Author Topic: Australian Investing Thread  (Read 476363 times)

faramund

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Re: Australian Investing Thread
« Reply #1750 on: February 09, 2016, 07:49:36 PM »
If you look at any sort of long term AUS/USD exchange rates, we're actually about now where we've usually been over the last 30 years. I think the last 10 years we've been abnormally high during the mining boom - I don't think we'll go back to parity, maybe ever.

The thing is, our inflation band 2-3%, is higher than almost any other developed country (which tends to be 2%, so over time, if everything's equal, we should depreciate by about 0.5% a year. So I don't think its a bad time to buy overseas.

Although the Australian market seems to perform pretty well, so just staying onshore doesn't seem to hurt too much anyway - and there's all those juicy franked dividends.

Food for thought, thanks.

I think I'm spoiled by the fact that my one and only foray into US ETFs was when the dollar was at parity, so while the underlying shares have gone down my investment has actually appreciated. I want that all the time!

Anyone who tells you money and investment are devoid of emotion is lying through their teeth.
Well, investing is full of moments when you look back and see how things could have been better. About 8 years, I bought a no-dividend, no profit company, that fell something like 97%, and cost me around $14000. 2 years ago, I bought a no-dividend, but with profits company, and its quadrupled and made me $30000.

If only the money I put into the first one, I'd only put into the second one. Still, live and learn, I don't intend to ever buy a no profit company again, and I'm very wary of no dividend ones.

steveo

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Re: Australian Investing Thread
« Reply #1751 on: February 09, 2016, 11:45:51 PM »
What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?

I'm struggling with this as well.

FFA

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Re: Australian Investing Thread
« Reply #1752 on: February 10, 2016, 05:06:02 AM »
It's times like this it really pays to have a clear strategy you have faith in.

fully agree !

FFA

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Re: Australian Investing Thread
« Reply #1753 on: February 10, 2016, 05:07:44 AM »
What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?

I'm struggling with this as well.
I struggle too but for a different reason, namely the ASX dividend yield (with franking) is just too tempting

steveo

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Re: Australian Investing Thread
« Reply #1754 on: February 10, 2016, 01:23:16 PM »
What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?

I'm struggling with this as well.
I struggle too but for a different reason, namely the ASX dividend yield (with franking) is just too tempting

This is another reason. Enough ASX and retirement seems pretty easy and secure.

Aussiegirl

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Re: Australian Investing Thread
« Reply #1755 on: February 10, 2016, 01:35:25 PM »
What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?

I'm struggling with this as well.
I struggle too but for a different reason, namely the ASX dividend yield (with franking) is just too tempting

This is another reason. Enough ASX and retirement seems pretty easy and secure.

Steveo - Are you planning just to live off dividends?  Otherwise if you plan to have a concentrated ASX Div portfolio and you need to use capital to supplement the div's, this might be a risky strategy.   A few years of sideways or down performance of the ASX and it would erode your capital if you're pulling from it.

faramund

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Re: Australian Investing Thread
« Reply #1756 on: February 10, 2016, 02:33:31 PM »

Steveo - Are you planning just to live off dividends?  Otherwise if you plan to have a concentrated ASX Div portfolio and you need to use capital to supplement the div's, this might be a risky strategy.   A few years of sideways or down performance of the ASX and it would erode your capital if you're pulling from it.

Well, I'm planning to live off dividends. At the moment my shares have a dividend yield of 4.7%, so I can live on 4% dividends, and still invest a little bit in new stuff each year.

steveo

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Re: Australian Investing Thread
« Reply #1757 on: February 10, 2016, 04:27:08 PM »
Steveo - Are you planning just to live off dividends?  Otherwise if you plan to have a concentrated ASX Div portfolio and you need to use capital to supplement the div's, this might be a risky strategy.   A few years of sideways or down performance of the ASX and it would erode your capital if you're pulling from it.

I don't intend to live just off dividends however I don't see this as a risk. I think the risk would be if dividends get cut to lower levels or something like that. I think selling your capital is more risky than only ever spending dividends. I do want to have a fair amount of VAS simply because I think the dividends are great especially when you take into account the tax benefits.

My take is that I don't want to be too dependent on Australian shares. I think diversification provides a less risky retirement.


