A.I.M. Users Bulletin Board

[ls7550]

a Gold/Stock/REIT Rebalance blend that has been working well since April of 2021

For those of us in/near a major city, where house prices tend to be relatively high, a third each in direct property (house), stock and physical gold can be a very nice asset allocation. Here in London and your primary house is exempt from capital gains tax when sold, and imputed rent, the rent you'd otherwise have to find/pay isn't directly taxed either (although there are property taxes of around 0.5%/year, payable to the local council (state tax like)). Legal tender gold coins have no purchase tax nor sales tax (no capital gains tax). Having two thirds of your portfolio as physical in-hand also massively reduces counter-party risk, where otherwise money you deposit into a bank or a stock brokerage in effect becomes its money (they buy the shares you like in their name, or in the case of bank deposits its their money, free within regulation to do with what they like).

For the stock element, a mid cap works well.

PV



Avoids the over-concentration into individual stocks/sectors that can occur in the main/larger stock index (large cap drag), has stocks flow in/out of both the top/bottom. For larger cap stocks that don't totally fail but instead drop back down into the mid cap index, they are a potential value-play, discounted price that might turn around and see them return back out of the top and into the large cap index. etc.

It's also a nice option for those who prefer low-activity, as you can initially load up thirds into each, and thereafter not bother with any rebalancing other than drawing income/SWR from either stocks or gold, whichever is the higher value at the time. Which is a form of partial rebalancing in itself.

Historically since the late 1800's and for a British investor imputed rent has averaged 4.2%, so 1.2% proportioned to a third of total portfolio. When a further 2.1% (3.15% relative to just stock and gold) is also drawn, that's a combined 3.33% SWR effective rate of return, your inflation adjusted original investment amount returned via 30 yearly instalments, and where most-often you'll end 30 years with your inflation adjusted start date wealth still available (more often more).

When your inflation adjusted money is returned via 30 yearly instalments, you time average 50% capital at risk. If the terminal value also = original investment, that's a 2x reward factor over 30 years (more often ... more).

( 2x gain / 50% average capital at risk )^( 1/30 years ) = 1.0473 = 4.73% real gain on average capital at risk, and where for some of us that can be a tax efficient (net) reward rate that might otherwise have required closer to 6% gross (assuming around 20% taxation) to compare.

For those that enjoy the activity, 80/20 AIM-HI style applied to the stock holding can be worked PV ... to help keep the brain active (reduce the risk of dementia setting in).

Nothing particularly new, the ancient Talmud advocated such a thirds each in-land (house), in-commerce/merchandize (stocks), in-hand (gold) millennia ago. Simple, but effective, and a choice that is close to my own heart.

Clive