Asset allocation plan for starting out

[justakiwi]

Me again - figured I should start a new thread

I have been reading (so many book suggestions to work my way through!) and learning a lot. Currently reading Martin Hawe's "Investment Guide" and finding it really useful.

Everything I've read so far talks about the importance of asset allocation and diversity within each allocation. All of which makes perfect sense to me - I understand it. However, I'm wondering how best to achieve this given my newbie status and the small amount of capital I currently have to invest. I don't believe I currently have enough cash assets to invest in debt assets (bonds or cash) and I clearly don't have enough to invest in property. Which leaves shares. Having dipped my toe in the water with my Kingfish purchase I now need to figure out what the next move should be. I've looked at putting a couple of grand into Term Deposits or Managed funds with either of my banks (ASB and RaboDirect) but I'm not convinced this is the way to go. Rabo has no dividend reinvestment funds so for me, that defeats the purpose. They also have a minimum deposit of $250 for a regular monthly investment which may be doable some months, but not every month.

I guess what I'm asking is - with a small amount of capital and a lower capacity for savings, is it viable for me to spread my investments across areas other than shares at this point in time? Am I better at this stage to drip feed what I can save, into a variety of shares (focus on solid companies with decent dividends and reinvestment plans) to build up a decent little portfolio - and just keep a couple of grand in the bank for emergencies? I realize this is kind of putting all my eggs in one basket but I'm just not sure how best to get out of the starting gates with my overall plan.

Right now I still have $6000 in the bank (after my share purchase) - How do I spread the risk with such a small amount of money?

It might seem that I've "got the bug" and now want to go buying shares all over the place. I really don't. I just want to come up with a basic plan for "where to from here" to keep the momentum up in terms of finally being proactive with my finances.

As usual any comments, suggestions, feedback gratefully received .

[kiora]

Me again - figured I should start a new thread

I have been reading (so many book suggestions to work my way through!) and learning a lot. Currently reading Martin Hawe's "Investment Guide" and finding it really useful.

Everything I've read so far talks about the importance of asset allocation and diversity within each allocation. All of which makes perfect sense to me - I understand it. However, I'm wondering how best to achieve this given my newbie status and the small amount of capital I currently have to invest. I don't believe I currently have enough cash assets to invest in debt assets (bonds or cash) and I clearly don't have enough to invest in property. Which leaves shares. Having dipped my toe in the water with my Kingfish purchase I now need to figure out what the next move should be. I've looked at putting a couple of grand into Term Deposits or Managed funds with either of my banks (ASB and RaboDirect) but I'm not convinced this is the way to go. Rabo has no dividend reinvestment funds so for me, that defeats the purpose. They also have a minimum deposit of $250 for a regular monthly investment which may be doable some months, but not every month.

I guess what I'm asking is - with a small amount of capital and a lower capacity for savings, is it viable for me to spread my investments across areas other than shares at this point in time? Am I better at this stage to drip feed what I can save, into a variety of shares (focus on solid companies with decent dividends and reinvestment plans) to build up a decent little portfolio - and just keep a couple of grand in the bank for emergencies? I realize this is kind of putting all my eggs in one basket but I'm just not sure how best to get out of the starting gates with my overall plan.

Right now I still have $6000 in the bank (after my share purchase) - How do I spread the risk with such a small amount of money?

It might seem that I've "got the bug" and now want to go buying shares all over the place. I really don't. I just want to come up with a basic plan for "where to from here" to keep the momentum up in terms of finally being proactive with my finances.

As usual any comments, suggestions, feedback gratefully received .

IMV Its often better to hone your skills at identifying higher return assets rather than diversifying too much.Remember you are starting to invest late in life.What is your goal?To get to retirement with no,reasonable or moderate savings.If your portfolio is too diversified it will often lower its return.
If you want to drip feed small amounts it may be better to drip feed into something like Milford Growth fund which is PIE(tax paid) until you have an amount that you can withdraw and are happy to invest say $5000 in a share that you have identified that will grow in value.Then build up another $5000 and invest in another one.

[peat]

I've looked at putting a couple of grand into Term Deposits or Managed funds with either of my banks (ASB and RaboDirect) but I'm not convinced this is the way to go. Why not?

Rabo has no dividend reinvestment funds so for me, that defeats the purpose. This can be worked around They also have a minimum deposit of $250 for a regular monthly investment which may be doable some months, but not every month. THEY DONT HAVE A MINIMUM DEPOSIT THOUGH?

