Meet Rob: He conquered 'the enemy' with a two-pronged growth and income strategy

Like many of us, Rob became serious about investing for the love of his family.

Rob’s initial goal was to ensure he and his wife had enough income to support a comfortable retirement.

But he also wanted a portfolio that provided that “sleep at night” factor as he recognised the impact events such as the GFC can have on one’s wealth and mental health. At the same time, he needed growth to keep ahead of inflation given he and his wife are retired.

“Recognising that inflation is the enemy, there needs to be growth in our portfolio to get ahead and stay there.”

Hence, Rob set out to build a cleverly diversified portfolio; he invests in LICs that can go to cash to provide capital stability during market downturns, unlisted property funds providing above-inflation income with low volatility, and an international fund delivering steady growth.

With his core portfolio delivering a beautiful combination of stability, growth, and income exceeding inflation, Rob also undertakes some short-term trading for opportunistic profits.

But Rob’s journey hasn’t come without some hard knocks. In this wire, he shares with me his story, some of the big lessons he's learned, and what he's passionate about doing next given he's met his income goals.

I hope you enjoy his story.

Image: Rob in his investing element

How old are you and for how long have you been investing?

I am 67 and have owned shares since I was a teenager and my step-father encouraged me to get involved in the share market.

I became more serious about investing after the global financial crisis (GFC) as I was approaching the back end of my work life and became more focused on positioning my wife and myself for a comfortable retirement and taking advantage of the favourable investment opportunities that were present then.

What is your objective from your investing?

I am no longer working and earning an income, so capital preservation was a primary consideration initially, along with yield.

Over time I became more comfortable with making decisions around investment selection after having achieved a number of basic goals around assembling adequate investment capital and satisfying our estimated income requirements. Consequently, my risk appetite has grown after satisfying these primary goals.

Recognising that inflation is the enemy, there needs to be growth in our portfolio to get ahead and stay there.

My investment objective has changed over time from ensuring there is enough income to live comfortably to:

• Diversifying our asset mix to reduce exposure to equity market drawdowns
• Ensuring we have adequate income irrespective of the investment cycle
• Growing our capital and income by being selective about investment opportunities

What products do you use to execute your strategy?

We use shares, listed investment companies (LIC), exchange-traded funds (ETF), and unlisted equity and property funds.

I recently disposed of an investment property after realising that its return on investment (ROI) was inadequate, along with the unwelcome rigmarole of being a direct property owner and feeling abused by dodgy tenants and state taxing authorities.

How would you describe your strategy?

Our strategy is two-pronged.

We utilise investment managers for equities and indirect property, and we have our own blue-chip shares, to underpin our portfolio's capital stability, growth, and dependable income yield.

Additionally, we have a number of shares that we trade short-term for further capital gains and dividends. I use a couple of subscription services to assist me with stock selection and related market matters.

Could you please share your top five holdings and tell me a bit about why you hold each of these positions?

The following are the top five holdings in order of their weighting in our portfolio.

Clime International Fund

This is a foundational investment for our portfolio; it provides some growth via managed international equities. I couldn’t cover this important space so have left it to the experts despite the fund's fees being pretty high. This was a fully leveraged position with some personal tax benefits initially until I downsized from the family home, eliminated debt and made an in-specie transfer of the Clime fund into our self-managed superannuation fund (SMSF).

Clime has delivered approximately 10% per annum since 2014, although it has not exceeded its benchmark hurdle in recent years despite currency tailwinds. Clime has sought to educate their clients and I trust and admire John Abernethy's work and feel Clime staff always have my best interests in mind.

Primewest and Elanor Property Funds

Upon receiving advice from Clime to improve the diversification of our equity-heavy portfolio, we decided to take up some indirect property funds.

This category includes separate funds investing in regional shopping centres, Perth CBD offices, agricultural land/leases, and an industrial media site in Perth. I like unlisted property as the volatility is relatively low and the yield is outstanding among alternatives.

Although I’m aware of interest rate and liquidity risks when it comes to unlisted property, the yield is compelling. 

I also like these funds because they can offset inflation via capital growth over time as well as through rental increases.

Even during the COVID debacle, most of these funds continued their monthly distributions with minor reductions in the case of the shopping centre assets, but all of that is back to normal now and the predictable monthly revenues (quarterly for Elanor) are great for cash flow planning and SMSF pension payments.

My wife demands monthly pension income whereas I’m a bit more flexible on that front.

Cash

We’ve got a fair bit of cash leftover following a property sale, but we’ve earmarked it to buy a house in the country in due course.

I hate cash because it earns bugger all, devalues with inflation, and then you pay tax on the interest. Yuck! Usually, cash would be a very low component in my portfolio.

WAM Leaders (ASX:WLE)

The experts at Wilson Asset Management (WAM) can manage stock selection and cycles better than me, so I use the WAM Leaders LIC to provide capital preservation and benefit from their ability to take advantage of trading opportunities while enjoying a reliable and growing fully franked yield.

I add to this position during market downturns and they’ve always demonstrated an ability to bounce back.

WLE has been a great selection for our portfolio since rolling over my super to our SMSF in 2018. I like Chairman Geoff Wilson, WLE Lead Portfolio Manager Matt Haupt and the team. Like Clime, they also provide an educational element for their clients which I find valuable. I also think Geoff is entrepreneurial and works hard to deliver for his clients.

