Friday 21 January 2022

Equities markets off to a shaky start in 2022

Looks like I *might* have made the correct decision to sell off my margin loan portfolio last week - the share markets are looking decidedly shaky at the start of 2022. The prospect of rising interest rates to combat/avoid inflation also makes longer term bonds a bad investment, and Australian real estate looks likely to weaken during 2022/23. Overall it might be a good time to just accumulate cash for a while.

We will remain in our long term asset allocation within our SMSF, and I have quite a lot of my NW tied up in real estate via our home, the lake house I *inherited* from my parents, and also the investment apartment I bought off-the-plan a couple of years ago that will be completed early next year. So my overall asset allocation remains 'high growth' despite the prospects of a couple of bad years coming up.

I won't be surprised if my NW is lower at the end of 2023 than it is at the moment. But at least I won't have to worry about getting a margin call if the stock market tanks.


I got an email notification that my CityIndex CFD trading account had dropped below 100% position coverage. I wouldn't have to put in more cash or close out a position unless the cover dropped below 50%, but it prompted me to review the positions (SPDR S&P ASX200 CFD and iShares MSCI Australia Index Fund that is denominated in USD) - they were both considerably down, due to a relatively high level of gearing inherent in CFDs.  At yesterday's close my overall A$1,306.48 initial investment was down by -A$298.07 (or 22.8%). I had initially opened these positions as long term 'ride the index' geared plays, but I decided I might as well go more 'risk off' and close out these positions. I sold out of the SPDR S&P ASX200 this morning (the Australian market was down about -0.7% after initially dropping 1%) and I will close out the iShares CFD position once US trading opens tonight. I might just xfer the cash out of this CFD trading account as the amount of money involved is relatively trivial and just creates more work at tax time for essentially no material benefit. If I start working on a PhD this year part-time I will have plenty of other things to keep me occupied!


I also got an email regarding the 12% solution portfolio. It states that although the strategy is based on only doing an end-of-month switch (if required), David Alan Carter does track the various indicators throughout the month and decided to alert subscribers of what he calls a "provisional pick" because the indicators had now started to indicate as shift of asset class (from QQQ to SHY (short term bonds)) rather than just a switch between funds within the same asset class. He notes that this could change by the normal end-of-month decision point if equities markets recover, but thought he'd let subscribers know.

He wrote "Obviously, this is a judgement call. And because every investor is in a different life situation and has a different tolerance for risk, I can't offer a specific recommendation."

Seems like a bit of pro-active "don't blame me if you lose a lot of money, I don't give recommendations, just information" PR to me.

Anyhow, I'm glad I decided to close out my 12% solution experimental portfolio last month, so I ended up with a small profit.

It also highlights that while it would be more cost effective to track this strategy with a larger position that I used for my experiment (which would reduce the relatively high trading costs), you would have to be comfortable with the higher volatility (risk) that generally accompanies higher potential/expected returns.

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