Over 2016-17, my family SMSF had its best year ever, with our fund up 50%. This was a spectacular return, which I never expected, but I was happy to collect it.
And it came from a slight tweaking of our investment strategy, which is generally a high exposure to stocks, as my sons are in their 30s and Maureen and I plan to keep working for some time yet in our good businesses.
The great return happened for a number reasons.
First, most of you know that I liked BHP at $14 but only got in once I saw the uptrend around $15 or so. At the same time, we went long Rio as well.
Second, because of my planned development of SWTZ, with George Boubouras’ Contango Asset Management, we were given an allocation when the fund listed and because we believed in George, we put our hand up for more.
It listed very strongly but has had some headwinds lately, which I think George will navigate successfully in coming months.
Third, to buy into Contango, we had to sell some capital gainers, such as Telstra, before it dived, some regional banks and a few others.
I also sold my old BHP and Rio stocks where we had capital losses so these offset many of the gains.
Fourth, my ETFs for the ASX200 index, which I bought in numerous dips (which I often recommend you do too) have made some nice gains. Remember, the overall index plus dividends was up about 14% over 2016-17.
Let me emphasise that I never expected such a good result overall, though I wouldn’t have been surprised at the 14% return, as this is the kind of return I aim for most years, given how I generally invest.
Last week, I sunk another chunk of money into my SWTZ or Switzer Dividend Growth Fund when I saw it at $2.47. I missed it at $2.46 a couple of weeks ago because it was snapped up and rode up to $2.51 before it sold off with the market.
A pain-in-the-neck mate/adviser says he’ll put $5 million in when it hits $2.45, but I’m hoping the market proves him wrong! That said, I like it that he thinks his clients should be in SWTZ and I know why.
My Switzer Dividend Growth Fund, or SWTZ, is a financial representation of how I like to invest, as my radio ads say.
SWTZ is what I’d be happy for the core of my markets-oriented funds to be in when I’m in retirement because it chases dividends/income.
Let’s assume for simplicity that you want at least $70,000 in retirement each year and have an SMSF with $1.1 million in it.
Let’s say you put $100,000 into a cash account, putting a fair chunk of it into a term deposit and the rest in cash.
Your million dollars left over aims to make 7% a year to give you $70,000, but when the market returns 14%, say like last year, you’ve realised $140,000, so you could put an extra $70,000 into your savings account over and above the $70,000 you want to live on.
You could create a bigger and bigger buffer in good years until the saving account is so big you could reinvest in stocks again, while keeping money aside for when the market dividends don’t give you $70,000.
The important characteristic of SWTZ is that it will have stocks that rebound well after a market crash — dividend-payers do that — and during the crash period the dividends should hold up pretty well because dividends don’t crash like share prices.
Remember, during the GFC when the market crashed 50%, CBA cut its dividend for one half- year period and then in the next period increased the dividend. So, over a three-year period, the dividend-return rose!
Let me recap for CBA:
- 2008 the dividend was $2.66.
- 2009 it fell to $2.27.
- 2010 it rose to $2.90.
- That’s an average of $2.61, which is higher than the 2007 dividend of $2.56.
So, over the scariest time for stocks in living memory, the dividends of CBA actually grew! Not all companies are like CBA, but we all know stock markets aren’t reliable, so I like to take a low risk investment skew within a relatively risky approach in being quite heavily exposed to the stock market.
I’m prepared to cop a capital loss, short-term, and even for a few years, because I know the companies I’m invested in will pay reliable and generally increasing dividends during tougher times.
And their share prices will recover over time.
That’s what SWTZ is designed to do in scary times, but in those seven to eight years out of 10 when markets go higher, because it is a dividend and GROWTH fund, we could get some great years.
In those years, crash-buffer savings accounts can be built up by those SMSF investors/retirees.
Apart from the fact that we pay dividends every three months, the overall strategy and the make-up of the companies in the fund are why I’m happy to have my name on the Switzer Dividend Growth Fund.
I know SWTZ will never break any sea-speed records, but I’m certain it will take me, and my family SMSF, to the safe wealth-building harbours we want to go to.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.