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Podcast: How to Manage An Investment Portfolio

August 24, 2021

How to manage an investment portfolio

In this episode…

We chat about the practical ways to manage a share portfolio. We discuss how often to buy, balancing your portfolio, what we do personally, dealing with taxes, and more.

Prefer reading?  Find the transcript for this podcast at the bottom of this post.  Keep in mind, it’s computer generated, so it won’t be perfect 🙂


Listen to the show…

(or download the mp3 file here)


Discussion points…

  • Choosing a broker (03:31)
  • When should you buy shares? (10:27)
  • How often should you buy? (13:40)
  • Balancing your portfolio over time (18:12)
  • Dealing with individual stock picks (26:22)
  • What about taxes? (30:30)
  • How we each manage our portfolios (35:17)
  • Final thoughts (41:57)

Resources and stuff mentioned…

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Podcast Transcript
Podcast: How to Manage an Investment Portfolio | Episode 34 | FIRE & Chill

How to Manage an Investment Portfolio

[00:00:00] Pat: Hey, welcome back everyone. Today we want to cover something that seems quite simple until you have to do it in practice and that’s buying and managing your share portfolio. So in many cases, there’s actually a little more to it than meets the eye. Once you’ve been doing it for a while, you can get into the trap of thinking that it’s really straightforward and really simple and really obvious.

However, when new investors or new people to the fire community get into this, it can be pretty daunting and pretty intimidating. So we will discuss the ins and outs. When to buy, how often, balancing your portfolio, all those typical questions you get from a new investor or a new person to the fire community.

[00:00:59] Dave: Yeah. We’ve had a few of these type of questions hitting our inbox. And I remember like you said, pat, it’s hard to remember back to when you first started, but sometimes it can be a little bit overwhelming at first because there’s all these things to figure out how to do for the first time when you are getting into buying shares.

And we’ll also talk about selling when you need the money, like whether you’re retired or not. How do you go about doing that? And this also gets a little bit into the topic of asset allocation, like in terms of how do you spread the money between different holes? So we’ll get into that a bit.

And of course we’ll share what we do ourselves in terms of how we manage our portfolios.

[00:01:38] Pat: Yeah.  And that’s the really interesting part because Dave and I sometimes do these things a bit different.

[00:01:44] Dave: often no perfect answer for everyone because everyone has their own kind of unique situations. You’ll often find people doing things differently to one another, even though they might be generally investing the same way. It doesn’t mean they follow exactly the same kind of plan or process every single time.

[00:02:00] Pat: Yeah.  But before we get into this, just to cover a comment on our audio for our last episode, the post-production left a little bit to be desired. I take full responsibility for that. Cause I have been charged of post-production over here at fire and kill.

We’ve got no excuses. We use some automated programming. I didn’t check it properly. We sent it out into the wild and we snipped quite a few words off our sentences. Just letting you know that we know it’s a problem. We’ll make sure, hopefully make sure it doesn’t happen again. Sweet. Okay. Let’s get into it.

Do you want to kick us off?

[00:02:35] Dave: All right, let’s get, yeah, let’s get started. So first, when we are getting into building a portfolio, we first need to buy those shares and to do that, we need to choose a broker and we need to decide whose name we will be investing in, in the first place. if you’re a customer at a big bank, you’ll find that they all have their own.

Talking with brokerage accounts and maybe you’ve even got one that you opened in the past. Pat, you use your bank brokerage, don’t you?

[00:03:04] Pat: Yes, I do. I am with CommBank and I use CommSec as my brokerage account

[00:03:09] Dave: And this is just a, this is just another example of pat being a nice, uh, nice big fat cat over there. Spending the big bucks to use is the convenience of CBA.

[00:03:20] Pat: a hundred percent correct. I like only opening one app on my phone. And I, and seeing my investments and my bank accounts all in that same place and being able to manage them all in the same place. And if that means I need to pay an extra a hundred bucks a year in brokerage, that’s just the cost of doing business.

[00:03:40] Dave: and so you should’ve got your home line with CBA as well, then.

[00:03:43] Pat: Yeah, unfortunately, that wouldn’t only be a hundred bucks a year that would have cost me far, far more than a hundred bucks a year, and that was not worth it. So I’m not willing to pay thousands and thousands of dollars for that convenience, but a hundred dollars a year. I think that’s worth.

[00:04:00] Dave: Yep. Yep. Good point. So if you are with a big bank, it can be the easiest option to just open a brokerage account that they have to offer. And you might be paying, say 15 bucks or 20 bucks a month versus. Maybe $9 with a, like a lower cost brokerage firm. That sounds about right to you, pat.

[00:04:18] Pat: Yeah. And just to clarify, we’re not actually paying a dollar amount per month. You’re paying a dollar amount per trade.

[00:04:27] Pat: Dave, and I are just assuming we’re making about one trade a month. And so that’s why we’ve said per month, but it’s actually per trade.

[00:04:36] Dave: Yeah. Good point my bad.

[00:04:37] Pat: But first, like do you, how would you describe what a broker is to someone who’s never invested anything before Dave.

[00:04:44] Dave: I would call it a online platform where you can buy and sell shares. What would you call it?