Ozlady

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Re: Australian Investing Thread
« Reply #1758 on: February 10, 2016, 04:42:46 PM »
I do not plan on retiring on this 4% strategy...my passive income on retirement will be from:

a) private pensions
b) dividends
c) net rents
d) super
e) old age pension(?)- ineligible though at this stage BUT it is a safety net

i believe this will a) keep my financial assets reasonably intact for it to grow as i never want to touch principal
b) the more legs/streams  of income, the safer it gets.


i think this 4% strategy may work for people who want to retire earlier and dip into asset base...for me..nah...i'll rather work longer to cover my expenses TOTALLY

deborah

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Re: Australian Investing Thread
« Reply #1759 on: February 10, 2016, 06:57:13 PM »
I do not plan on retiring on this 4% strategy...my passive income on retirement will be from:

a) private pensions
b) dividends
c) net rents
d) super
e) old age pension(?)- ineligible though at this stage BUT it is a safety net

i believe this will a) keep my financial assets reasonably intact for it to grow as i never want to touch principal
b) the more legs/streams  of income, the safer it gets.


i think this 4% strategy may work for people who want to retire earlier and dip into asset base...for me..nah...i'll rather work longer to cover my expenses TOTALLY
But d isn't an asset class, it's just a tax shelter.

steveo

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Re: Australian Investing Thread
« Reply #1760 on: February 10, 2016, 07:35:50 PM »
Ozlady,

A couple of points from my perspective:-

1. I won't have access to private pensions
2. I will never buy an investment property because (a) I own my own house and that will likely constitute at least 50% of my assets by the time I retire which means I wouldn't want to put anymore money into that asset class and (b) I think the yield and potential return on property is not very good in Australia.
3. Super as Deborah states is just part of your generic asset allocation. It has some tax benefits but you can't touch it until you are 60.

If you never tough the principle that is fine. I think you can do this if you have a large enough asset base especially in Australian shares as the dividend yield is so high however I personally want some diversification.

My buffers will be as follows:-

1. I intend to get to a decent asset level and then work part time for a bit.
2. We can spend less.
3. We can downsize the house.
4. We can get the pension.
5. We will probably inherit money.

I feel comfortable with a 5% WR based on those buffers.

faramund

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Re: Australian Investing Thread
« Reply #1761 on: February 10, 2016, 07:51:14 PM »
I've seen a few people state that you can't access your super until you are 60. I think that's not the whole truth. I believe you can take out as much as $195000, between age 55 and 59, as long as you are retired.
See
http://www.superguide.com.au/accessing-superannuation/retiring-before-the-age-of-60-the-tax-deal

for what I'm talking about, do a find for 195.

Here's another one, but its a year early, so search for 185 instead (the allowed amount seems to go up by about 10000 a year)

http://www.superguy.com.au/can-i-withdraw-my-super-at-55/

In my case, I will be able to access my 195000, and either my DW will really retire, in which case we'll be able to access her 195000 or her income. In any case each 195000/5 is just under 40000 a year - which is quite a lot.


bigchrisb

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Re: Australian Investing Thread
« Reply #1762 on: February 10, 2016, 08:03:22 PM »
I've seen a few people state that you can't access your super until you are 60. I think that's not the whole truth. I believe you can take out as much as $195000, between age 55 and 59, as long as you are retired.
See
http://www.superguide.com.au/accessing-superannuation/retiring-before-the-age-of-60-the-tax-deal


Sadly, I think what you are talking about is a change on the tax treatment before age 60 - you can take out a portion of it without triggering tax.  However, a necessary pre-condition to do this is being past your preservation age.  For someone like me, who's preservation age is 60, the tax treatment of withdrawals prior to 60 is (sadly) irrelevant.

There are some hardship allowances that allow early release, but the level of hardship is below what I expect my fire cost of living to be, so won't be viable.

That said, super is still the best (legal) tax shelter available in Australia, and I continue to make full use of it, despite my frustrations about regulatory risk.

faramund

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Re: Australian Investing Thread
« Reply #1763 on: February 10, 2016, 08:17:05 PM »
I've seen a few people state that you can't access your super until you are 60. I think that's not the whole truth. I believe you can take out as much as $195000, between age 55 and 59, as long as you are retired.
See
http://www.superguide.com.au/accessing-superannuation/retiring-before-the-age-of-60-the-tax-deal


Sadly, I think what you are talking about is a change on the tax treatment before age 60 - you can take out a portion of it without triggering tax.  However, a necessary pre-condition to do this is being past your preservation age.  For someone like me, who's preservation age is 60, the tax treatment of withdrawals prior to 60 is (sadly) irrelevant.

There are some hardship allowances that allow early release, but the level of hardship is below what I expect my fire cost of living to be, so won't be viable.

That said, super is still the best (legal) tax shelter available in Australia, and I continue to make full use of it, despite my frustrations about regulatory risk.
Well, my preservation age is also 60, so if this doesn't work for you - it doesn't work for me, and after looking into this more, and thinking about what you've written - I'm becoming convinced that you are correct.

