I've been thinking about the benefits of a DIY portfolio rather than buying into a managed fund, particularly when it comes to withdrawing.
Some background: I'm in New Zealand and our options here are sadly lacking. The one managed fund I would choose is an all passive (at least the equity portion), low fee, broadly diversified, growth fund. The DIY option is similar, except I choose the various index and bond funds myself. I would choose cash, bonds (NZ and international) and equities (NZ and international), pretty simple stuff, all with a predetermined allocation and rebalanced periodically.
In a managed fund, the unit price is made up of the weighted price of all assets, so when you withdraw you are affected by whatever assets in the fund might be up or down at that particular time. The fund manager would likely not actually sell assets to service little old me, but I believe this fact is still true.
But if you want to withdraw from a portfolio you have built yourself, you can look at the assets that are above allocation because they have done well, and draw down from those -- that way you don't have to lock in losses in the portions of your portfolio that have not done well.
For example perhaps equities are down over the last year, but bonds have done well. In the managed fund, my overall unit price is down so I'm effectively selling low. Whereas I can just sell bonds from my DIY portfolio and leave equities alone, and they will probably rebound next year.
Is my thinking right? Is this one benefit of a DIY portfolio worth the extra work?
I have some goals in the future that are closer than retirement but still substantial, like a new deck on the house in about 5 years, kids college, etc.
Thanks!
Submitted January 28, 2019 at 12:45AM by mattparlane http://bit.ly/2WkUc6C