[00:04:49] Pat: well, actually think the easiest way conceptualize this, and I know this is fundamentally inaccurate, so don’t come and tell me I’m an idiot, but for a newbie conceptualizing this a broker kind of acts in the same way as your conveyancer. When you’re buying a house, like facilitate the transfer of ownership.

To you when you make a purchase. So you go to your broker, you tell them what you want to buy. This is all through the online platform. And then they facilitate the transfer of the ownership of that to you. But they, otherwise they’re not involved. Like they don’t own the managed fund. They don’t own the hairs.

Once they’ve transferred the ownership to you, you have, you still have your online platform. But otherwise they’re not actually involved in the investment at

[00:05:36] Dave: Yeah, they’re just a, they’re just a third party that helps those buyers and sellers come together and make the transaction happen.

[00:05:43] Pat: Yeah. Correct. And they’re a necessary part of the equation. So it’s not something that you can go and transfer yourself, or it would be impractical to go out and try and transfer shares between you and other people.

[00:05:55] Dave: And if you are looking to open an account and you don’t have you don’t have one and you would like to choose one, that’s maybe like a lower cost option rather than a big bank. Option. Two are the more popular ones and the cheaper ones are selfwealth and Pearler, which you might’ve seen around the place.

How do we decide who’s name to invest in pat?  Cause we, when we open this brokerage account, we need to decide, okay, whose name is this account going to be in? Because that’s the person who’s going to be owning. Those shares that are bought.

[00:06:26] Pat: Yeah, So if you’re part of a couple, you may decide to invest or open the brokerage account in the lower income earners name. Dave. And I got into this a bit last week. It’s not always that straightforward to try and do the whole investing in one person’s name over the other, perfectly over the course of someone’s lifespan.

But like we said, last week, In general, if you can manage it, invest in the lower person’s name to begin with. And then as you approach what you deemed to be your retirement age, try and even out the amount of money you’ve invested in each person’s name.

[00:07:04] Dave: Yeah, I think that’s a good way to think about it. The simplest option of course, is just to invest in a joint account and not worry too much about it. No, of course.

[00:07:14] Pat:  For reference. That’s exactly what I do. Like I am in a higher tax bracket than my partner, Steph, but we own shares through a joint accounts because that’s the easiest and simplest way for us to do it. And once we stop earning so much money or once I come down in tax bracket, it’ll even out. A lot and we’ll end up paying the same amount of tax anyway.

So the joint account makes that really easy to manage in our circumstance.

[00:07:42] Dave: I think you pointed this out in a previous episode that you like to have the joint account, because it lets you both see what you’re contributing to all in the one spot, rather than having a big portfolio over here. And maybe a little one over here that you haven’t quite built yet. Like when you’re, when you have this goal together, it’s kind of more powerful.

If you see it together, all in the one thing that you’re putting money towards.

[00:08:06] Pat: Yeah exactly. It’s as anyone who’s in a couple knows, you know, it’s all about working together, joint goals, going aspirations, and having it all go into the same place. It’s just more motivating from that point of view. And given what I just said about trying to, even out to, by the time you get to the end.

Anyway, if we were investing in individual accounts, we’d already be in that position where we’re trying to even out our investments. So It’s not that big a drag, the tax that we’re going to add a bit of extra tax we’re going to pay over the next few years compared to the next 40 or 50, where we’re going to be in this coin account, paying the same amount of tax each.

[00:08:49] Dave: There’s basically no way to figure out who’s going to be at a higher tax bracket over the next 30 years or 40 years.

[00:08:58] Pat: No, there isn’t.

[00:09:00] Dave: So if haven’t quite started investing in shares yet, and it feels a little bit scary or a little bit confusing to open that account and knowing what to do, I did write an article about the different steps that you need to take and I’ll break it down in very simple terms. That should be easy for you to understand.

So I’ll, put a link to that in the show notes. If you feel like you want or need some help with that kind of process and signing up and doing it for the first time.

[00:09:27] Pat: Yeah, good stuff.

[00:09:28] Dave: All right, pat. So the big question, mate, when should you buy shares?

[00:09:32] Pat: I think the way you want it to word that day was when is the best time to buy shares.

[00:09:38] Dave: that’s true. That’s really what I meant.

[00:09:43] Pat: So when. The shares have a PE ratio of less than 15. The economy is going well. And it’s strong and experts are forecasting, a strong year of growth for the markets.

[00:09:53] Dave: That makes sense to me. That sounds pretty, pretty sensible, doesn’t it.

[00:09:57] Pat: Just kidding guys. We don’t get involved in market timing or looking at PE ratios. We leave those for the experts that don’t perform as well as the marketing. They need to get paid to do something.

[00:10:12] Dave: you had to stick punch in didn’t you mate?

[00:10:15] Pat: It was a bit of a kidney punch

[00:10:19] Dave: But as you’ve probably heard us say before, we would recommend that you invest when you have the money to invest and when you can leave it there for a long time.  It does sound better to wait and then buy when prices when prices come down and when prices fall. But we don’t really know when that’s going to be, you know, it’s going to happen at some point, but nobody knows when that’s going to be and wait.

Usually leaves you are worse off sometimes much worse off than if you had just invested regularly over time and much less creates some psychological kind of trauma and, and games that you start playing and tricking yourself. And we’ve covered that in a previous episode. So we won’t get into that too much, but we would just say to invest when you have the money.

