Tuesday, September 23, 2008

Portfolio Changes and Asset Allocation

The margin call and other actions has restructured the portfolio quite a bit:

Now we're only only borrowing 23 cents for every dollar of net worth and reduced the net worth allocated to both stocks and bonds. While the view above looks at how many dollars of net worth is allocated to each investment class, we can also look at the actual exposures to each asset class as shares of total assets. These total assets include net worth, borrowed funds, exposure provided by leverage funds, CFDs etc:

Also, for the first time I've broken down the stocks asset class into Australian large and small cap stocks and US and rest of the world stocks. For each dollar of net worth we are exposed to $1.78 of assets, which is still a high degree of leverage in my opinion. Exposure to bonds is now very low and exposure to Australian stocks very high. I don't really know how much should be allocated to each asset class. Posting this breakdown is a step towards thinking about that in the long-run. There are tax advantages to Australians owning dividend paying Australian stocks, which have to be weighed against the benefits of diversification. If we also include funds that I may inherit the picture looks a lot more balanced:

The combined portfolio is much heavier in bonds and cash, has only 45% of assets in stocks and only 41% of those stocks are Australian. Exposure to private equity and commodities is still small but it's looking a bit more like an "endowment portfolio".

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