I have some thinking to do ....
« Last Edit: February 10, 2016, 08:29:45 PM by faramund »

faramund

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Re: Australian Investing Thread
« Reply #1764 on: February 10, 2016, 09:36:52 PM »
Thinking progressed... its ok.. I have a fair bit of buffer to my plans, I had hoped to be able to live off my dividends (off stocks outside super) and some money from my super from 55-59.

This just means I'll have to live off my dividends, and sell maybe 1-2% of my stocks until I'm 60, and then I can revert to my previous plan. Which is a pity, my ex-super funds tend to grow by more than my in-super funds (and they're more fun), oh well.

deborah

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Re: Australian Investing Thread
« Reply #1765 on: February 10, 2016, 09:46:21 PM »
There are a few interesting things that I think are glossed over in that particular article.

Firstly, I think (not 100% sure) that you have to take the 4% pension out of your super as well as the lump sum - and the pension is still subject to tax prior to 60.

Secondly, if you were in super long enough ago, or are in one of a few occupations that appear to have different rules, you can actually take out that part of your super before your preservation age because of the grandfathering clauses that have always been a part of new super regulations.

FFA

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Re: Australian Investing Thread
« Reply #1766 on: February 10, 2016, 11:44:10 PM »
My buffers will be as follows:-

1. I intend to get to a decent asset level and then work part time for a bit.
2. We can spend less.
3. We can downsize the house.
4. We can get the pension.
5. We will probably inherit money.

I feel comfortable with a 5% WR based on those buffers.
5% WR is quite aggressive, but manageable with those buffers.

Depends a lot on asset allocation. We've been talking ASX vs global, but the other key point is how much bonds/cash. If you want a smoother ride e.g. 30-50% defensive assets, then 5% WR becomes a stretch or maybe impossible in this low rate world. If you're planning on all equities or 80+% then pls make sure you can stomach it and stick to it.

Sequencing is a key risk with such a high WR. Luck and timing helps. If you retire in a stable / uptrending market you should be fine. However if you retired in 2007 or early 2015, etc, the initial hit on capital has a bigger effect on long term returns and how long your capital lasts.

I quit my job in Mar'15 when the ASX was much higher (15-20% ?). Interest rates were already low, but have got even worse. I'm glad I had a balanced AA, conservative WR (<3%) and some other unexpected buffers (part-time consulting work). Otherwise I'm sure I would've been stressed about finances, which has not been the case fortunately.

steveo

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Re: Australian Investing Thread
« Reply #1767 on: February 11, 2016, 02:08:26 AM »
FFA - I agree with you with regards to the sequencing risks especially at the start of retirement. I also have 3 kids but that is a negative and a positive. We can definitely spend less once the kids are finished high school. My youngest though is 5 and there is no way I can see myself working full time even by the time he goes to high school. The oldest though are 14 and 12.

I think that my targeted spending level will have some buffer built into it once the oldest 2 finish high school. I/We may work up until that point. We may work part time until we feel safer. That will at least minimise our spending but more likely enable us to save more.

I'm not really that concerned.
« Last Edit: February 11, 2016, 02:10:11 AM by steveo »

happy

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Re: Australian Investing Thread
« Reply #1768 on: February 11, 2016, 04:04:19 AM »
Like Steveo I confess to running some figures on 5% as well as 4%. Mainly because I want to retire at 60, so less time to run on the stash, and I won't have 4% AND be able to keep all my housing equity intact. At some point I will downsize and liquidate the excess equity and numbers will improve. It comes down to whether I consider my excess equity as a margin of safety and go at 5% or include the equity and go at 4%. I feel comfortable with this plan but suspect when comes time to retire this might change.
Journalling at Happy Aussie Downshifter

Aussiegirl

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Re: Australian Investing Thread
« Reply #1769 on: February 11, 2016, 02:08:15 PM »
FFA - agree, sequence of returns risk is definitely the biggest risk.  I read an article the other day that said the best way to avoid this was to go to a very conservative AA when you retire (ie 50% bond / cash) and then each year progressively put a % of this back into the market until you're back up to 80%.  It avoids those heavy draw downs early on in your retirement that you never recover from if you're at a higher % stocks on day 1 of retirement.    I am not too worried about this risk as I am into a market timing approach - I have been pretty much 100% cash for north of 6 months now.   Don't yell at me - I know its not the MM way, but Ive been doing it for years and it works very well for me (I missed the GFC pretty much completely, and yes, I did buy back in.  Not at the bottom, but I'm OK with that - I don't look to get in and out at the absolute bottom / top).