[00:10:59] Pat: Yeah, exactly. And everyone’s situation is a bit different. Of course. And Dave, always Dave and I are always going to put in the disclaimer that. We’re not professionals. And with this, isn’t meant to be professional advice and all that sort of business, but go out there and find the research yourself. It’s all out there. Timing the market is of is a false errand. So that’s Dave and I generally agree with that. So we don’t look at PE ratios. We don’t wait until there’s a dip. We don’t know if a dip is coming. We don’t, none of that business. It’s just you buy shares when you have the money available to buy.

[00:11:36] Dave: Hmm. And so if we had to put a dollar amount on that pat, in terms of what is a suitable, like when you reach, what kind of level of, cash would you put that into the market? I think something like a thousand dollars is a good one. Benchmark to kind of work off. That would be a good time to invest any less than that and I feel like brokerage would start to become too much like a too big, a percentage of your purchase. What do you think?

[00:12:01] Pat: I’ve always said more around the $3,000 range, to be honest. And something like three to $5,000 is more where I’d peg it, but it really does depend on how much you earn, how much you can save, how often you can invest. So if you’re saving a very small amount of money, Such luck. Getting to $4,000 would just take a very, very long time.

Then it may be better to invest more frequently at smaller amounts. However, if you’re saving very rapidly because you have a very high income and you don’t eat it all up, then getting to those higher amounts may be more beneficial. But exactly where Dave and I are going to get to next for our next time.

[00:12:44] Dave: Right.

[00:12:45] Pat: So how often should we buy quarterly? Monthly, weekly? It’s a pretty typical question we get, I think monthly is pretty good.

Dave, do you think monthly is pretty good?

[00:12:56] Dave: Yeah, I do mean monthly it’s actually, I think monthly it’s perfect because it, it usually gives you enough time to save up, like a thousand dollars or more for most be able to manage that. And then also monthly gives you something to look forward to each month.

So it keeps you engaged and motivated rather than if you wait for like three months. it just feels too long. Like you, if you’re doing it monthly, you feel like you’re way more. I don’t know. It just feels like more proactive and more…

[00:13:24] Pat: You’re making progress.

[00:13:25] Dave: yeah, more, there’s more progress happening more frequently and it just feels more interesting and engaging and whatever.

It just keeps you focused it. I think that monthly amount.

[00:13:34] Pat: Yeah.  So some people do wait for three months to have a big amount. So that way their brokerage doesn’t make up a huge amount of their purchase or a huge percentage of their purchase. I should say.

I don’t know if there’s a right and wrong way to do this, to be honest, but there are, again, general rules or general takeaways, because obviously you could go to one extreme and do it like once a year, or you could go to the other extreme and do it like twice a week or every day. And that would be obviously very stupid.

Cause you’d just kill yourself with brokerage.

[00:14:08] Dave: and I suppose you have to balance it. So imagine if you waited the whole year, that also means you’ve invested no money for 12 months. So you’re also missing out on some returns over that time. So you kind of have to balance that with it as well. The kind of returns you expect to earn over time.

[00:14:25] Pat: Exactly. There’s no use keeping $5,000 out of the market for six months because you’re going to save $20 brokerage to buy $10,000 after one year, so is actually a sort of simple mathematical calculation to get the theoretical optimum investing frequent. I know, I have to say theoretical because it makes assumptions about the growth in the market over time.

Whereas that can’t be known ahead of time. We just use the average 8% growth it

[00:14:57] Dave: kind of expectations that the calculator has to work with.

[00:15:00] Pat: Yeah exactly. And this is a calculator that someone has made, so you don’t need to come up with the calculations yourself and Dave and I will link to that calculator in the show notes. but just beyond that, Dave and I have had a play around with this calculator and it’ll give you some investing frequencies, like are your most optimum investing frequency is every five weeks or every six weeks.

The difference after 20 years or something. a thousand dollars on a $2 million portfolio. I think all I’m trying to say here is if you want to invest monthly, because it’s easier to keep that cadence for yourself when you get paid monthly. Whereas the calculator gives you an optimal investing frequency of every six weeks.

Maybe monthly, it’s just easier for you because that’s how you get paid. And over 20 years losing a thousand dollars. That might be what, on a $2 million finishing portfolio size that might be worth it just for the simplicity and the cadence and the pattern and the rhythm of you and your work and your life.

[00:16:10] Dave: I definitely think that’s the case. It’s another example where I don’t think you want to get too in the calculations or in this kind of spreadsheet land and follow kind of what’s the most practical and easiest, and even the most enjoyable solution for you. So if you find investing every four weeks more enjoyable, like once a month, more enjoyable than every, six weeks then do it.

If you’re going to pay a tiny bit extra over time in brokerage costs, then I don’t think that’s such a big deal.

[00:16:37] Pat: Yeah. And the good thing about this calculator we linked to is that it will give you a couple of different scenarios. So it’ll tell you how much money you’ll end up having theoretically, if you’re invested once every four weeks or once every six weeks. And you’ll see just how little a difference it often makes.

[00:16:56] Dave: I was actually surprised at how small the difference was. I don’t know about you.

[00:17:00] Pat: Yeah. I was surprised at how smaller difference.

[00:17:03] Pat: and it just goes to show sometimes we can definitely get our heads in the weeds and worry about sense when you should be more worried about your life.

