Financial independence, but in pricey London
I posted recently about my proposed 2016 goals for my portfolio. On reflection, I think I need to rewrite the first goal – about the loan that I am taking out against my portfolio.
In my article I suggested the goal about my portfolio loan was: “Continually reduce my margin loan’s Loan-To-Value (LTV) ratio“. On reflection, I don’t think this goal works, as the market’s recent declines have illustrated.
The principles of successful investing are, so I gather from my extensive reading, pretty simple. Pick your asset allocation, making due allowance for your risk tolerance. Invest passively in it, optimise for tax and minimise fees, rebalance regularly – annually is often enough. Job done. Resist the temptation to tweak your allocation, trade within it or even look at your portfolio valuation .
Of course I’m not the only blogger who knows the principles yet ignores them in certain practices. But I certainly respect the principle of sticking to your asset allocation. One of the benefits of having a consistent allocation and rebalancing against it is that this enforces a ‘buy low sell high’ behaviour. Taking fright at, for instance, the Australian market underperformance and lowering your target exposure to the Australian market is exactly the wrong thing to do.
So, please believe me when I say that I take changes to my asset allocation very seriously. But nonetheless I am making one – quite a big one – and I’d be interested to have my thinking challenged.
In my professional life I am a big believer in goals. In business, knowing the key metrics to focus on, and focusing on them, is a key skill. From an investing standpoint however I am unconvinced; investing is inherently about managing risk and almost by definition that means being prepared for matters outside one’s control. Nonetheless, in 2016 I have some very clear goals for my portfolio so it makes sense to write them down.
What’s different about 2016 is that as the year begins I am a few weeks away from completing on a house purchase. This wasn’t foreseen even a month ago. The Dream Home is being purchased out of my investment portfolio, so I am going through some financial contortions to make this happen. My main objective for the year is to finish the year back on my feet in roughly my usual posture.
To attain my usual posture I have three goals:
