Investment Portfolios
Published on June 9, 2010 5:08 am, by Pete Lalor
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 Class | Benchmark | Yield | Capital | Total Return | Comment |
|---|---|---|---|---|---|
| Cash | Bloomberg Bank Bill Index | 2.75% | - | 2.75% | Low starting point RBA cash rate and slow projected return to "neutral" level of 3.0% p.a. |
| Australian Bonds | Bloomberg Australian Composite Bond Index | 3.25% | - | 3.25% | A starting yield of 2.4% p.a. and some return drag as yield rise should constrain returns to be below long-run fair-value of 4% p.a. |
| International Bonds | Bloomberg Global Aggregate Bond Index | 2.75% | - | 2.75% | A starting yield of 2% p.a. and some capital drag as yields eventually rise should constrain returns to be below long-run fair-value of 3.75% p.a. |
| Australian Property | S&P/ASX200 Listed Property Index | 5.0% | 2.0% | 7.0% | Returns projected to be below fair-value of 8.25% p.a. due to a low starting distribution yield plus a negative earnings impact as interest rates rise. |
| Australia Equities | S&P/ASX200 Index | 5.5% | 4.0% | 9.5% | Returns projected to be close to fair-value of 9.25% p.a. as PE values ended 2018 at close to fair-value around 14. |
| International Equities | MSCI All World Equity Index | 2.5% | 5.0% | 7.5% | Returns projected to be above fair-value of 6.5% p.a. as PE values ended 2018 at somewhat below fair value. |
| Gold | Gold bullion spot price in $US | - | 2.5% | 2.5% | Initial weakness in gold prices reflecting ongoing global economic recovery and a rising $US, before resumption of trend 3% growth. |
Annual Return Standard Deviation and Correlation Matrix
| Asset Class | Standard Deviation | Cash | Australian Bonds | International Bonds | Australian Property | Australian Equities | International Equities | Commodities |
|---|---|---|---|---|---|---|---|---|
| Cash | 1.5% | 1 | ||||||
| Australian Bonds | 3.5% | 0.5 | 1 | |||||
| International Bonds | 3.0% | 0.5 | 0.75 | 1 | ||||
| Australian Property | 15.0% | -0.25 | 0.25 | 0.25 | 1 | |||
| Australia Equities | 15.0% | -0.25 | -0.5 | -0.25 | 0.5 | 1 | ||
| International Equities | 15.0% | -0.5 | -0.5 | -0.5 | 0.25 | 0.75 | 1 | |
| Gold | 15.0% | 0.5 | 0.25 | 0.5 | -0.25 | -0.25 | -0.75 | 1 |
APRA/FSC/ASFA Standard Risk Measure
| Risk Band | Risk Label | Est # negative returns every 20 years |
|---|---|---|
| 2 | Conservative | 0.5 - 1 |
| 3 | Moderate | 1 - 2 |
| 4 | Balanced | 2 - 3 |
| 5 | Growth | 3 - 4 |
| 6 | High Growth | 4 - 6 |
Strategic Asset Allocation Model Portfolio
| Asset Class | Conservative | Moderate | Balanced | Growth | High growth |
|---|---|---|---|---|---|
| Cash | 25% | 15% | 10% | 5% | 0% |
| Australian Bonds | 30% | 25% | 20% | 15% | 5% |
| International Bonds | 20% | 20% | 15% | 10% | 0% |
| Australian Property | 5% | 5% | 5% | 10% | 10% |
| Australia Equities | 10% | 15% | 25% | 30% | 45% |
| International Equities | 5% | 15% | 20% | 25% | 35% |
| Gold | 5% | 5% | 5% | 5% | 5% |
| Defensive | 80% | 65% | 50% | 35% | 10% |
| Growth | 20% | 35% | 50% | 65% | 90% |
| Income | 3.25% | 3.25% | 3.50% | 3.75% | 4.0% |
| Total Return | 4.00% | 4.75% | 5.75% | 6.50% | 8.00% |
| Std Dev | 2.5% | 3.5% | 5.5% | 7.5% | 10.5% |
| # negative years in 20 years | 1.0 | 2.0 | 3.0 | 4.0 | 6.0 |
| Probability of negative returns | 5% | 10% | 15% | 20% | 25% |
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.