[00:17:13] Dave: A hundred percent. All right. So moving onto the next topic here. So what about if you have multiple holdings or multiple things that you want to buy for your portfolio? How do you balance buying all of them? This is a common question that new investors often. So let’s say somebody has, they’ve chosen this kind of portfolio they want to build, and there’s three or four different funds that they want to put in this portfolio.

How do they actually go about building that portfolio? Do they buy each one of them every month? Or what do they do pat? Cause that’d be pretty expensive. Wouldn’t it?

[00:17:47] Pat: That would be very expensive. You’re basically quadrupling your brokerage. The answer is no, you shouldn’t do that. You should take it in turns. So if you’ve got four funds in your portfolio each month, you would just choose whichever fund is furthest under target and buy that one.

[00:18:04] Dave: And so they all start at zero. So essentially you’re just going to have to buy one at a time for four months and then add from there.

[00:18:12] Pat: exactly. Something hosts to mention here when you are starting out, you’re typically starting out with a pretty small dollar amount in any case. Don’t overthink it when you’re investing your first $5,000, whether you have 50% in VGS and 50% in VAS, or if you’ve just got the whole lot in VGS, it’s not going to make a difference.

Like it’s, I know it’s a lot of money to begin with $5,000, but over the course of your life, that’s going to be an insignificantly, small amount of money. Throw it all into one fund in the next month by the other. And then slowly work your way to your target allocations.

[00:18:50] Dave: So the more money you have in your portfolio, the more that diversification and where you have that money really matters. But when there’s only a small amount in the portfolio, it doesn’t really matter yet.

[00:19:02] Pat: exactly. people that will often come up with their target portfolios, right. When they begin, which is a really great move. Don’t get me wrong. I’m not dissing that at all, but it’ll often be something like, a 40% in VGS. I want 30% in VAS. I want 20% in VGAD 10% in VGE.

This is great. But just remember as well. 10% of $5,000 is $500. Don’t be buying no, VGE at $500. Like it’s a waste of time. It’s not going to make a huge difference. I almost say until you get to about a hundred thousand dollars, it’s often pointless having any more than a couple of funds in your portfolio.

[00:19:44] Dave: So once your portfolio hits that amount, you’re saying that it becomes more practical and more reasonable to have those extra slices in your portfolio. That aren’t a big dollar amount. Well, on a big percentage.

[00:19:59] Pat: Yeah, correct. So if you’re doing the roll, your own style where you’re having VAS VGS VGE, for example, VGE is going to make a tiny proportion because it’s the emerging markets. You don’t need to buy that until you’ve got some significant wealth save 50 to a hundred thousand.

Before then it’s just silly. It’s not going to make a big enough difference to worry with the extra hassle.

[00:20:24] Dave: Yeah. Good point extra administration too.

[00:20:26] Pat: yeah, exactly. You know, administering like this $3,000 holding or something, it’s like, what’s the point?

[00:20:34] Dave: yeah. That’s, that’s a good point. I didn’t think of that. So as you, as your portfolio gets bigger, you’ll essentially just want to top whichever of those holdings is under your target. So let’s say something is like 20% of your portfolio, but you want it to be 25%, then you would probably top up that one an example.

All right. So how do we, the next thing we want to talk about is how do we balance our portfolio all the time. And so when you’re building a portfolio, you’re going to decide what you want to put, like how much you want to put in each holding. Like we just talked about and that’s, that’s part of this discussion around asset allocation, which we did talk about, and that was episode number 16.

And I just I caught myself. Yeah. At this point, pat, where I’m noticing that in the episodes, we’re able to like reference back to a bunch of other stuff that we’ve already done. How weird does that feel?

[00:21:25] Pat: it’s great because at least we’ve covered it before and people have heard it before. And so it’s not, we don’t feel like we have to cover every tiny little topic in every episode as though it’s a standalone thing. We can assume that. People have listened to our previous episodes, which makes these flow a little better, or at least I’ve read up elsewhere on these topics in the past.

[00:21:51] Dave: Yeah. Yeah. But I was just thinking how, if when you can refer back to other episodes, it makes us feel like you’ve been doing it for a long time or we’ve covered a fair bit in our first 15 months or whatever it is that we’ve been going for.

[00:22:06] Pat: Yeah, man, 15 months. That’s a long time. So as your portfolio, it gets larger. It will move around quite a lot. Just with market movements. Maybe you wanted a holding to be 20% of your portfolio, but it keeps growing faster than your other investments. If you’ve got a target allocation, you probably want to bring that back into line with your target allocation instead of letting it grow. All of its own will and get to a disproportionate amount of what you want it to be in your portfolio.

[00:22:37] Dave: well, I think it depends. Doesn’t it? How much you’re willing how much it’s growing faster than the others, because you will have, that’s the thing you’ll have different investments growing at different, like they’ll have different performances over time. So you might. Some investments are struggling.

So they’re actually the price might be down while others might be up. So you’ll probably add to the ones that are down for example. And the one keeps growing is it might be getting a bigger percentage. And if it gets way above 20%, if 20% was your, what you had in mind that you wanted for that fund, then if it gets to like maybe an uncomfortable level, like 30 or 35, then.

Maybe sell some, if that was your plan, but then you’re obviously going to be paying some taxes sites. There’s a few things to consider when that’s, when that situation is occurring, because you could just do focus on topping up the other ones. So that, that, proportion of that one comes down a bit over time, rather than selling to pay the tax.

So it’s a few things to consider.

[00:23:37] Pat: Yeah. And I was going to say that is probably the best way to do it. If still possible, just direct your cash inflows into the funds that haven’t been performing as well. And that will naturally balance your portfolio over time. And this is really easy to do. Like we said, before you just check what fund is below its target allocation or the furthest below its target allocation.

And you just buy into that.

But they may come a time where some funds really get to sprawl disproportionately out of whack where your inflows can’t bring them into line quickly enough that you’re comfortable with it. And this will particularly begin to happen as your portfolio gets very, very large. Once it gets very large, the market movements have more of an effect on the portfolio value, then your cash contributions do.

Whereas when you’re just starting out, it’s the opposite way around your cash contributions make up most of the growing size of the portfolio and the market movements have little to no impact. Almost. It feels

[00:24:42] Dave: In terms the, the proportion. Yeah.

[00:24:44] Pat: The proportion that it’s progressing and growing. So you could be strict and keep everything at a set percentage, or you could have a range and let things run out a bit or, and have a bit more of relaxed targets to work towards. There’s no perfect answer here. I’d fortunately I think.

[00:25:01] Dave: I think it’s tricky because it depends how much you’re able to add to your investments. And then also how out of line that kind of, that holding that’s growing quickly is becoming, whether you’re comfortable with that or not, and how comfortable you are with selling it, to pay some taxes, to rebalance and stuff like that.

So not really a right answer there. Yeah.

[00:25:20] Pat: So depends on your tax bracket as well then, because some people can rebalance relatively cheaply. Whereas others such as myself, like rebalancing can cost much more. Cause I’m in a very high tax bracket.

[00:25:33] Dave: Yeah, good point.

[00:25:34] Pat: So, Dave, what about having some personal picks in your portfolio? What do you think? Just little, gambles, little things your passionate about, and you think are going to grow and go to the moon.

[00:25:46] Dave: we’ve already discussed that, the idea of that in like the asset allocation podcasts. so we’re not judging that topic now. It’s more about what should pass. Should people approach it when they do have other stuff in their portfolio like this. So how do they kind balance that?

Balancing the rest of their portfolio. And so maybe it might be like 5% or 10% of their portfolio. They’ve got some random investments so that in their next to their kind of their index funds or whatever else they have, that’s like the boring long-term stuff. They’re diversified investments. I think this is actually quite common.

So if those investments like those hand-picked investments, we’ll call them. If they’ve done pretty poorly. They didn’t work out for whatever reason. There’s actually not really a lot you need to do because you can, it’s not turning out the way you expected, so you can kind of just use those as tax write-offs when you want to maybe offset some capital gains at some point, that would just be sitting in your portfolio until you want to get rid of them.

The only kind of problem, and I guess it’s a good problem to have is when those investments, these handpicked investments do really well. Then you’ll be, then they will become maybe a disproportionate size much bigger than maybe you wanted them to be.

So Maybe it’s a stock that you bought that was like one or 2% of your portfolio, but that stock explodes and now it’s 10 or 15% of your portfolio. That can be tricky, right? Because you don’t really want to have that stock be such a big part of your portfolio, but then to say, You’ll have to pay some taxes, but you are reducing the risk of your kind of portfolio.

So it can definitely make sense to pay the tax in that case and kind of spread that money back into your more diversified investments.

[00:27:26] Pat: And the thing is psychologically, that must be so tough, especially if it’s like a handpick thing and it’s done really, really well psychologically to sell something that has been a really huge winner for you. Trim it back. I think a lot of people, we would have this problem, and this might be the case where someone may have put a bit of Bitcoin in their portfolio. they’re gamble and now it’s like exploded and it’s made a huge part of their portfolio. You can definitely see that their views may be affected by the fact that it’s been such a big winner and now they may have even more belief that it’s going to continue to be a big winner into the future.

[00:28:07] Dave: yeah, it becomes a psychological game. Doesn’t it?

[00:28:10] Pat: It does.

[00:28:10] Dave: it’s tricky, man. I think you probably want to take some money off the table with some of those big winners, as hard as it would be, because you’re just going to reduce the risk of Vail portfolio and. Just make it back to the, I’ll put it back to that kind of comfortable level that you had in mind.

And yeah, I just think the taxes is not such a bad, it’s a cost of reducing your risk and supplies and it’s a good problem to have in the first place. So it’s not something to fret over too much.

[00:28:40] Pat: Well, I’ve never believed in having five to 10% of your portfolio for gambles anyway. So

[00:28:45] Dave: Right. Like I said, we’re not judging in this one. We’re just saying, if this is the case, how do you manage it?

[00:28:51] Pat: yeah, but my context will paint my view.

[00:28:55] Dave: that’s always the case though.

[00:28:56] Pat: Yeah, that’s true. Just letting everyone know where I’m coming When I tell them to just sell it.

[00:29:05] Pat: You’ve had a, when you went to the casino and you’ve won, now, you take your winnings. You get out of The casino. If you stay in the casino, the casino will eventually get your money.

[00:29:18] Dave: The whole markets are a casino. Haven’t you heard?

[00:29:20] Pat: fuck. Here we go. Some people say that some people really, really believe that.

