Friday 6 May 2022

Degearing my stock market positions

As I think I mentioned in my monthly NW update, I decided to liquidate my stock market and mutual fund investments in my St George and Commsec margin lending accounts, as I was concerned that the market may be at the start of a significant bear market/correction phase due to a combination of high inflation, rising interest rates, Covid lockdown impact on Chinese economy, and Russo-Ukraine war impact on global food supplies, etc. All of which could negatively impact global GDP and stock markets over the next 1-2 years. Borrowing at relatively high margin loan interest rates (with interest rates rising) doesn't make much sense in a bear market.

I had sold off my speculative investments in oil (OOO.AX ETF) and food/agribusinesses (FOOD.AX ETF) as the price hadn't moved in the direction I had anticipated at the start of the Ukraine invasion, and as I had decided to ungear overall, I thought I might as well close out those positions. To sell the Vanguard International Index Fund and Diversified High Growth Fund holdings on my St George margin lending account I had to fill in a St George form requesting the Redemption of those managed funds, which SGML then forwarded to Vanguard Australia for execution. That redemption appears to have been processed on 3 May, although the funds haven't cleared yet.

To sell the Colonial First State Geared Global Share Fund holding on my Comsec margin lending account I had to fill in the redemption request from from CFS (which meant filling in the PDF form, printing it, physically signing it, then taking a photo to send as a PDF to Comsec ML for action). I got a response from Comsec enquiries the next day stating that the form was dated more the 12 months old so couldn't be processed. Upon checking it turned out I had put my birthdate in the signature section instead of the current date (D'Oh!). I had been in a rush to fill in the PDF form to email it to DW at her workplace so she could print it out for my signature (as I don't have a printer at home). So I then had to change the signature date and initial that change, take another photo/PDF image and email the updated form to Comsec ML. It doesn't appear to have been processed as yet, so the redemption price will be lower due to the recent slump in the US and local share markets. Fortunately the CFS mutual fund investment was only about $55K whereas the Vanguard mutual fund investments were about $115K, so at least I got the larger holding sold off at the better price.

I'll use the sale proceeds to pay off any remaining margin loan amounts (probably keeping a few hundred dollars sitting in the  ML 'cash' accounts to keep these margin loan facilities active in case I want to invest again in future), and pay off the balance of my St George portfolio loan (that had been used to fund the initial deposit and stamp duty when I bought my off-the-plan investment apartment a couple of years ago). Any residual cash I'll leave in my 'high interest' online savings account (currently paying 0.45% interest) until I need cash to 'settle' my off-the-plan apartment purchase when construction is completed at the end of this year or early next year.

I'll retain my long term investments in the Vanguard High Growth Fund inside out SMSF, as I don't plan to retire for at least 5-7 years, so may as well ride out any market gyrations. I also will retain my current investment allocations in my Investment Bond (as that is intended as a very long term investment to form the core of a testamentary trust investment upon my death).

It will be interesting to see how the markets perform over the next few years. I suspect the US market and European markets will see significant declines, which might also drag down the Australian share market. There may be a good 'buying opportunity' in a few years time if/when markets bottom out. A comparison of the S&P500 US index and the Australian All Ords index shows that often when there is a major correction in the US market the Australian market gets pushed down well below the long term trend line, which suggests it is often a good time to buy into the Australian stock market at the tail end of a major correction in the US share market.



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