Author Topic: Australia - Dumb Vanguard Managed Fund Query  (Read 6307 times)

Minion

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Australia - Dumb Vanguard Managed Fund Query
« on: January 15, 2016, 06:06:40 PM »
Is it possible to switch from a retail to a wholesale managed fund and what's the process? What are the ramifications (if any) from a tax perspective?

I'm thinking the accounting overhead of managing multiple VAS ETF purchases over time would annoy me, so I should go the retail fund route until 100k is there, then switch to the VAS wholesale fund.

Any assistance / comments / heckling appreciated.

marty998

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #1 on: January 16, 2016, 05:04:41 PM »
Highly doubt it. But best best would be to call them and check.

FFA

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #2 on: January 16, 2016, 06:27:07 PM »
I do recall someone else posting, saying they did this and it was quite smooth, but will be treated as a sale/purchase and CGT event unfortunately. They are separate funds so no way to avoid it, I expect. Agree with Marty though, best to check directly with vanguard.

Minion

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #3 on: January 16, 2016, 06:36:33 PM »
Appreciate the replies. Seems obvious now you mentioned it that this would trigger CGT, will confirm with Vanguard.

povertystrickenbastard

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #4 on: January 17, 2016, 01:17:29 AM »
It will only trigget CGT if you've made a capital gain, which are pretty hard to come by of recent times :)

deborah

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #5 on: January 17, 2016, 01:47:13 AM »
They trigger  CGT event no matter whether you have made a capital gain or not. You may have made a capital loss which can be put against a future capital gain. They will also have a new purchase date as a result of the CGT event.

faramund

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #6 on: January 17, 2016, 02:06:27 AM »
What do you mean by overhead of multiple purchases? I just have a spreadsheet where I enter each purchase in terms of date, number of shares, and total price, and in corresponding columns keep a running total.

If you were putting money into a retail/wholesale fund you would have to record the same information.

Once I bought my first lot of shares, and gave them my account and tax file details, they haven't asked for it again, and if I look at (I think its computershare - might be link) its all combined into one account.

Am I missing something?

deborah

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #7 on: January 17, 2016, 02:11:54 AM »
Since you buy an ETF on the stock exchange, each time you buy, you have a brokerage fee.

faramund

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #8 on: January 17, 2016, 02:21:54 AM »
True, but annual fees (say for VHY) are ETF 0.25, wholesale 0.39 and retail 0.9. So each year, if you hold VHY as an ETF, you are 0.14% better off. So say you pay $20000 for some VHY, and pay $20 as a brokerage fee (which is commsec - I know there are slightly lower options). Thats 0.1%. So in less than a year - you are better off with the ETF, and then each year after that - you will always be 0.14% better off.

Of course if you are buying retail, the ETF is 0.51% better. So it is better after about 2 months.

Remember also, when you record your purchase, you should include any brokerage fees, so if in the future you sell the ETF, it will reduce your capital gain.

faramund

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #9 on: January 17, 2016, 02:36:03 AM »
Interestingly, I just had a look at VAS, the ETF is 0.15% annual fee. The wholesale is 0.18%. So if you bought $20000 with $20 brokerage (0.1%). Then To get back that 0.03% would take 3 and a bit years. Or if you bought in lots of $60000 with $20 brokerage(0.03%) - you'd be back to about a year breakeven.

FFA

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #10 on: January 17, 2016, 04:31:36 AM »
you should include the buy/sell spread in that analysis too. it might be a bit narrower for VAS than the mgd fund.

Re: admin, you need to track deferred tax and apportion it to each parcel. It is a small component of the distributions coming from listed property trusts. It is tax deferred, so nice to have but it increases cost base for CGT. This is a bit tedious, especially if you intend to hold forever. If you buy ETF's you definitely need to do it yourself. With a mgd fund I assume Vanguard will give you a CGT statement when you eventually sell. I don't know for sure as I only ever had Vanguard ETF's, but for other mgd funds Ive had with CFS, perpetual, MLC, they always gave a CGT statement to save you doing this admin if you wanted to just use that.

