The 60/40 Portfolio Is Dead
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,603,134 (+0.55%)       elbourne $989,193 (-0.36%)       Brisbane $963,516 (+0.83%)       Adelaide $873,972 (+1.09%)       Perth $833,820 (+0.12%)       Hobart $754,479 (+3.18%)       Darwin $668,319 (-0.54%)       Canberra $993,398 (-1.72%)       National $1,033,710 (+0.29%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $748,302 (+0.18%)       Melbourne $497,833 (-0.44%)       Brisbane $540,964 (-1.56%)       Adelaide $441,967 (-0.38%)       Perth $442,262 (+1.33%)       Hobart $525,313 (+0.38%)       Darwin $347,105 (-0.72%)       Canberra $496,490 (+0.93%)       National $528,262 (-0.02%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 10,189 (-104)       Melbourne 14,713 (+210)       Brisbane 7,971 (+283)       Adelaide 2,420 (+58)       Perth 6,383 (+298)       Hobart 1,336 (+6)       Darwin 228 (-12)       Canberra 1,029 (+8)       National 44,269 (+747)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,795 (-1)       Melbourne 8,207 (+293)       Brisbane 1,636 (+1)       Adelaide 421 (-4)       Perth 1,664 (+15)       Hobart 204 (-1)       Darwin 404 (-2)       Canberra 988 (+12)       National 22,319 (+313)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $800 (+$5)       Melbourne $600 ($0)       Brisbane $640 (+$10)       Adelaide $600 ($0)       Perth $660 ($0)       Hobart $550 ($0)       Darwin $700 ($0)       Canberra $690 ($0)       National $663 (+$2)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $590 (+$10)       Brisbane $630 ($0)       Adelaide $490 (+$10)       Perth $600 ($0)       Hobart $475 (+$23)       Darwin $550 ($0)       Canberra $570 (+$5)       National $593 (+$4)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,364 (+80)       Melbourne 5,428 (+4)       Brisbane 4,002 (+12)       Adelaide 1,329 (+16)       Perth 2,113 (+91)       Hobart 398 (0)       Darwin 99 (-5)       Canberra 574 (+39)       National 19,307 (+237)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 7,687 (+257)       Melbourne 4,793 (+88)       Brisbane 2,098 (+33)       Adelaide 354 (-11)       Perth 650 (+5)       Hobart 135 (-1)       Darwin 176 (-9)       Canberra 569 (+14)       National 16,462 (+376)                HOUSE ANNUAL GROSS YIELDS AND TREND       Sydney 2.59% (↑)      Melbourne 3.15% (↑)      Brisbane 3.45% (↑)        Adelaide 3.57% (↓)       Perth 4.12% (↓)       Hobart 3.79% (↓)     Darwin 5.45% (↑)      Canberra 3.61% (↑)      National 3.33% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND         Sydney 5.21% (↓)     Melbourne 6.16% (↑)      Brisbane 6.06% (↑)      Adelaide 5.77% (↑)        Perth 7.05% (↓)     Hobart 4.70% (↑)      Darwin 8.24% (↑)        Canberra 5.97% (↓)     National 5.84% (↑)             HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.8% (↑)      Melbourne 0.7% (↑)      Brisbane 0.7% (↑)      Adelaide 0.4% (↑)      Perth 0.4% (↑)      Hobart 0.9% (↑)      Darwin 0.8% (↑)      Canberra 1.0% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)      Melbourne 1.1% (↑)      Brisbane 1.0% (↑)      Adelaide 0.5% (↑)      Perth 0.5% (↑)        Hobart 1.4% (↓)     Darwin 1.7% (↑)      Canberra 1.4% (↑)      National 1.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND       Sydney 29.7 (↑)      Melbourne 30.9 (↑)      Brisbane 31.2 (↑)      Adelaide 25.1 (↑)      Perth 34.4 (↑)      Hobart 35.8 (↑)      Darwin 35.9 (↑)      Canberra 30.4 (↑)      National 31.7 (↑)             AVERAGE DAYS TO SELL UNITS AND TREND       Sydney 30.0 (↑)      Melbourne 30.5 (↑)      Brisbane 28.8 (↑)        Adelaide 25.2 (↓)       Perth 38.3 (↓)       Hobart 27.8 (↓)     Darwin 45.8 (↑)      Canberra 38.1 (↑)      National 33.1 (↑)            
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The 60/40 Portfolio Is Dead

Here’s how advisors are replacing it.

By Steve Garmhausen
Fri, Nov 5, 2021 11:19amGrey Clock 4 min

Thanks for the memories, 60/40. A mix of 60% stocks and 40% bonds, or something close to it, could for decades be expected to produce enough stable growth and steady income to meet retirement goals. But sky-high stock prices, rock-bottom interest rates and an increasing tendency for the two asset classes to move in lockstep has prompted most advisors to ditch the formula. What are they doing instead? That’s the topic of this Big Q, our weekly feature where we ask advisors to weigh in on important questions.

Brenna Saunders, partner and wealth planner, Creative Planning: With longer and longer life expectancies, the typical retiree depends on their portfolio to meet their needs for decades, so we’ve never believed that large bond allocations are appropriate for them.We typically recommend having enough invested in bonds to get through a prolonged bear market and invest what remains in investments with a higher upside than bonds.

For most clients, the assets that would typically be invested in bonds under the 60/40 formula are directed to publicly traded equities instead. While stocks are inherently more risky than bonds in the short run, there is a long-run risk that a client outlives a portfolio that is positioned too conservatively in a low-interest-rate environment. When you add in the impact of inflation, a 60/40 portfolio may actually be less likely to achieve their goals. On paper, the portfolio may appear to be further out on the risk spectrum, but in reality is positioned appropriately when considering all of the risks to a client’s financial independence. For some clients, adding the private equivalent of publicly traded stocks or bonds may be appropriate and improve long-term expected performance. This should be balanced against the client’s needs for liquidity and concerns around complexity.