Steveo / Happy - I think every one runs the numbers a ranges of 3 - 6% SWR just to see the affect.  Ultimately I think it will come down to peoples risk profiles and the ability to do things like go back to work part time / live off the aged pension etc as to whether they go aggressive or conservative on this.

I used to be of the thinking that I'd use 3% or 4% on a good year.  Then I started thinking about those years I'd be trading off to get the extra stash to cover the lower SWR  - thinking has changed now as I am not OK with that trade off.   I'd rather have a small risk that I'll have to go back to work for a little while if needed.

I am thinking that I'll probably use a variable withdrawal rate.  Start at 4% but on good years, pull a bit more out (5%) for some overseas travel, new (to us) car, or some home improvements and on bad years, pull our head in and pull out only 3% to cover basic living expenses.  My view is that at least 40% will be good years,30% will be scratch and 30% will be bad.  So for at least 70% of the years I'll be at 4% or higher and 1 year in 3 I'll have to forgo overseas travel etc.  I can live with that.




wombat

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Re: Australian Investing Thread
« Reply #1770 on: February 11, 2016, 04:56:42 PM »
I'm also for a variable withdrawal rate. We have fixed living expenses and in hard years I'll forgo some luxuries to reduce capital drawdown, or I'll work (freelance, part time etc) to help offset the poor investment returns. I've travelled extensively overseas and, once I return home to retire in a few months, I'd like to spend more time seeing Oz. That should keep things a little cheaper on the holiday front. I imaging that I'll do one overseas holiday every three years or so - or until I get bored of holidaying in Oz :)

As for the share market - I have been living on Hong Kong for 14 years and seen FOREX rates fluctuate for and against me in that time. I always adopted a floating asset allocation that took into account exchange rates. When the AUD was high I bought less Oz and more international and visa versa on the flip. What I tried to do was keep Oz and international separate as investments but maintain my asset allocation WITHIN those two separate investments. That way I could rebalance my Oz stocks, REIT, Bonds allocation each year even if my buy ins we're able to achieve that balance. TBH after the AUD went north of USD.95 I stopped buying OZ altogether so had to do that once or twice. The upshot was my AUD investment portfolio dropped to under 15% of my whole portfolio towards the end of 2013. This was outside my comfort range but I knew that a number of economic factors were positioning to see the AUD drop so stayed the course and kept patient. As the AUD started to weaken it rose again [breathes sigh of relief!].  Now I'm actually buying in Oz again the home/intl AA is getting back to more normal levels. I see USD.70 as the sweet spot so am happy to 'divvy up' my purchases at the moment between Oz and Intl. In a few months I'll be FIRE'd so buy ins wont be large or regular and (bloody) lucky timing will put me about what I consider to be fair price and optimal AA home/intl.

« Last Edit: February 11, 2016, 05:11:50 PM by wombat »

dungoofed

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Re: Australian Investing Thread
« Reply #1771 on: February 11, 2016, 05:34:57 PM »
New LIC launched last week "HML."

"The Companyís investment strategy seeks to take advantage of imbalances in global market valuations through the active management of investments in global exchange traded futures contracts including equity market indices, currency and interest rate futures. While the Companyís investment strategy will primarily be executed through investments in exchange traded futures contracts, the Company may on occasions also invest in listed equities as well as exchange traded futures options (for hedging purposes only)."

Not quite sure what is worth "2 and 23" but good luck to them.

AussieFirebug

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Re: Australian Investing Thread
« Reply #1772 on: February 11, 2016, 08:06:15 PM »
So this is where all the Aussie finance geeks hang out 😜?

I was checking out some stats to see where some of my traffic was coming from and the link FFA posted got me some hits so thanks FFA for that :)

Looking forward to catching up on this thread to see what I've been missing. Hopefully I can chime in here and there with some good info/opinions.

Looking forward to contributing to this stellar community and I'm glad I stumbled across this post.

P.S. Would you guys say that this site is where most of the Australian FIRE crowd hang out? There is a reddit sub (/fiaustralia) but it's not very active. Maybe the FI community in Aus is just not that big?   

happy

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Re: Australian Investing Thread
« Reply #1773 on: February 11, 2016, 08:20:50 PM »
Welcome Aussie Firebug. This is one of our longest threads here on the forum. We have a few others, and also hang out on each others journals. We range from red hot financiers to humble newbies.Its recommended to put Australia or Aussie in the title of any new thread, then we all find it easily. So if you wanted to read some more, try searching on those words.