I guess what I'm asking is - with a small amount of capital and a lower capacity for savings, is it viable for me to spread my investments across areas other than shares at this point in time? YES


Am I better at this stage to drip feed what I can save, into a variety of shares (focus on solid companies with decent dividends and reinvestment plans) to build up a decent little portfolio - and just keep a couple of grand in the bank for emergencies? Only if you choose to avoid proper asset allocation

my comments in red

[justakiwi]

IMV Its often better to hone your skills at identifying higher return assets rather than diversifying too much.Remember you are starting to invest late in life.What is your goal?To get to retirement with no,reasonable or moderate savings.If your portfolio is too diversified it will often lower its return.
If you want to drip feed small amounts it may be better to drip feed into something like Milford Growth fund which is PIE(tax paid) until you have an amount that you can withdraw and are happy to invest say $5000 in a share that you have identified that will grow in value.Then build up another $5000 and invest in another one.

My most basic goal right now (the very least I hope to achieve) is a long term return on my savings that is better than leaving it in the bank. I would also hope to make sufficient growth over the next 10 years to end up with a solid investment to sit alongside my Kiwisaver when I retire. If my investment grew enough for me to dip into it down the track (prior to retirement) for something like a holiday in Rarotonga - that would be a bonus.

I'm realistic. I know I'm a very late starter and I know I'm not going to make bucket loads of money. I just can't sit here watching my savings languish at 3% interest any longer.

Thanks for the Milford Growth suggestion. I did have a quick look at that one and I'm definitely not ruling PIE funds out. I was thinking more of working towards accumulating $1000 at a time (then investing) though, as that's more realistic for my situation than waiting till I've saved $5000.

[justakiwi]

I guess what I'm asking is - with a small amount of capital and a lower capacity for savings, is it viable for me to spread my investments across areas other than shares at this point in time? YES

OK, so do you have any suggestions as to how I might best do that?

[Kelvin]

Here's my current system, maybe something similar could work for you?

If I have a large amount of spare cash (a few thousand $), I buy shares. They are riskier but have offered the best returns for me.

For smaller amounts of spare cash (1-2 thousand) or if nothing interests me in the sharemarket, I'll put some in Squirrel Money, and some in a savings account to build up funds to buy shares. Drip feeding into Rabo's managed funds or smartshares ETFs could also work for these amounts of money.

For tiny amounts of spare cash (a few hundred) I put in Lending Crowd.

I've also got some RaboDirect Managed funds which I'm slowly selling (don't wanna pay 1-2% management fees when I have managed to do a lot better picking my own shares).

[King1212]

Rule 1: Only put your money on the share market if you could afford to lose it!

Rule 2: Will lose some sleep or depress if your investment goes down 50 or 75%? For example: WYN or IQE..it could happen to anyone....What will you do if your investment down like that as a new bee?

Rule3: Share market is harsh, need a lot of researching!! People got greedy and caught in the hype. If you expecting people here to advise you where you should put your money,,,then good luck..as no one will be able to do that.

Rule4 : Good luck!!! hope you find your way!! I did find my way....learnt from mistake with quite a bit of trading to start with. Made losses but also profits!

[justakiwi]

Here's my current system, maybe something similar could work for you?

If I have a large amount of spare cash (a few thousand $), I buy shares. They are riskier but have offered the best returns for me.

For smaller amounts of spare cash (1-2 thousand) or if nothing interests me in the sharemarket, I'll put some in Squirrel Money, and some in a savings account to build up funds to buy shares. Drip feeding into Rabo's managed funds or smartshares ETFs could also work for these amounts of money.

For tiny amounts of spare cash (a few hundred) I put in Lending Crowd.

I've also got some RaboDirect Managed funds which I'm slowly selling (don't wanna pay 1-2% management fees when I have managed to do a lot better picking my own shares).

Hey thanks for that. Squirrel Money and Lending Crowd look really interesting. My initial reaction is to feel a bit nervous about P2P lending, but I will definitely have a closer look.

[justakiwi]

Rule 1: Only put your money on the share market if you could afford to lose it!

I agree with that.

Rule 2: Will lose some sleep or depress if your investment goes down 50 or 75%? For example: WYN or IQE..it could happen to anyone....What will you do if your investment down like that as a new bee?

I totally understand this and I'm OK with it. I'm looking at investing in shares long term, not trying to make a quick buck buying and selling.

Rule3: Share market is harsh, need a lot of researching!! People got greedy and caught in the hype. If you expecting people here to advise you where you should put your money,,,then good luck..as no one will be able to do that.

I know that I am simply looking for ideas and information from people who have already "been there done that" - it's a good way to learn alongside other types of researching and information seeking.

Rule4 : Good luck!!! hope you find your way!! I did find my way....learnt from mistake with quite a bit of trading to start with. Made losses but also profits!

Thanks!

[Kelvin]

Hey thanks for that. Squirrel Money and Lending Crowd look really interesting. My initial reaction is to feel a bit nervous about P2P lending, but I will definitely have a closer look.

Not an uncommon feeling to feel nervous about P2P. I put the minimum $500 in (that I could afford to lose) to test it out when I first started. The return you get does compensate for the risk though, and getting monthly payments is nice.