Jay Winthrop, partner, Douglass Winthrop Advisors: We only view bonds as an alternative to cash, not as an offensive weapon for seeking investment return. Alternatives have, in our view, substantial drawbacks for the average taxable investor. That leaves us with a default position of being overweight equities. That’s always been our approach, but now, with where interest rates are, we are at the very high end of our allocation to equity.

If we are mandated to be 85/15, let’s say, we are at 85% for equities. We have a fairly concentrated portfolio of about 30 companies, and all of them meet five or six core tests: They all have wide economic moats, pristine balance sheets, abundant reinvestment opportunity, they trade at valuations we believe represent discounts to their intrinsic value, and they’re run by managements that are very shareholder oriented. In the current environment, where you have high equity prices but even higher bond prices, we are adding a few other factors. We’re really favouring businesses that have a high degree of pricing power, that have a low degree of capital intensity—meaning they don’t require external financing to fund operations—and that are addressing large global markets.

Andrew Burish, advisor, UBS: Based on UBS’s capital market assumptions, we prefer a 45%-25%-30% allocation: 45% is in U.S. and foreign equities, 25% is in short-duration fixed income, and 30% is in alternative investments. Most of our clients are either accredited investors or qualified purchasers; they either have a net worth of $2 million minimum or $5 million minimum. That gives us a lot more flexibility for the 30% that we use in alternatives.

[By using alternatives], we reduce risk while maintaining projected returns, or we enhance projected returns while maintaining the same risk. That 30% alternatives sleeve could be a blend of private equity, hedge funds and private real estate. For people who need income, we utilize a liquidity strategy. We’ll take out one to three years of income that they’ll need and we keep that in a separate strategy with short-duration fixed-income investments. This allows a client to go out further on the risk spectrum within their 45-15-30 investment strategy if needed to meet their financial planning goals.

The 45% that’s in stocks would probably be split with 30% in U.S. stocks, diversified across small-cap, mid-cap and large-cap, and 15% in foreign—developed markets and emerging markets in a pooled vehicle of some kind. It’s a little bit overweight the U.S., but there’s a big dose of foreign stocks in there.

Matt Gulbransen, president, Pine Grove Financial Group: The first thing we’re doing is resetting expectations. For that client who is used to making 7% or 8% this past decade, and thinks that will continue in retirement, we’re rethinking that. We’re not completely abandoning bonds in that 60/40 model, but we’re definitely taking 20% of that allocation, give or take, and trying to find alternative, non-correlated asset classes that can generate bond-like returns without the interest-rate and credit risk. We’ve done some real estate-type investments like data centres and cellphone towers. Things like that might be a little bit different, but they still provide stable fixed income. A lot of open-ended ETFs or mutual funds will invest in companies that own those types of real estate. There are real estate trusts that are designed specifically to buy data centres that have long-term corporate leases and then kick out [income] just like an industrial property or an office property.

We’re also going more into hedging-type strategies. We’re trying to put a fence around the volatility of your portfolio: If the market’s up 20% or 30% you’re going to hit the top of that fence and you’re not going to make more than that. But if the market goes down 30% or 40%, you’re not going to have that downside volatility. We are outsourcing that to managers. For us it’s well worth the 30 to 50 basis points that you pay for a good ETF or mutual fund that can do a covered call or some sort of options strategy to hedge out of the volatility of the stock market.

Scott Tiras, advisor, Ameriprise: As we build our allocations, we continue to consider the unique challenges of the low-yielding fixed income market. While we strongly believe in keeping a good portion not in stocks for most of our clients, we also recognize the need for this portion to contribute to the portfolio’s returns. We sometimes tell our clients that stocks are for capital appreciation purposes and bonds are more for capital preservation purposes.

One strategy we employ is to add a bit more exposure to non-traditional equities and reduce the fixed-income exposure to about 30%. However, we then need to turn the volume down on the risk in the equity portfolio to offset the additional market risk. We do this by looking at higher quality large-cap dividend stocks and REITs that do not have exposure to shopping centers or office buildings and provide a good yield. We are also keeping a close eye on the availability of shorter-term—less than three-year maturity—equity structured notes that provide a limit or buffer on the downside, but leverage on the upside. For fixed income, we’re including more Treasury Inflation Protected Securities (TIPS) and ETFs or funds with a bit more credit risk than interest rate risk.

Reprinted by permission of Barron’s. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: November 4, 2021



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How much income is required to service a mortgage? It depends on where you live

New research suggests spending 40 percent of household income on loan repayments is the new normal

By Bronwyn Allen
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Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.

Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.

“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.

CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.

Sydney

Sydney’s median house price is $1,414,229 and the median unit price is $839,344.

Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.

Melbourne

Melbourne’s median house price is $935,049 and the median apartment price is $612,906.

Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.

Brisbane

Brisbane’s median house price is $909,988 and the median unit price is $587,793.

Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.

Adelaide

Adelaide’s median house price is $785,971 and the median apartment price is $504,799.

Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.

Perth

Perth’s median house price is $735,276 and the median unit price is $495,360.

Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.

Hobart

Hobart’s median house price is $692,951 and the median apartment price is $522,258.

Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.

Darwin

Darwin’s median house price is $573,498 and the median unit price is $367,716.

Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.

Canberra

Canberra’s median house price is $964,136 and the median apartment price is $585,057.

Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.

 

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