In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok.
Hey animallover. I think you mentioned wayback that you were interested in VHY to increase your income component of your investment.
However, buying more VAS and VHY when you already have the balanced fund sounds a bit like unnecessary duplication.
My suggestion would be to zoom out and have a look at your overall asset allocation and make sure you understand how future and ongoing purchases would affect that. My memory is that you were very property heavy in the past, and still may be. Adding a little bit of ETF may have a negligible effect on your overall investment portfolio and income streams, but at the expense of slightly fiddlier reporting. Into the future it may increasing your investment concentration further on Australian equities (exchanging one overallocation, property, into another, australian equities).
Thanks MisterHorsey. In regards to property, we have our PPOR paid off and a small investment property also paid off. I did consider just to continue to build on the already established Balanced Fund rather than VHY, but our plan is to go into part-time work in 3 years, then aim after 5 years of part-time work to FIRE. So based on my maths it seems like VHY risks might be worth it for the potential returns and tax benefits. Ok so given you are far more experienced then myself, what would you do?
Also I wanted to know about what tax deductions can be made for ETF’s? As my understanding is that the management fee is built into the share price, therefore I am unsure if I would be able to claim that management fee, like I could in the Wholesale Funds. Thank you
I'm reluctant to give anything other than general thoughts without fully understanding the makeup of your portfolio. And even then, if I did know the composition, I can't account for your own risk profile/tolerance, as well as your expectations and consumption patterns in early retirement. I think you mentioned a while ago that your annual expenses were something like $70k per annum and this was non-negotiable. My current annual expenses are around $15k-$20k at the moment (and that includes rent)- so you can see how others may baulk at what I think might be achievable.
In any event, why not try the following exercise:
1) Draw up an ideal asset allocation plan that would give you peace of mind, a diversified allocation, a reasonable level of risk, and acceptable income (i.e. 35% residential property/35% Australian shares/30% international shares, i dunno, I'm just proposing this as an example. You may want to stick with a higher % of residential property as it's done so well for you. It's anchoring, and there is risk in maintaining this position of course.)
2)Analyse your current holdings to see what you hold presently (it sounds like you are very overweight Australian residential property - if your entire portfolio was in a fund it would have been constantly rebalancing over the years, selling a few bricks at a time and buying up US equities when they were cheap. Alas, property has done amazingly well for you but it's not so liquid).
3) Develop a longer term strategy to transition closer to your ideal asset allocation, minimising transaction cost and CGT events. We all have legacy investments we made earlier on before realising FI was a reality. It can take a little while to unwind these positions. Sometimes it's transactional costs - other times it's psychologial barriers. When it's both you've hit the jackpot - analysis paralysis all round!
I could be mistaken, but I think the focus on income growth via high yielding stocks is possibly leading you astray. I think someone else mentioned earlier that you should think about your investments in terms of their overall growth - both income via dividends and capital appreciation. High yielding stocks today are not necessarily high yielding stocks tomorrow. You are likely to pay tax on the dividends (albeit, less if fully franked) so it's not a freebie. Plus everyone points out how incredibly concentrated VHY is. So what to do? Well, if you run low on income via dividends, slice up part of your pie and sell it - ideally in a low income/tax year to minimise CGT. After all, that's what it's there for isn't it?
And is there any fundamental difference between receiving dividends and not reinvesting them, or reinvesting your dividends but every now and then selling off part of your fund? (Other than administrative logistics).
So I think the gist of my approach would be to take a high level strategic approach first - and develop a comprehensive plan. You're fortunate in that you have a lot of savings/investments to play with. But you shouldn't feel like you should be in rush to make any decisions about this. Everything you are currently proposing is tweaking around the edges compared to the mammoth task you've already undertaken of saving so much, so consistently and for so long.
These are just my thoughts and I'm always happy if anyone can pick holes in my advice. I'm learning a lot from this forum too!