Portfolio Diversification

[KDave]

I am interested to hear what approach people take on this subject. Obviously this is quite a personal thing, we all have our own reasons for where we put money. That said does anyone care to share what their portfolio's look like in terms of what exposure you have to each asset in terms of percentage? What do you think is too much exposure to one asset - do some assets allow you to have more exposure than others? If so why? Do you think diversification even matters? All views are appreciated.

Personally I think that spreading money is sensible and subscribe to the diversification mantra, but I am hard pressed to commit to it in any normal sense. I am mostly in cash at 40% (building house deposit) then precious metals at 30%, stocks at 25% (mostly dividend blue chip) and what I just class as alternative at 5%. Stocks are a mix of mostly oil producers and oil services, then commodity index funds and gold miners, the rest is pharma and utilities - not very diversified really is it! I have my reasons for this, mostly because I like oil and oil services for the 5-10 year range, I like quarterly dividends and I like gold  

I think of precious metals as a safe asset (despite its recent historic volatility) and use them instead of bonds. I just can not bring myself to buy bonds. I think longer term the environment looks better for precious metals than it does the debt market. All IMHO. Am I looking at this the wrong way perhaps?

Would appreciate any thoughts.  

[HawkHybrid]

that's a lot in cash, what about the risk of bank bail ins?

 

HH

[Bumble]

I'm currently 25% metals, 20% cash, 10% bonds (index-linked gilts), 45% stocks (strongly skewed towards gold miners and oil). I'm sure this is too risky and I probably should reduce the stocks. The bonds are a conundrum: they have done well because of low interest rates and are now clearly in a huge bubble, but I'm betting on interest rates staying low or going even lower, and the preference of the UK government for printing money over defaulting, which would be inflationary - hence the linkers. I would also like some more diversification, but I'm not sure where. I have mixed feelings about real estate: it is also in bubble territory in the UK, but in the long run it is a solid performer. I don't trust bitcoin enough to hold large amounts of it. I don't understand private equity or hedge funds sufficiently and in any case I probably don't have enough money for those to be viable options.

[SilverPirate]

I am heavily cash, all in cash ISA's, one in my name and one the wife's. I know some might feel it's risky but it is protected to £75k per person. It is easy to get too if the kids want bank of mum and dad.Also on my wife and i demise, it is very easy to get too by my offspring,i know iv'e had to do it. 

I find it re-assuring to be able to look at my pension pot now and then. I think they "Government" will move the goal posts later and putting what cash i can in the ISA's now will use the allowance on the tax free side, which later on i won't be able to move it all over in one go to take advantage.

I was into Property Partner but took the money out to buy gold, i might go back into it, it was not that bad.

I really don't understand the share buying process and have not studied it, if i did i would buy utilities,and farming. Communication too. Transportation like Eddie Stobart maybe.

I only have about 2k in metals mostly silver,but i feel gold sovereigns are the best buy and most liquid to sell..

I am saving each month in the ISA's i could do an annuity, but i feel there vulnerable.

Premium bonds are difficult for your offspring to cash in, it takes a while, but gives you the odd win, not really much of an investment but a store of wealth. 

I wanted to buy an investment property but the wife would not let me, as we got rid of our mortgage last year and she, and i do too, to be fare, feel very secure knowing it's gone. Do i need the stress of being a landlord? My son has just become one, we will see where it go's.

So for me it's cash and the occasional PM buy, that takes my fancy.I am buying metal now more for fun than investment to be honest.

[vand]

I've thought many times about this, but I am very unsure of the term "portfolio" when it is used in this context. Like many people, the lions share of my net assets is tied up in my house, of which I now own about 70% of its total value. However I would never consider this a part of a classic investment portfolio, and I don't have any other exposure to property.

Likewise, I have quite a nice pension pot at the moment, but that is mainly in cash-on-the-sides as I wait for equities to correct. However, its not cash in the classic sense, as I can't liquidate it to use outside of the pension.

I'm quickly building up an exposure to physical pms and getting out of fiat as much as possible, but it will be a few years before I can approach having even 20% of my overall wealth in pms. Otoh, by the narrower interpretation of "portfolio" you could say that I already have 80% of my wealth in pms. I can always raise more cash and buy more Pms or shares or bonds, but that would also mean increasing short term debt, and I do not see a need to do so at present, so happy to continue stacking at a "comfortably aggressive" rate for the foreseeable. In fact, I will be reducing my mortgage overpayments and diverting the cash to buying more PMs next year.

Sent from my iPad using Tapatalk

[KDave]

Thanks for the replies some good points here. You have all provided some confirmation bias 

@HawkHybrid  I think I fear a stock market crash more than I fear precious metals continuing a bear market, and I fear a precious metals bear market more than I fear bail ins. I am also looking at cash as a short term holding, with the intention of converting it into somewhere to live in the next few years. Bail ins are a concern, but the least of the concerns all considered. 

@Bumble I think I need to look at bonds again. Index linked bonds seem like a good call so long as interest rates stay above negative, I need to take a look at this. My initial concern is that if we go into negative territory then losses will be realised on the capital is that correct?

[Bumble]

The case for index-linked bonds is that I don't believe the UK (or the US) central bank will start to raise interest rates until inflation is rising, and even then they will lag behind inflation, so that we will have negative real rates for the forseeable future. The bigger the negative, the better it is for the linkers: if nominal rates were to go negative while inflation rose, the linkers will have a double benefit. I don't think you can make a capital loss on a linker unless inflation drops very low.

[HawkHybrid]

'Bail-ins allow the largest banks to gamble with impunity with their depositors’ money. If the banks make bad bets and become insolvent, they can legally confiscate the deposits to balance their books, through an “orderly resolution” scheme of the sort mandated in the Dodd-Frank Act.'

 

http://www.silver-phoenix500.com/article/war-savings-panama-papers-bail-ins-and-push-go-cashless

 

I think bank bail ins are a more serious threat than some

believe. I would be more inclined to put more into

sovereigns and take my chances there. if gold is money

and currencies are debt tokens?

(historically gold prices have rarely past -51% from it's highs)

 

HH

[KDave]

I agree bail ins are a real threat just as a stock market crash or a housing price crash is a threat to those holders. There is also no guarantee gold will not continue its bear market, or even if deflation became a reality, gold will not fall with the rest. Nothing is certain, everything has its own inherent risks which can change with the environment and said risk can also change when looking at the same asset class over different lengths of time. 

I think long term cash is a loser for reasons highlighted in another thread on the forum. Short term it has good potential to be a loser for different reasons lol. It will be a sad day when the banks decide the need to bail in my HTB ISA's but what can you do. Risk/reward and all that.  

[HawkHybrid]

http://www.zerohedge.com/news/2016-04-10/austria-just-announced-54-haircut-senior-creditors-first-bail-under-new-european-rul

 

HH