I've not found any other place like this on the interwebs, but thats not to say it doesn't exist. Not many Aussie blogs either.
Journalling at Happy Aussie Downshifter

steveo

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Re: Australian Investing Thread
« Reply #1774 on: February 12, 2016, 12:03:15 AM »
I'll add that I intend to use a VWR as well. I will try and minimise spending unless there is a good year or so in the market. So we are budgeting for about a $40k withdrawal however we could live off $25k. That makes our approach a lot safer and truthfully I'm completely cool with spending less.

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Re: Australian Investing Thread
« Reply #1775 on: February 12, 2016, 02:59:33 AM »
Welcome to the forums AussieFirebug. Yup, this forum is usually quite active. There's also the occasional post on Whirlpool Finance too on FI. Great podcast you've posted btw!
« Last Edit: February 12, 2016, 03:03:45 AM by qwerty8675309 »

FFA

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Re: Australian Investing Thread
« Reply #1776 on: February 12, 2016, 04:33:00 AM »
Welcome Aussiefirebug ! Don't get too hooked on this and neglect your blog ;)

Hi Aussiegirl, I'm not the yelling type and instead i'd probably say well done on those calls ! One good thing about this thread is it's quite diverse in thinking/approach. We have market timers, stock pickers, margin loaners, options trading, etc.. in addition to the usual index ETF's. I don't think there's any right or wrong ways, although some are more reliable than others and it is important to follow an approach with both comfort and conviction.

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Re: Australian Investing Thread
« Reply #1777 on: February 12, 2016, 02:04:43 PM »
Our FIRE calculations and strategy have nothing to do with SWRs at all - but rather passive income and multiple semi-passive income streams.
Are we the only ones?
We basically just try to build income streams to cover our spending levels and once that's covered we consider that FI. It's probably a function of the fact that we've very heavy real estate at the moment, but we are diversifying and I don't see our non-focus on SWRs changing.

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Re: Australian Investing Thread
« Reply #1778 on: February 12, 2016, 02:37:29 PM »
Our FIRE calculations and strategy have nothing to do with SWRs at all - but rather passive income and multiple semi-passive income streams.
Are we the only ones?

You're not alone. I think Banksie earlier in the thread was going the dividend route. I am too with VHY. Focussing on ever increasing dividends helps as the capital value slides during this bear market.

FFA

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Re: Australian Investing Thread
« Reply #1779 on: February 12, 2016, 04:15:14 PM »
the way I look at it, you always have a SWR assumption whether you focus on it or not. i.e. for the passive income streams, what is their yield ? for dividend strategies, what dividend are you assuming ? it's just the maths to covert your retirement expenses to the lump sum stash required to fund it.

certainly in these approaches with nil capital drawdown, the concept doesn't add much. Australian dividends and interest rates are high enough to give us this luxury. If you looks at dividend yields and rates in the US, EU, Japan, etc, it would not be realistic except for the very wealthy, so they need to take a "total return" approach (i.e. fund retirement with income and capital growth / gradual capital drawdown).

FFA

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Re: Australian Investing Thread
« Reply #1780 on: February 12, 2016, 06:20:33 PM »
https://www.towerswatson.com/en-AU/Insights/IC-Types/Ad-hoc-Point-of-View/2015/11/How-to-spend-it-withdrawal-strategies-in-retirement

for info... A recent paper touching on many issues recently discussed, i.e. SWR, variable WR, sequencing risk. It also explains the 4% rule, while widely adopted/accepted in the US, is not so prevalent in Oz as yet.

banksie_82

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Re: Australian Investing Thread
« Reply #1781 on: February 12, 2016, 07:30:27 PM »
Yes, Iím toying with the idea of living off of dividends alone. But I still have a decade before it will be put into practice.

A number of things about this method appeal to me, number one of which is not drawing down capital when share values are artificially low. I.e. the need to sell more shares to get the same $ value to live on. This goes a long way to mitigating sequencing risk and is a clear differentiator to the more common SWR method with capital drawdown.

Of course, this method works on the fact dividend payouts (in $/share) are fairly steady and predictable, at least in old school LICs and other blue-chips. Although, it certainly isnít unheard of that payouts do decrease. For this reason, I think a couple of safety buffers are required, such as not spending the whole payout and having a cash buffer.

In my modelling to date, based on historic data (I know, I know) and a few different rules to calculate how much spending money Iíll have, my rate of spend always increases at, or faster than, inflation Ė allowing me to indulge in a bit of positive lifestyle creep. Some people might see this as conservative, and I could FIRE sooner than planned, but who knows what the future will hold.

My current modelling, when it boils down to it, works out to be a SWR of about 4% (depending on dividend yield at any point in time). But, as I said above, my spending money increases faster than inflation (in fact, faster than average wages, which historically has been higher than inflation in Australia) over the business cycle.

