Investment Portfolios

Illustrative Investment Portfolio – Cash

Published on June 9, 2010 5:05 am, by

The MoneyBrilliant Save and Invest tool uses a number of model portfolios constructed by BetaShares to illustrate possible investment returns and risk with saving and investing.

We also use an example portfolio constructed entirely of cash. The expected returns of this portfolio are based on the Bloomberg Bank Bill Index and are consistent with the long run “neutral RBA cash rate.

The BetaShares Strategic Asset Allocation portfolios are constructed using Exchange Traded Funds (ETFs). ETFs are typically a very cost effective investment product and they can be used to provide exposure to a variety of different asset classes and investments.

The BetaShares Strategic Asset Allocation model portfolios are based on the following long-term asset class assumptions. These assumptions are reviewed on an annual basis at the start of each calendar year.

Long term asset class assumptions

Asset ClassBenchmarkYieldCapitalTotal ReturnComment
CashBloomberg Bank Bill Index3.5%3.5%Assumed yield return in line with the long run neutral RBA official cash rate of 3,5%
Bonds50/50 split of Bloomberg Australian composite and Global Aggregate Bond Index3.5%3.5%Australian and global long-run returns 0.5% above the RBA official cash rate and 0.5% below long-run US 10 year Treasury yield (3.5%) respectively
Australian PropertyS&P/ASX200 Index5.0%2.5%7.5%An income yield of 5%, plus capital return in line with inflation
Australia EquitiesS&P/ASX200 Index5.0%4.0%9.0%Grossed up dividend yield of 5% plus capital returns just under nominal GDP growth of 5%
International EquitiesMSCI All World Equity Index2.5%4.0%x6.5%Yield of 2.5% plus capital returns just under nominal growth in global GDP
CommoditiesS&P GSCI Light Energy Excess Return Index3.0%3.0%Commodities are projected to grow 1% in real terms above 2% price inflation

 

Annual Return Standard Deviation and Correlation Matrix

Asset ClassStandard DeviationCashAustralian BondsAustralian PropertyAustralian EquitiesInternational EquitiesCommodities
Cash2.5%1
Bonds5.0%0.51
Australian Property13.5%-0.25-0.251
Australia Equities15.0%-0.25-0.50.751
International Equities17.0%-0.25-0.50.50.751
Commodities15.0%0.25-0.250.250.25-0.251

 

APRA/FSC/ASFA Standard Risk Measure

Risk BandRisk LabelEst # negative returns every 20 years
2Conservative0.5 - 1
3Moderate1 - 2
4Balanced2 - 3
5Growth3 - 4
6High Growth4 - 6

 

Strategic Asset Allocation Model Portfolio

Asset ClassConservativeModerateBalancedGrowthHigh growth
Cash30%15%10%5%5%
Bonds50%50%40%30%5%
Australian Property5%5%-0.255%10%10%
Australia Equities10%15%25%30%45%
International Equities0%10%15%20%30%
Commodities5%5%5%5%5%
Defensive80%65%50%35%10%
Growth20%35%50%65%90%
Income3.5%3.5%3.75%3.75%3.75%
Total Return4.25%4.75%5.50%6.25%7.25%
Std Dev3.0%3.5%5.5%8.0%12.0%
# negative years in 20 years1.02.03.04.05.0

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Peter is the CEO of MoneyBrilliant. He has over 20 years experience in banking, insurance and accounting. Peter has three sons, ranging in age from 16 to 3, is a sport and fitness fanatic and a volunteer firefighter. He is passionate about improving people's lives through making financial services more accessible.

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