategy 3 offers something that no other strategy to date has offered.
Strategy 3 does not rely on selling down to fund retirement.
The thing is… when you are relying on selling any part of your portfolio in retirement to survive, you are at the mercy of the market. I pondered strategy 2 over many nights…weeks…months… I have full faith in an indexing strategy and believe that international diversification is important. But I kept coming back to the day we pull the pin and stop working. What happens if the market tanks right after we retire or when we are close to?
It could mean working for years and waiting for the market to recover.
The thing about dividends and the reason that strategy 3 ultimately won me over was the fundamentals of a business is less affected in a crash than the share price.
After reading Motivated Money by Peter Thornhill, intrinsic value became crystal clear and I really made the connection between a business and its share price is largely tied to their ability to produce a growing income. There are of course exceptions to this rule, many companies have insane valuations based on potential alone. I like potential and ceilings when we’re talking about NBA rookies, but when it comes to investing, give me the proven vet who can consistently give me 15,5,3 any day of the week.
There were many businesses back in 2008 that were not affected greatly by the GFC in terms of the bottom line. But the ass fell out of the share price because human emotion got involved. Sure the dividends may have dipped, but nowhere near the same level (in terms of percentages) as the share price. This is because the dividends are tied back to fundamentals and how much income the company is able to produce, not based on how many inexperienced and ill-informed investors are rushing for the exits after reading a doom and gloom article in the Herald Sun.
I feel a lot more confident that Strategy 3 will hold up through thick and thin vs Strategy 2 even though Strategy 3 could delay our fire date. This is because even in a recession, good income producing companies will still do just that, produce an income. And seeing those dividends hit the account each quarter will help immensely.
Confidence is the name of the game and something I have come to appreciate more and more as I have been reading and listening to overseas FIRE bloggers and what they went through in 2008. It’s hard for most of us Aussie millennials to truly understand what a recession can do to your psyche and confidence. A lot of people talk a big game online and how they didn’t understand why people weren’t buying everything in 2008 when the market bottomed out and it’s easy not to sell if you don’t have to during a crash.
Let’s see how mentally strong everyone is when we actually go through a big crash. When everything you’re reading is doom and gloom (shoutout /r/ausfinance), every finance interview is diving into why this is the end of capitalism as we know it, and why now is the time to learn basic survival skills in preparation for the upcoming Armageddon.
It’s super easy to do all the right things when you have nothing to lose. Shit’s a lot different when you have hundreds of thousands of dollars on the line.
Strategy 3 will help us mentally during the next bust which, depending on who you listen to, is either right around the corner or many years away…
Net Worth Update
Really expensive month for us. We booked a trip overseas 🎉🎉🎉 and basically paid for most of the travel and accommodation in September.
The markets weren’t good with our ETFs and LICs down overall. We did receive dividends though 🤑 but it hasn’t hit our account yet (Div Ex date only) so next month will benefit from that bump.
ETFs/LICs have officially overtaken real estate equity and has become the biggest slice in our net worth pie 😊
No changes in the properties this month.
Various data sources (RP data, Domain.com etc.) are used in combination of what similar surrounding properties were sold for to calculate an estimate. This is an official Commonwealth bank estimate and one which they use to approve loans.
Welcome aborad MILTON! Not off to the best start but I have faith in your ability to produce some juicy franked dividends for us over the next couple of decades 😘.
Bad month for the Aussie market. Internationals keep chugging along though. When will the US market decline??? It’s the bull that never ends 📈 (it will end at some point)