As FFA correctly points out however, dividend yield in Australia is much higher than the rest of the world. This may very well changeÖ Tax benefits may be trimmed, companies may decide to pay out less in an attempt to grow, etc. Adopting this method also runs the risk of 1) only investing in Australia for the dividend and franking, and 2) chasing yield, which is fraught with danger. Both of these traps need to be consciously avoided for the method to work long term, even if that means more capital now.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #1782 on: February 12, 2016, 09:44:15 PM »
Just an aside, but the commonly held belief that you can't get franking credits from overseas investments, isn't entirely true.

The dividends don't have franking attached to them, true. So for things like VGS, and other indexes, they won't have any franking. But if it's an LIC or something where the manager does some more trading (i.e sells his holdings at some point), he pays tax on this, and can distribute franking credits. Obviously this is a lot more alpha seeking or active managing, and probably not to the taste of many people here. There are a few LICs which invest overseas, either fully or partially, and can have different levels of franking, some of them fully franked.

On the SWR and living off dividends - One thing I like about the old school LICs is that some didn't even cut their dividends during the GFC, because of having cash buffers. That shows a pretty dependable income stream if you ask me
« Last Edit: February 12, 2016, 09:46:13 PM by AustralianMustachio »

povertystrickenbastard

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Re: Australian Investing Thread
« Reply #1783 on: February 13, 2016, 05:10:58 AM »
The other thing about SWR in Australia is if you do choose to sell down your holdings you're then liable for CGT, no why would I ever want to pay CGT if I can avoid it by never selling?  I would sooner fund my retirement by borrowing against my holdings with a margin loan and spending that, than selling even 1 share.

steveo

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Re: Australian Investing Thread
« Reply #1784 on: February 13, 2016, 02:34:31 PM »
The other thing about SWR in Australia is if you do choose to sell down your holdings you're then liable for CGT, no why would I ever want to pay CGT if I can avoid it by never selling?  I would sooner fund my retirement by borrowing against my holdings with a margin loan and spending that, than selling even 1 share.

This is a tough one isn't it. I also don't want to sell or if I sell do it so that I don't pay any tax. I'm not sure if I am 100% correct but I can see that CGT is the same as your personal income tax rate. Therefore you can try to minimise your capital gains each and every year to less than $18k. I also assume money in super is CGT exempt.

faramund

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Re: Australian Investing Thread
« Reply #1785 on: February 13, 2016, 02:46:38 PM »
The other thing about SWR in Australia is if you do choose to sell down your holdings you're then liable for CGT, no why would I ever want to pay CGT if I can avoid it by never selling?  I would sooner fund my retirement by borrowing against my holdings with a margin loan and spending that, than selling even 1 share.

This is a tough one isn't it. I also don't want to sell or if I sell do it so that I don't pay any tax. I'm not sure if I am 100% correct but I can see that CGT is the same as your personal income tax rate. Therefore you can try to minimise your capital gains each and every year to less than $18k. I also assume money in super is CGT exempt.
I'm similar, my current plan is to retire at 52, and live off my 'external from super' dividends until 60, but I'll also have to sell off 1% of my share holdings in each of those 8 years - but as I hold individual shares, I'm hoping to be able to sell off enough shares that I've lost money on, to balance out those I've gained money on. I could do that now (I'm 46), but with another 6.7+ years of average growth, I don't know if I'll have enough losers by then - here's hoping???

FFA

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Re: Australian Investing Thread
« Reply #1786 on: February 13, 2016, 03:04:05 PM »
Once retired and without wage/salary, most will be on a reduced marginal tax rate, e.g. 19%. So after CGT discount of 50%, the effective tax rate might be 10%. Some could be below the tax free threshold, e.g. a couple retiring on 30k (tax free threshold 2* 18k). So they could sell shares with capital gains of 12k (discounted to 6k) and that is tax free. As faramund says, you might have some losers in the portfolio to offset gains as well. The CGT issue might not be as bad as you expect if well planned.

steveo

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Re: Australian Investing Thread
« Reply #1787 on: February 13, 2016, 05:04:51 PM »
The other thing about SWR in Australia is if you do choose to sell down your holdings you're then liable for CGT, no why would I ever want to pay CGT if I can avoid it by never selling?  I would sooner fund my retirement by borrowing against my holdings with a margin loan and spending that, than selling even 1 share.