WAM Global (ASX:WGB)

I hold WGB for the same reasons as WLE. Plus, when I rolled over my super into our SMSF, our financial adviser suggested increasing our allocation to global shares to 50% of our equity portfolio.

I also picked WGB instead of direct international shares or adding to my Clime position because I could trade it on CommSec and have better control. I’m still building my position in the LIC.

Other

The above investments cover about 50% of our total holdings. The remainder of the portfolio includes a few more managed funds and about 60 odd ASX listed stocks. 

I hold most of these other stocks through CommSec, and some others are controlled via my long-standing stockbroker. He is pretty inactive these days and this encourages me to be a bit more active myself and take advantage of the inevitable ups and downs in markets.

Is there a standout investment within your income strategy?

Each investment except cash is doing well against the respective purposes they serve for providing income. I like them all for different reasons - so I don’t think I can call any single product a standout.

I will say though the Wilson LICs and, to a slightly lesser extent, the Clime International Fund are my favourite managers.

Could you tell me about your worst investment?

I have had a few wipeouts along the way – Navsat, Speedcast, and Axcess Today come to mind.

"None of these was destructive in the grand scheme of things but they did cost me about $25,000 and taught me that the risk of capital loss is real, and you need to be switched on in order to take evasive action when things turn sour."

Another shocker is AMP, but I haven’t given up on getting something back from that in the longer term. Same again with Appen.

How does Livewire help with your investing process and what tips can you share with other investors about using Livewire?

Livewire has given me more information and enjoyment than any other source on investment matters.

I use tips from Buy Hold Sell to get trading ideas and understand opportunities and risks more broadly. For instance, I made profits in Caravel Mining (ASX:CVV), Tyro Payments (ASX:TYR), Oil Search (ASX:OSH), WebJet (ASX:WEB), and many others because of Buy Hold Sell.

Livewire also exposed me to important investing concepts such as asset diversification, sources of stable yield like real estate investment trusts, investment cycles, market sectors as well as micro and macro themes impacting the investment environment.

Also, the information on ETFs, LICs and listed investment trusts (LITs) helped me understand the value of these vehicles for my portfolio. 

The range of articles and guests you bring to Livewire enables me to learn more and more to the extent that I feel more confident and informed to effectively manage my investments and SMSF portfolio.

You frequently see opposing views on Buy Hold Sell, where one expert says ‘Buy’ and the other is ‘Sell’ on the stock being discussed. These conflicting sentiments alert me to the different perspectives an investor must consider when making their investment decisions.

I enjoy the diverse range of contributors on Livewire. This is valuable because no particular person or organisation has all the answers all the time.

There are also great quotes from legendary investors Warren Buffett and Charlie Munger frequently mentioned in the wires as well as investment processes and methodologies explained by a range of Livewire guests that have a lot of relevance.

Do you have a favourite contributor you recommend other investors follow?

I like your interview work James as it is well-considered, prepared, and structured, but the myriad of guests that you bring to Livewire is exceptional.

I must admit that I’m in love with Jun Bei Liu! She has given me some pretty good tips too. And I never miss reading what Shane Oliver from AMP Capital has to say. He makes investment subjects simple to understand with his insightful summaries of highly technical and sometimes confusing information for us mere mortals.

I especially enjoy all the Buy Hold Sell segments because they assist my short-term trading activities. I recommend Livewire to my friends, however, wouldn’t exclusively recommend any particular contributor – there are too many there that shouldn’t be overlooked and given everyone has a different topic they’re interested in.

There is something on Livewire for all investors and I would recommend investors wishing to improve their knowledge to be engaged on the platform and find their own favourite topics and presenters.

What can Livewire do better or what do you dislike about Livewire?

The only “criticism” I would make is that it is difficult to digest all the data provided by Livewire every day, but don’t make any changes on that because you never know which option is topical or relevant for that day’s reading.

Some of the macro stuff would be good if it could be summarised more. I get a bit dismissive of some of the expert commentary because invariably there is an article with a contrary view, or the economic circumstances change and supersede the advice. I think that’s why I like Shane Oliver - he gets to the important points without fluffing around.

Is there a lesson you’ve learned as an investor that could potentially help others?

I have learned a few lessons over the last 12 or so years of investing.

• Diversify your risk and sources of income
• Consider tax planning and the value of holding investments in an SMSF
• Reinvest dividends, dollar-cost average and let compounding work for you over time

Most importantly I would say there is a lot to learn about investing and it takes time and sometimes personal experience and maybe some disappointment along the journey to learn hard lessons.

To accelerate the learning process, aspiring investors should seek out tools and sources that can assist with obtaining quality financial education. Livewire is a great tool with the many subjects that are so very well covered.

As individuals we are all capable of making a positive contribution to our own financial wellbeing and independence. Personal education and eventually some experience can create a more capable investor.

Can you share a personal passion or ambition you have for your future?

Now that I’m confident about my financial wellbeing during retirement, I have turned my attention to other very satisfying matters.

I am looking forward to improving my and my family’s quality of life by providing guidance in relation to their own financial security and also making some material contributions to their wellbeing.

In addition, I am on the hunt for a country property that offers all of us a chance to get away and enjoy lush greenery, each other’s company and see our kids and grandchildren grow up. All I need is for COVID lockdowns to loosen so that I can find a suitable place.

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