2016 is a little different for me in terms of my planning. I recently wrote that we are expecting an FI tailwind. That is significant for us, because it will mean that we can accelerate the repayment of debt and “unencumber” some of the cash flow streams that currently have some debt against them. The rental, my Aussie dividend positions.
That should lead to an annual gross cash passive inflow of over $40k annually, in another 2-3 years. That’s a significant safety net, which will provide a lot of options. So my planning for the next few years will be principally directed to achieving this goal.
More holistically, I’ve been taking a look at our asset allocation, and have realized that we are very heavy with direct share ownership, and lighter on index funds. We are also a little light on international exposure, particularly emerging market exposure. I’ll also aim to rectify this over time. I’ll provide a detailed post explaining my thoughts on asset allocation and how I want to modify what we have, but for the moment these are the changes I want to make.
Making major portfolio allocation changes is a process that takes considerable time. Particularly when you are dealing with a very large asset base. I don’t expect this steady transition to occur over night. 2016 will see the slow start to making these changes.
Core Dividend Positions
For my Australian portfolio, I don’t expect to make any net new inflows. In fact, I’ll likely take the opportunity to clear out a few remaining smaller, marginal positions if the opportunity presents itself. I’m pretty happy with the core of this portfolio. What I’m a little more trouble about long term is having to rely on a portfolio that is spitting out Aussie dollar denominated dividends if we continue to remain in the US. There’s just a lot of unnecessary exchange risk, not to mention repatriation of those across to the US, which introduces unnecessary complexity.
For my US portfolio, I just want to keep up with my steady, regular accumulation. l’m not planning any net incremental cash additions to my dividend portfolio’s this year, beyond the $10k that I hope to add annually to the set of 30 stocks that we are regularly accumulating.
After several years of strong windfall gains in our retirement accounts, courtesy of the S&P 500’s strong returns, 2015 was the first year of flat returns. But no matter. The S&P 500 still remains the best use of our retirement account investments. Low cost, with a broad diversified set of companies, I’ll be maxing out my retirement account contributions again in 2016 into the S&P 500, and will be for the foreseeable future until I switch employers or stop working. Our retirement account will get another strong inflow in 2016.
I made steady inroads into bulking up my set of growth stocks last year. I have some initial positions in a set of about 15 growth companies. I have no active plans to add to these positions for 2016, unless one or more of these companies go on sale and happen to achieve a 5 start rating or are designated a Strong Buy by either S&P or Morningstar. Otherwise I don’t have active plans to add to these businesses at this point.
Rental / Real estate
The rental continues to be a great, high yielding tax effective investment. It will be the 3rd year that we would have had the rental out, come June. With the annual deductions from building depreciation continuing to still be in force, this continues to be a very tax effective source of income for us. It will be interesting to see if our tenants decide to renew. I’d love a 3rd year with such high quality tenants. We’ll find out there decision in March.
Writing Put options for deep value
I haven’t contemplated any sort of option writing up to this point. But with stock prices stretched and deep value hard to find, I’m considering writing one or two naked put options on a few select stocks. I’d like to write some long dated put options on a couple stocks to see if regular put options could be a viable investment strategy. While I’ll be writing the put options on a couple of stocks that I wouldn’t mind owning at the right price, my intention isn’t to necessarily wind up with these stocks. I’ll probably investigate writing a 6mth to 1yr put option on CSX, Starbucks and BP, slightly out of the money. This will just be testing the waters for 2016.
As I’ve stated above, I’d like to move away from individual stock positions and more into low cost, index funds over time. I also want to bulk up our emerging markets exposure. Accordingly I’ve identified the Vanguard Emerging Market index as something that I’ll be investing more of our capital into over time.
What are your plans for 2016? More of the same?