[00:29:28] Dave: Hence my comment,

[00:29:29] Pat: Yeah.

[00:29:30] Dave: uh, all right. Say a little bit more on taxes. How do we deal with the taxes in our back to our normal portfolio, we’ll call it, how do we deal with that on a yearly basis? So with any sort of normal portfolio, if your shares are paying dividends, which they very likely yeah. or you sell any of your shares during the, uh, you have to declare the income from the shares and also the capital gains.

If you’ve sold some or capital losses, if you made a loss on that sale, you have to declare at tax time to the ATO and you will get our statements for each usually electronic statements for each dividend that you get. That’ll usually come by your email, so it can be easy to record it like that.

But if you do wait until, eh, August, maybe September, usually that stuff is pre-filled for you now in your tax return, which is pretty cool. It seems to be getting a little bit easier every year. In terms of how much is auto field, have you noticed that pat?

[00:30:28] Pat: Yeah definitely. I still remember back in the day when we were doing paper tax returns.

[00:30:33] Dave: Oh, man, you sound like a hundred years old.

[00:30:36] Pat: I know crazy. And then we had that whole period where it was where it was like a windows program that you downloaded. And now we’ve moved on to the, my gov, my tax.

[00:30:49] Dave: I love it.

[00:30:49] Pat: Oh yeah, it’s great. Love it.

[00:30:51] Dave: Great way to spend a Saturday night hey mate.

[00:30:53] Pat: Great. Can’t wait to spend a Saturday night and if you’re in a position like mine, you wait until the end of October before you put that tax return in any way. So

[00:31:05] Dave: Cause you get that big bill don’t you.

[00:31:08] Pat: I get a bill. Yeah. I get a bill. every year.

[00:31:10] Dave: I get a refund, right? Cause I’m on the old retiree tax bracket, the zero tax bracket. So I I those nice juicy franking credit refunds.

[00:31:19] Pat: Nice mate. And the low income tax offset.

[00:31:22] Dave: So anyway, like I was saying, if you wait until this kind of time of year, usually that stuff, a lot of it is prefilled for you, but sometimes it’s not. So you do still have to check it anyway. And in terms of like the, capital gains and capital losses, I have pretty much always used sharesight ever since the beginning of investing in shares.

I don’t know about you pat, have you used it the whole time?

[00:31:50] Pat: No, well, I started investing. 2012, I think, or 2013,

I, don’t know if sharesight was around then?  And any case I hadn’t heard of it at the very least. So I kept my paper records and done all the calculations myself for capital gains and capital losses. But share site makes this a lot easier. And this is a segue impromptu plug for share site.

[00:32:17] Dave: So, you will notice that, for capital gains, it makes it for, if you would have noticed it, pat, Hey, doing your tax return and you can click the button, get your tax report and it spits out the capital gains and capital losses and whatever man.

[00:32:29] Pat: Yeah, 100%. It makes it super easy. And helps you do the selection of particular units that you want to buy and sell as well, depending on what you want to achieve that financial year. So if you’re in Dave’s position where he. I think in the 0% tax bracket, I’m not sure. In that case, you may want to maximize capital gains tax through share sites.

So you can raise your cost base as far as possible. His average cost base

[00:33:02] Dave: So I basically just sell the ones with the biggest, if I’m selling, I choose the units to sell that have the biggest gains embedded in them. And that means the ones with the smallest gains get left for later when I’m probably in a bigger tax bracket. So that there’ll be less tax owing when I’m in a bigger tax bracket.

[00:33:21] Pat: Yeah, precisely. Whereas someone in my position where I’m on a huge tax bracket.  Right now, I would do the opposite. I would select the shares to sell with the lowest embedded capital gains. I paid the least amount of tax now.

[00:33:35] Dave: made. It sounds like we play a little bit more tax games than we let on.

[00:33:38] Pat: Oh, geez. that way. We’re gonna, we’re gonna lose all our street cred.

[00:33:45] Dave: our stoic status, as the guys who don’t care about tax.

[00:33:50] Pat: so the reason we’re just mentioning sharesight here is because we actually we actually both use it and genuinelly like it. You won’t hear us promoting crap. We don’t use anything to do with the Cayman islands tax specialist dodgers, or payday lenders or incomprehensible tax structures, which apparently save you tax, but may not actually save you any tax whatsoever.

Once you look into it is stuff that we won’t be mentioning here.

[00:34:19] Dave: All right. So let’s get into a little bit of how each of us manages our portfolios on a regular basis. So what do you do, pat, mate? I mean, how do you balance your portfolio? When do you buy your shares and all the rest of it? us through that a little bit

[00:34:34] Pat: As mentioned earlier in the episode, I just use my banks. Broker CommSec.

[00:34:40] Dave: pay that lazy tax.

[00:34:41] Pat: I pay that lazy tax in inverted commas. I don’t like to call it lazy tax. I call it a convenience. Tech’s

[00:34:48] Dave: Ha how convenient a way to frame it.

[00:34:51] Pat: very convenient way to frame it. I have a four fund portfolio made up of. VGS VAS VGAD and VGE with certain percentages allocated to each of them. I buy monthly with my partner, Steph in a joint bank account. And I just buy the single fund, which is both furthest below its asset allocation. So, for example, I have VAS, I want it to be 20% of my portfolio. If VAS is less than 20% and the rest of my holdings, or more than their allocations, I will buy VASs that month. Likewise, with any of the other holdings,

[00:35:31] Dave: what do you do if you have two that are under your target?