This is a tough one isn't it. I also don't want to sell or if I sell do it so that I don't pay any tax. I'm not sure if I am 100% correct but I can see that CGT is the same as your personal income tax rate. Therefore you can try to minimise your capital gains each and every year to less than $18k. I also assume money in super is CGT exempt.
I'm similar, my current plan is to retire at 52, and live off my 'external from super' dividends until 60, but I'll also have to sell off 1% of my share holdings in each of those 8 years - but as I hold individual shares, I'm hoping to be able to sell off enough shares that I've lost money on, to balance out those I've gained money on. I could do that now (I'm 46), but with another 6.7+ years of average growth, I don't know if I'll have enough losers by then - here's hoping???

I wish you all the luck in the world !!! Just for Internet purposes that was a joke.

Maybe this isn't that bad if you are using dividends as your first withdrawal method. The dividends will come with tax benefits and then you sell whatever asset makes sense at that time.

Wadiman

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Re: Australian Investing Thread
« Reply #1788 on: February 14, 2016, 02:52:46 AM »
Thanks for posting the link to that paper FFA!

Very insightful indeed.


detrimental12

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Re: Australian Investing Thread
« Reply #1789 on: February 15, 2016, 11:29:41 PM »
There is a reddit sub (/fiaustralia) but it's not very active. Maybe the FI community in Aus is just not that big?

Hey man, we are growing by the day. We are everywhere, careful what you say :P
FI by 30 baby!

AussieFirebug

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Re: Australian Investing Thread
« Reply #1790 on: February 16, 2016, 03:06:30 PM »
There is a reddit sub (/fiaustralia) but it's not very active. Maybe the FI community in Aus is just not that big?

Hey man, we are growing by the day. We are everywhere, careful what you say :P

Wow you are everywhere (*looks over shoulder*)

Great to see the sub is growing. I get sick of seeing the same things over and over again in \r\Australia and \r\ausfinance.

Question for you sir. Are you FI already at age 30? Or is that your goal?


detrimental12

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Re: Australian Investing Thread
« Reply #1791 on: February 16, 2016, 05:34:01 PM »
There is a reddit sub (/fiaustralia) but it's not very active. Maybe the FI community in Aus is just not that big?

Hey man, we are growing by the day. We are everywhere, careful what you say :P

Wow you are everywhere (*looks over shoulder*)

Great to see the sub is growing. I get sick of seeing the same things over and over again in \r\Australia and \r\ausfinance.

Question for you sir. Are you FI already at age 30? Or is that your goal?

That's my goal, I'm currently 27 :-)
FI by 30 baby!

stashgrower

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Re: Australian Investing Thread
« Reply #1792 on: February 18, 2016, 06:44:00 PM »
Newbie here. Glad to see some fellow Aussies :)

I've read through all 36 pages!! I know this one has been covered before, but I had a bit of trouble keeping it all straight. I hope you don't mind if I bring it up again?? Trying to get my head around VGS vs VTS/VEU.

VGS: Oz-domiciled, simplifies taxes, do we pay less foreign taxes overall on dividends vs VTS/VEU because we get a credit for those?

VTS/VEU: splits up the US and rest of world, US-domiciled, do we lose taxes e.g. if a non-US country has a tax and then the dividends get siphoned through the extra US withholding tax?

I'm also confused about currencies. All else being equal: is it advantageous to buy when the Aussie dollar is high so we get more parcels for our buck, and sell when it is low? Is there a difference here between VGS vs VTS/VEU? Is there even a way to figure it out or is this too complex?

Why would you go for one over the other? Thanks.

faramund

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Re: Australian Investing Thread
« Reply #1793 on: February 18, 2016, 07:16:11 PM »
Newbie here. Glad to see some fellow Aussies :)

I've read through all 36 pages!! I know this one has been covered before, but I had a bit of trouble keeping it all straight. I hope you don't mind if I bring it up again?? Trying to get my head around VGS vs VTS/VEU.

VGS: Oz-domiciled, simplifies taxes, do we pay less foreign taxes overall on dividends vs VTS/VEU because we get a credit for those?

VTS/VEU: splits up the US and rest of world, US-domiciled, do we lose taxes e.g. if a non-US country has a tax and then the dividends get siphoned through the extra US withholding tax?

I'm also confused about currencies. All else being equal: is it advantageous to buy when the Aussie dollar is high so we get more parcels for our buck, and sell when it is low? Is there a difference here between VGS vs VTS/VEU? Is there even a way to figure it out or is this too complex?

Why would you go for one over the other? Thanks.

Well done on the reading....

When you earn dividends, each year, if its complicated, companies/index funds will annually send out a tax guide, which essentially tells you what number to put in each spot of your tax return.

One of the things they can give you to record - is that you have effectively paid tax in a foreign country - if that happens, the ATO uses a formula that takes into account that tax.

