Thursday, 21 December 2017

Part 3 - Easy DIY Investment Portfolio






Hi dear folk.

Ready for Christmas?  Or do we not mention the war? Tee hee.

So, in our previous two posts we have built together a simple, achievable DIY investment portfolio - if we didn't catch those two posts Part 1 is here and Part 2 is here.  In fact, these are really all that is necessary to create for ourselves a great investment portfolio. If after reading those two posts we are happy - then no need to read this post. (It truly is that simple)

This post and the next are just extras, not necessary, but an interesting couple of additions to that portfolio which might peak our interest.

So, carrying right on again from where we left off the shall we?......


Step 5 - Creating Some Safety

Last time we added VGS to our portfolio giving us a growth component to our basic portfolio. VGS is Vanguard's Global Securities ETF.

Now, as wonderful as global securities are for growth over the very long term, there is the challenge of currency fluctuation.  For instance, if we hold stocks in USA bought with $A and the Australian dollar suddenly rises in value against the US $, then our USA stocks are instantly worth less. Likewise, if the Aussie dollar slumps then our US stocks are instantly worth more. 

What to do? Well nothing really, that is all part of the investing reality and we would ride it out knowing that in the long run the stock market always rises despite the roller coaster rides. If we are really miffed by this currency fluctuation thingy, then we can hedge. Hedge? As in build a protective hedge? Yes - a currency hedge. Hedging will assist with smoothing out some of the extreme fluctuations in the movement of currency. Obviously, the downside of hedging is that is stops some delicious highs as well as saving some bum-burning lows - so it is not a silver bullet.

How to hedge our VGS then? We would simply buy VGAD which is Vanguard's hedged version of VGS. It is hedged in Australian dollars. We would have 50% of our international exposure unhedged via VGS ad the other 50% of our international stocks hedged via VGAD.  We would keep buying VGAD and our LIC's until our portfolio looked like this.


  • Cash 10%
  • LIC's 40%
  • International ETF 25%
  • International Hedged ETF 25%





Keeping Our Portfolio Balanced

A important note about keeping our portfolio balanced to the percentages mentioned above.....don't EVER sell any stocks to achieve this balance.  By selling we will incur possible CGT (capital gains tax), miss out on dividends, accidentally sell at the wrong price and a long list of other possible mistakes.

The most prudent type of investing is to buy and hold - not buy and sell.

Instead, the best way to re-balance our portfolio is to BUY the stock that is sitting the most beneath our required percentage.


Again, we could stop there and this would be a wonderfully easy DIY Investment Portfolio just the way it is with equal amounts of income yield and international growth elements, half of which are hedged against currency fluctuations, to perform well over the long term.

However, in the next post I want to just show yet another easy addition to this portfolio that will add some personality and flair....a theme if you will. (We all like a bit of individualism yeah?) 


To be continued .......


Take care folks and stay nice. (4 sleeps till Xmas)

Mr HM (Phil)


NB: I am not a financial adviser so always please do your own research. I love to write about money, frugality, budgeting and living a simpler life to encourage others to do the same in their own way. I hate the stupid taboo of not talking about money and hope to encourage a helpful shifting of that useless paradigm.

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