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The week’s question

"If I was to invest $1000 a month for the rest of my life, what should the ultimate portfolio / investment look like?"

- Mitch, Canberra, ACT

This week’s advice

This week’s advisor is Tristan Scifo, from Purpose Advisory. Here’s what he said in response to Mitch’s question:

When solving an important problem, ask the brightest minds you can find.

I identified Chat GPT-4, Warren Buffet, Ray Dalio, Peter Lynch, and the Australian collective unconscious as the best 5 sources to answer this.

Chat GPT-4’s Response

I pressed Chat GPT-4 to propose an “ultimate portfolio” for someone living in Australia, investing $1,000pm. Here’s a summary of what it produced:

• 40% Australian Shares

  • 25% Larger companies

  • 10% Smaller companies

  • 5% Sector or Dividend Focus

• 25% International Shares

  • 15% Developed Markets

  • 10% Emerging Markets

• 20% Bonds/Fixed Income

  • 12% Australian Bonds

  • 8% International Bonds

• 10% Real Estate

• 5% Alternative Investments

  • 5% Commodities / Infrastructure

As a general rule, one should never do exactly what Chat GPT says. But this is a useful place to start, and a reasonable yardstick to compare any alternatives against.

Professional Investor Responses

Warren Buffet is possibly the world's best investor, achieving an average return of 20% pa since 1965. Buffet recommends all investors buy low-cost, diversified index funds. In his will, his estate will be invested for his wife's benefit:

• 90% in a low-cost S&P 500 index fund and

• 10% in short-term government bonds

Ray Dalio launched and ran one of the world's top-performing hedge funds, which has returned on average 12% pa since 1975. Dalio proposed the well-known "All Weather" portfolio, designed to perform well across various economic environments:

• 40% long-term bonds

• 30% shares

• 15% intermediate-term bonds

• 7.5% gold

• 7.5% other commodities

Peter Lynch achieved an average return of 29% pa as manager of the Magellan Fund between 1977 - 1990, and wrote a number of investment education books. Lynch believes individual investors can gain an edge by spotting opportunities in their daily lives before Wall Street catches on. He doesn't provide a one-size-fits-all recommendation, but emphasizes looking for growth at a reasonable price, and warns against overly popular shares or sectors.

Where do most Australians invest?

The collective Australian unconscious proposes a different kind of answer. There are two dominant strategies which Australians consistently prefer for building wealth: Property and Super.

Property - Most Australians invest most of their wealth into property (primarily into their home), and for good reason. When you leverage the bank's money to buy a home which you love (i.e. a property other buyers will also love in future), buying either in or near a capital city, and when you stick with it for the long term, you're most likely to grow your wealth significantly. Concentrating wealth in the family home is still the most popular and most consistently successful wealth creation strategy for Australians.

Default Super - The next most common and successful strategy is Super. No matter how it's invested, the tax benefits of contributing to and building wealth in super are hard to beat. The majority of member’s super funds are invested primarily in the default MySuper option of their fund, which is invariably a simple, done-for-you, actively managed fund with a reasonable fee and lots of diversification.

It's all about the Execution

Successful investors know NOT to worry about finding the perfect strategy, but focus instead on effective execution. There are no $million-dollar ideas, there’s only $million-dollar execution.

Creating the 'ultimate portfolio' comes down to firmly in sticking with a strategy over the long term, more than in optimising your percentage allocation.

A Financial Adviser’s Tips

I’ll leave you with my 3 simple rules I share with clients to help them choose a strategy that works best for them:

1a. Make investing fun - choose a strategy you'll enjoy setting up and managing, even 5 years from now. Investments should add joy to your life.

1b. Don't make investing a drain - being consistent with your strategy requires you to not hate the work. Automate or outsource the parts you don’t enjoy (where practical) and cultivate a winner’s attitude.

2. Make it simple - complexity breeds mistakes, confusion and energy drain. Good strategies become increasingly complex over time, but a great strategy should be simple enough to explain to a child.

3. Leverage your expertise - You have unique money-making talents. Learn what you could be best in the world at, sharpen these skills You don't need to hands-on, but you do need to at least understand your strategy in depth, and know how to adapt it over time

About Tristan

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