[00:35:34] Pat: I can really choose the one that’s furthest under its target, or if they both, or if they both quite similar under their target, I’ll buy the one.

[00:35:45] Dave: flip a coin.

[00:35:46] Pat: Essentially, it doesn’t matter at that point.

[00:35:49] Dave: Cause it’s cause it dealing with such small percentages, I guess. I, unless it’s a huge percentage away. It doesn’t matter that much

[00:35:56] Pat: Exactly. And just a note doing this, my asset allocation has never deviated more than a couple of percent away from each of their target allocations. that’s actually never to me in the month.

Yeah. So I’ve never actually needed to sell down and rebalance manually.

[00:36:16] Dave: Even during February last year when the market was down a 30 something percent, remember?

[00:36:24] Pat: May last year, I actually did a major reshuffle of my portfolio that wasn’t to do with rebalance.

[00:36:31] Dave: yeah, yeah, yeah, yeah,

[00:36:32] Pat: So that was a me cleaning up my portfolio and condensing it and making it simpler and more aligning it with my current investing philosophy, is this four, five portfolio I’m mentioning now, I’m very happy

[00:36:48] Dave: it might have moved a fair bit during that month, so it definitely can move a fair bit in a month. that’s not, a typical month though.

[00:36:57] Pat: That’s a very untypical month.

[00:36:59] Dave: Okay. I buy every month, as well, as I mentioned earlier sometimes twice, depending on how much cash we have, which kind of depends on how much. Maybe we had a bad month in terms of, uh, property expenses or something like that. So it depends, usually at least once a month.

And I use a lower cost broker than pat does, so it’s a little bit, cheaper for me, so it doesn’t hurt quite as much. And I’m a little bit more active than pat with my investments. I don’t keep like a super strict percentage of the funds in my portfolio that I have, it’s more like ranges, I suppose, that I feel comfortable with for different holdings.

And I guess part of this is I started investing my portfolio was all Australian shares. And in the last, I can’t remember couple of years. One to two years, I guess I’ve been wanting to invest and diversify a little bit more into international shares. So I’ve been doing that over time.

And so what I’ll do is I’ll, try and add to that each month, but I’ll also top up my other holdings at the same time. I don’t really have like an immediate target, like, oh, I have to get my international index fund to 40% or whatever. Like as soon as possible, I don’t really, I just don’t really feel like that.

Say I’ll, top that up by a little bit every month or whatever. And then I might buy some top up, but you know, one of my other funds or whatever I like to buy kind of what has, like we mentioned earlier kind of what has struggled recently or whatever. So I’ll balance those two things like diversifying the portfolio a bit more with international shares, but then maybe also buying what has done poorly recently or something like that.

So I kind of balance those two things a little bit.

[00:38:43] Pat: Yeah. Nice. Hey, you want to hear something funny.

Just talking about investment properties. I’ve had my first few random little expenses come out of my investment property inverted commas.

[00:38:56] Dave: tell me.

[00:38:57] Pat: a oh, just an annual fire alarm. Inspection thing that needs to be

[00:39:02] Dave: Oh

[00:39:03] Pat: yeah, no, that one never gets mentioned.

When you’re looking at like the comparison of property versus cares, no one ever tells you about the annual fire alarm inspections. You need it

[00:39:12] Dave: That is absolute peanuts. Why would you bother talking about that? Are you serious?

[00:39:18] Pat: No, because it adds up because it adds

[00:39:20] Dave: I know it adds but I know it adds up, but when you’ve got a list, when you’ve got a list of expenses, that one is so far down the list that doesn’t even register because got another 15 expenses that are more expensive and more frequent than that.

So one doesn’t even register in the brain mate.

[00:39:40] Pat: Of course, my, apparently my letterbox also got blown over in the wind and I needed someone to come and re straighten up and concrete in the letterbox.

[00:39:53] Dave: interesting one, I haven’t had that.

[00:39:54] Pat: And obviously the typical water bill. No, but it’s just interesting. I’m going to actually start recording all of this nonsense. To see how much, all those little flies add up to over the year.

[00:40:06] Dave: don’t do that. You’ll be depressed. You don’t want to know

[00:40:13] Pat: I thought it was pretty

[00:40:14] Dave: but mate it’s tax deductible. So what do you want?

[00:40:17] Pat: Oh, of course. I forgot. It’s all text. basically getting it back, man. You’re getting it

[00:40:22] Dave: Uh, pat it’s paying for itself mate.

[00:40:26] Pat: Oh, the reluctant property investor. Here we go.

[00:40:31] Dave: He’s got us. It’s all right. I can see for everyone who’s listening. I can see it, Pat has got this healthy inner glow about his property investing that he doesn’t want let on. Gives him the warm fuzzies.

[00:40:45] Pat: yeah. As long as I suppose, as long as your property doesn’t become like a meth lab, then you’re doing pretty good.

[00:40:52] Dave: That’s a good benchmark.

[00:40:53] Pat: That’s a good benchmark. The tail end risks.

[00:41:00] Dave: Uh, let’s do a little summary, right?

[00:41:02] Pat: Yeah.