Apart from the tangible cost-benefit analysis, a key issue is the discipline of regular investing which is much better with funds. Self execution requires more discipline not to start trading / market timing / etc. The mgd fund you just do a bpay and take whatever the closing price is on that day, so it is more stress/hassle free and takes away the risk that you will try to save a few pennies (and end up watching the market all day to see if your order gets filled or not....)

If I was starting again, I reckon I would use the wholesale funds. But it's too much hassle for me to change over now.

faramund

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #11 on: January 17, 2016, 04:10:40 PM »
Its tricky to add the buy/sell spread analysis, as it frequently changes. Although I did notice when I was quickly looking at the wholesale funds, that they also charge a buy/sell fee. So I don't think it would change much.

Another thought: Minion already has ETFs, so if they're annual fee is lower than either the retail or wholesale fund fee. Then I can't see the financial point of changing to funds. After all to do that, Minion would have to 'pay to sell the shares', and then 'pay to buy into the funds', and for what? A fund that charges a higher fee then what was previously being paid for the ETF.

So its seeming to me like the main advantages of the managed funds are the: convenience/discipline of regular payments, and that the fund will work out your capital gains obligations. On the other hand, ETFs will almost certainly be cheaper, particularly if you are a buy-and-hold investor. So I guess its just another one of those 'more easy' vs 'more expensive' tradeoffs that life is full of.

Minion

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #12 on: January 18, 2016, 01:28:04 PM »
I don't currently own any Vanguard ETFs. If anyone is willing to share a spreadsheet they use for ETF accounting I would appreciate it greatly.

Murdoch

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #13 on: January 18, 2016, 03:41:42 PM »
Minion,

I switched from Retail to Wholesale fund a while ago.
Sold everything in retail, did a new application for wholesale, and asked them to do the sale and new purchase the same day (or as quickly together as possible).
They made it pretty easy, and I'd only been in retail for a little over a year, so the tax implications were small. Got a letter with all the details to give my accountant at the end of tax year, and that was that.

I'm under the impression that every time I send money via BPay into my Wholesale fund that it doesn't cost anything?
Is there a brokerage fee for each transaction in this fashion?
I'll be bummed if there is, as I treat it like a savings account I can't withdraw from, and just send through cash when it's available.


Murdoch

faramund

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #14 on: January 18, 2016, 05:29:03 PM »
Minion,

I switched from Retail to Wholesale fund a while ago.
Sold everything in retail, did a new application for wholesale, and asked them to do the sale and new purchase the same day (or as quickly together as possible).
They made it pretty easy, and I'd only been in retail for a little over a year, so the tax implications were small. Got a letter with all the details to give my accountant at the end of tax year, and that was that.

I'm under the impression that every time I send money via BPay into my Wholesale fund that it doesn't cost anything?
Is there a brokerage fee for each transaction in this fashion?
I'll be bummed if there is, as I treat it like a savings account I can't withdraw from, and just send through cash when it's available.


Murdoch

I've never used a wholesale or retail fund, so I can't be 100% sure about this, but on the vanguard wholesale site (https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-wholesale.jsp#fundstab) it has a buy/spread column, which for their VAS equivalent is 0.1% for each. So I assume there's a 0.1% fee each time you add money in (and another 0.1% (to eventually make 0.2% total) when/if you eventually sell).

Although looking right now at the VAS buy/spread price on the ASX, its 61.64 and 61.72, which is a 0.13% difference. So it seems like it doesn't matter how you do it, there's always going to be some cost when making a purchase.

faramund

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #15 on: January 18, 2016, 05:31:11 PM »
I don't currently own any Vanguard ETFs. If anyone is willing to share a spreadsheet they use for ETF accounting I would appreciate it greatly.

I posted a portion of mine under the Basic Australian Investing topic.

FFA

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #16 on: January 19, 2016, 03:54:22 AM »

I've never used a wholesale or retail fund, so I can't be 100% sure about this, but on the vanguard wholesale site (https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-wholesale.jsp#fundstab) it has a buy/spread column, which for their VAS equivalent is 0.1% for each. So I assume there's a 0.1% fee each time you add money in (and another 0.1% (to eventually make 0.2% total) when/if you eventually sell).