I assume this would happen with VGS, VTS/VEU, i.e. I don't think there's a difference between them.

I've also thought that having sub-indexes that essentially subdivide an overall index, is only there for people to make (informed?) bets.

So if you think US will do better than the rest of the world, but VTS, if you think it'll do worse, buy VEU. If you don't think you can tell (which is my position) buy VGS.

Although I've just noticed that VGS has a higher management fee than VTS and VEU. So if you were really squeezing out return, if you wanted VGS, you'd probably be better just splitting your money evenly between VEU and VTS.

As to currency, who knows what it'll be in the future - personally, I think its now about in its historically typical range, so I think it'll drift around here, and who knows if next time it moves, it'll go up or down. If you think you know which direction will move - better than what the average person in the currency market does - maybe you should do currency trading - although, most people who try to do that, end up doing badly.

I currently have VHY and VAS. Over the next few years, I was planning to add VGS and VGE (to get the whole world), but after thinking about it, rather than VGS, I might do the 50/50 VEU/VTS
« Last Edit: February 18, 2016, 07:18:38 PM by faramund »

povertystrickenbastard

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Re: Australian Investing Thread
« Reply #1794 on: February 18, 2016, 08:15:45 PM »
One thing I've read about VEU which turns me off it is because it's US domiciled you lose your franking credits on the Australia part of VEU, Australia makes up about 5% of VEU.

MsRichLife

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Re: Australian Investing Thread
« Reply #1795 on: February 18, 2016, 11:03:46 PM »
Our FIRE calculations and strategy have nothing to do with SWRs at all - but rather passive income and multiple semi-passive income streams.
Are we the only ones?

This is our approach too. We have already built passive income streams from rental properties, a share portfolio with a focus on good dividends and a couple of defined benefit pensions (Hubby's paying out now, mine when I turned 55). We also plan to have a few nano-businesses like AirBnB, bicycle repair, homesteading hobbies, maybe even some consulting if I get motivated.

I don't intend to sell anything to fund our living expenses unless we get desperate.

qwerty8675309

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Re: Australian Investing Thread
« Reply #1796 on: February 19, 2016, 01:10:26 AM »
I'm also confused about currencies. All else being equal: is it advantageous to buy when the Aussie dollar is high so we get more parcels for our buck, and sell when it is low? Is there a difference here between VGS vs VTS/VEU? Is there even a way to figure it out or is this too complex?

Yes, it definitely is an advantage to buy when the AUD is strong; however just like with share prices, it's hard to tell whether the AUD will go up or down from here. I think the best approach is to dollar cost average so you can buy when the AUD is both strong and weak.

stashgrower

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Re: Australian Investing Thread
« Reply #1797 on: February 19, 2016, 04:35:10 AM »
Thanks faramund, povertystrickenbastard and qwerty8675309.

Ha, no currency trading for me. I just asked because I donít have enough money to just buy everything I want all at once. So I am thinking to will save a parcel and buy one ETF at a time. If one particular ETF is more favourable at the time than another, then it makes sense to go for that (asset allocation not withstanding). Then rotate round the wishlist when I save my next parcel.

Similarly it's not so much about guessing the movements, more that I have limited funds so if buying with a strong AUD is an advantage then I am happy to buy other things until I save some more.

As suggested I did think about DCAíing but after some rough calcs decided on ETFs instead of mutual funds for a long-term outlook...? It will cost me more in (brokerage) fees now while Iím starting, but hopefully in 20 years Iíll have spent less on fees all up. Only downside is entering slowly, so maybe I get less benefit at the start. Make sense? Comments welcome, Iím a newbie and open to changing my approach.

Thanks, I forgot that VEU has Oz in the mix, so I didnít think about the missing franking credits.

BattlaP

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Re: Australian Investing Thread
« Reply #1798 on: February 23, 2016, 06:50:23 PM »
Getting the feeling that the national spotlight is gradually starting to see housing pricing as a potential issue of concern.. While this is a good thing and I'm glad it's finally getting some political attention, i'm starting to see my overinvestment in australia as a potential issue.

Would VGAD be the right place to put my future investment dollars if my intention was to reduce my exposure to Australian shares and protect against the possibility of a sinking Aussie dollar? At the moment I don't have any money in anything 'hedged' so I'm just trying to understand how they work and what exactly they are best for.

I gather if there was wild currency fluctuations, up or down, a hedged ETF would ideally be unaffected?

potm

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Re: Australian Investing Thread
« Reply #1799 on: February 24, 2016, 12:15:49 AM »
Hedged protects against a rising AUD, not falling.