In short, by when you have the money to buy. Every month is probably a good timeframe to stay engaged and feel motivated. You can have some simple targets in mind for your holdings, but don’t agonize over it. Many people do, as we’ve stated before, if your portfolio is in low cost, long-term diversified investments like index funds, the details aren’t likely to matter very much.

[00:41:27] Dave: So there’s no right answer for everyone in terms of, managing your portfolio and how you want to go about it. And the different there are different processes, but we hope today’s episode has helped break it down a little bit and simplify a few things and help you think about how you are going to manage your own share portfolio as you build it.

If you enjoyed the show today, we’d love it if you could leave us a little review in apple podcasts or your favorite podcast app. Just to let other people know that this is a show worth listening to, I appreciate you taking the time to tune in. We look forward to bringing you more practical and no nonsense content the future.

So stay tuned for that. And we’ll see you next time.



18 Replies to “Podcast: How to Manage An Investment Portfolio”

  1. I find that an easy way to explain a broker and a share registry is using the following analogy; the broker is like a car yard. You go there to buy your cars. All the cars are the same price at each car yard in this example, but some car yards might charge you a higher fee to buy or sell the car through their yard. A broker is just a “car yard” for buying and selling shares.

    The share registry is like vicroads (also known as the RTA in NSW) where you “register” your shares.

    1. That’s a good way to say it Glen. I forgot to say this but I’ve explained it in a pretty similar way before saying brokers are like a grocery store and the shares we’re buying are the groceries – we can buy the same groceries from different stores 🙂

  2. I’m fairly new to all this so a bit confused about some things.I’ve been using Commsec but like the idea of paying less for brokerage. If I want to change to another eg Pearler, do I need to change all my current holdings over as well, or do they stay in the bank one and anything new shows up in Pearler?
    Also I have a spreadsheet for everything, but that’s starting to get a bit unwieldy with new DRP and lots of little parcels being acquired, and then sales of some holdings etc.
    Would Sharesight keep track of how many shares, and which ones I’d sold etc, or do I still need to keep track with my own records?

    1. Hey Chris. You can either leave the other holdings with Commsec or bring them across to Pearler, it’s up to you.

      Sharesight can definitely keep track of that information for you, but you would need to import the info you have up until today into Sharesight, so it can begin tracking things from now on. If you have DRP switched on for some holdings, you can also switch that on in Sharesight so it can track your DRP purchases. On Pearler, you can sync your portfolio to be tracked in Sharesight, so any buys/sells in your Pearler account would automatically be tracked inside Sharesight.

      It might be a little more work in the short term to input your existing info into Sharesight, but it would definitely make things simpler going forward in keeping track of everything. Hope that helps.

  3. Hi Pat
    I enjoy your Podcasts.
    You say you have VGS and VGAD which are two similar International funds, VGAD with hedging.
    I have the same two funds myself and are unsure if I should sell off VGAD or keep both as Hedged and Un-hedged.
    I have had substantial capital growth on VGAD are am reluctant to sell and cop the CGT or just hold it.
    What are your thoughts on holding both funds.

    1. Hi Robert. Dave here. The reason Pat uses VGAD and an international fund which is hedged is because he invests a lot of his net worth outside Australia. If you also do that, then it could be a good idea to keep the hedged option. But if most of your other investments are in Australia, then generally there isn’t much need for the hedged option and the unhedged international shares would offer better diversification. So it depends on the reason why you were wanting to sell it.

    2. Yes, as Dave said. Having a hedged component is an important part to my overall long term strategy, so I am keeping both!

      I think having all of your assets in overseas currencies can add to the sequence of returns risk, so I keep some hedged. However there are benefits to having overseas currency exposure, so I keep some unhedged.

      If most of your future spending is in Australian dollars, it makes sense to have a significant part of your portfolio tied to the rising and falling of the Australian dollar.

  4. Yeah that fire inspection fee is annoying but at least it is predictable!

    In our “IP” allegedly the neighbour drove over and busted the water meter (two separate incidents), the council sent the bills (~ 1k) straight to us being the landowner.

    1. Haha yeah not great, but predictable 😉 Damn, sorry to hear about that one. Did you bother following up with the neighbour or not worth the time/effort to likely get nowhere?

  5. Hi Guy’s, Enjoyed Pat’s investment property update took me back to the Seaford Beach when listing to his purchase of the property. It was a great day enjoying the bay and catching up with my parents in Victoria. Thanks for your efforts with these pod casts do look forward to your ideas and thoughts. Thanks Will

  6. Hi! Just discovered FIRE and your website and have now read all the back catalogues and loved it, thank you so much!! I started investing in ETFs last year so had to do my first proper tax return this year. I seemed to have to include a big capital gain ($680 odd) for my VGAD holding, even though I didn’t sell any shares. It just seemed to arise from sales of holdings within the fund. Is this common or did I complete the tax return incorrectly? Thanks so much in advance. Marie

    1. Hey Marie, welcome and congrats on getting started! Good question. Yes, that sounds correct in your case. Because VGAD is an international index fund which uses hedging, sometimes it makes a large gain on that hedging depending on what happens to the Aussie dollar. Unfortunately, that can also result in a large gain sometimes which the end investor has to include in their tax return, which isn’t ideal, but is just the way this particular fund works. Hope that helps.

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