Although looking right now at the VAS buy/spread price on the ASX, its 61.64 and 61.72, which is a 0.13% difference. So it seems like it doesn't matter how you do it, there's always going to be some cost when making a purchase.
For VAS the 0.13% is buy/sell spread. So buy spread = 0.065% , a bit lower than the mgd fund 0.10%, which was the point mentioned in my earlier comment. Anyway really not much difference.

misterhorsey

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #17 on: January 20, 2016, 12:01:01 AM »
Yes I did this. Sold out of a lot of shares, cashed out of my existing Vanguard retail fund, and combined the whole thing into a Vanguard wholesale fund.

Best people to talk to about this are Vanguard. They're very helpful and answered all my dumb questions over the course of a few months.

Of course, is this the optimal approach to go in respect of minimising fees? Or asset allocation? probably not.  But it pays an extraordinary good time saving dividend which I have come to value.


Minion

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #18 on: January 20, 2016, 05:47:30 PM »
Yes I did this. Sold out of a lot of shares, cashed out of my existing Vanguard retail fund, and combined the whole thing into a Vanguard wholesale fund.

Best people to talk to about this are Vanguard. They're very helpful and answered all my dumb questions over the course of a few months.

Of course, is this the optimal approach to go in respect of minimising fees? Or asset allocation? probably not.  But it pays an extraordinary good time saving dividend which I have come to value.

Will do, thanks. Just curious what the CGT ramifications were for you?

misterhorsey

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Re: Australia - Dumb Vanguard Managed Fund Query
« Reply #19 on: January 21, 2016, 06:25:02 AM »
Yes I did this. Sold out of a lot of shares, cashed out of my existing Vanguard retail fund, and combined the whole thing into a Vanguard wholesale fund.

Best people to talk to about this are Vanguard. They're very helpful and answered all my dumb questions over the course of a few months.

Of course, is this the optimal approach to go in respect of minimising fees? Or asset allocation? probably not.  But it pays an extraordinary good time saving dividend which I have come to value.

Will do, thanks. Just curious what the CGT ramifications were for you?

CGT ramifications were varied.  In short, I paid CGT. But your own CGT ramifications will reflect your own personal circumstances.

But to give you some idea here are few issues I remember.

Firstly, I was sitting on accumulated CGT losses of a few thousand so I had a bit of wriggle room.

I had the Vanguard retail fund for less than a year, but it made a profit in that period - as i needed the funds to get into the wholesale account I sold out and had CGT assessable on this relatively small profit. In retrospect I should've held it for a year and then I would have qualified for the 50% discount BUT if I had held it for a year, I would have made a loss! 

(I only had the retail account cos I didn't know there were letting in the great unwashed by allowing people into wholesale with $100k instead of the advertised $500k).  Only after I called them did they mention that they would let me in.

I had some AMP shares that had made a profit after 12 years, and so realised a capital gain there.  I also sold out of some other shares QBE, SGM and some otehrs - happily I haven't checked to see if they've gone up or down since.

I had some really terrible shares in which I realised capital losses, LYNAS, and so used these to offset my capital gains from other shares.

I also sold a number of shares that had increased by 100 or more%. I basically sold half of these holdings to put into vanguard, and left the remainder to sit there and give me dividends indefinitely - Resmed, Harvey Norman, wish there had been more of these.

All these accrued CGT.

In the end I aimed to carry over a capital loss but due to:
- some bad maths
- forgetting that the Vanguard Retail fund and the ETFs also accrue capital gains, but can't tell you the exact amount  until after the Financial year is over
- not realising that the 50% discount doesn't apply when offsetting against capital losses

i ended up making a small profit. It's annoying, but its only small.  The proceeds were reinvested. 

What the exercise has taught me is that there is no one size fits all approach unless you are truly starting from scratch.  I still have about 28% of my net worth still in direct shares which are likely to stay there due to CGT reasons until I scale down my income/take a sabbatical and don't work for a year or something and have a tax holiday.  I would like to sell out and put this into Vanguard, but the tax benefits don't make it worthwhile and I still have the belief (although it may be mistaken) that some of these direct holdings may have a bit more upside than an index - especially after being beaten down so hard over the past year.

I hope this helps!