Tuesday 24 October 2006

Retirement Fund Asset Mix

I generally think a 40% domestic shares, 35% foreign shares, 15% property, 10% bonds is the basic starting point for working out a long-term investment mix, provided this weighting towards growth assets matches your risk tolerance. Since my retirement fund is definitely a long-term investment(20 years till retirement age, then maybe another 20 or so during retirement) this was my starting point. I did decrease my weighting in shares and increase the % in property during the bear market in 2001, and then weighted my asset mix more towards shares in 2003 when the market seemed to have bottomed out.

My current investment mix in my retirement account is as follows

BT Business Superannuation
Investment Option wt %
Colonial First State Diversified 1.91%
Westpac Australian Shares 19.68%
Colonial First State Australian Shares 25.53%
Westpac International Shares 1.93%
BT Core Global Shares 20.48%
MLC Global Share 20.13%
Westpac Australian Property Securities 10.26%
Westpac Australian Fixed Interest 0.06%
Intech High Opportunity 0.03%

Overall the asset allocation works out as:

Asset class wt %
Australian Shares 43.52%
International Shares 37.93%
Property 10.13%
Bonds 0.38%
Cash 8.03%

The cash component isn't really intentional - it's just that all the stock funds tend to have a cash float at all times. I've got less in bonds than my "plan" requires - but with interest rates still quite low the risk of capital loss with bond investments seems more towards the upside, and the coupon rate is nothing too exciting. If interest rates here go up another 0.25% or .50% and the economy slows down, I'll reweight from stocks to bonds. I think my "model" retirement portfolio is around 40% AU shares:35% INT shares:15% LPT:10% bonds:0% cash

Hopefully these Asset classes should return something like the following in the long term:

Asset class return %
Australian Shares 9.5%
International Shares 9.0%
Property 8.0%
Bonds 5.0%
Cash 3.5%

This would give my "model" portfolio an expected return of around 8.65% (after fees and charges)

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