Author Topic: Australian Investing Thread  (Read 613694 times)

mjr

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Re: Australian Investing Thread
« Reply #3050 on: April 27, 2017, 01:55:43 PM »
Paying off the national debt -- what a novel concept!

Rest assured that we don't do that any more.

FFA

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Re: Australian Investing Thread
« Reply #3051 on: April 27, 2017, 04:25:22 PM »
Sunsuper released a product update. They are getting rid of the actively managed international share options which are being transferred into their index options in September. Also the emerging markets option is being changed from active to index (presumably by Vanguard). I use the emerging markets option and pleased to hear that, especially if the fees are reduced accordingly which hopefully will be the case! Just in case others are interested as I know a few around here use sunsuper.

btw anyone using self wealth as an online broker? $9.50 for unlimited size. A very good deal if you trade in big size, e.g. a lump sum to invest, or switching portfolio around. Interested to hear feedback if anyone using them ? thanks

Tyler

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Re: Australian Investing Thread
« Reply #3052 on: April 29, 2017, 04:50:56 PM »
Hi Tyler,
I can't help with the information you're after but just wanted to say your site is great and I'm very interested in being able to model Australian-specific portfolios.

Thanks!

Give this a try and let me know what you think:  https://portfoliocharts.com/2017/04/29/portfolio-charts-is-going-global/ 

I don't have data for every asset, but it should be more than enough to get a good idea for how Australian asset allocations work. 
Model portfolio performance in any home country at PortfolioCharts.com

Eucalyptus

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Re: Australian Investing Thread
« Reply #3053 on: April 29, 2017, 05:39:19 PM »
Hi Tyler,
I can't help with the information you're after but just wanted to say your site is great and I'm very interested in being able to model Australian-specific portfolios.

Thanks!

Give this a try and let me know what you think:  https://portfoliocharts.com/2017/04/29/portfolio-charts-is-going-global/ 

I don't have data for every asset, but it should be more than enough to get a good idea for how Australian asset allocations work.

Just got your email and checked it out... wow!

One thing I'm wondering is how/if you've somehow got franking credits in there for Aus domestic stocks? I guess this is getting pretty hard to encompass.

Also, for the colour blind like me, is it possible to change the colour of the Safe WR line in the withdrawal rates tool (which I love by the way)? Its too close in colour to the perpetual WR colour, I can't tell the difference (though I assume perpetual WR is the bottom one). A black line for the bottom one would be a safe bet I would say.

Perhaps people from this thread can give you suggestions on stocks to put in the Assetts pages once you start making them for Aus (though a new thread might be better for that).

Cheers!
« Last Edit: April 29, 2017, 06:05:00 PM by Eucalyptus »

Tyler

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Re: Australian Investing Thread
« Reply #3054 on: April 29, 2017, 08:09:32 PM »
Also, for the colour blind like me, is it possible to change the colour of the Safe WR line in the withdrawal rates tool (which I love by the way)? Its too close in colour to the perpetual WR colour, I can't tell the difference (though I assume perpetual WR is the bottom one). A black line for the bottom one would be a safe bet I would say.

Sure thing.  I'll eventually get around to fixing it on the portfolio pages, but updating the calculator was a quick fix.  I also changed the Benchmark calculator which had the same issue.  Thanks for the heads-up -- I had no idea that was still a poor color combo for colorblindness.

As for the franking credits, I've intentionally avoided touching taxation issues.  The numbers are total returns as reported by MSCI and included in Fama-French data, if that helps. 
Model portfolio performance in any home country at PortfolioCharts.com

gsp

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Re: Australian Investing Thread
« Reply #3055 on: May 01, 2017, 10:22:04 PM »
Thank you all for your valuable contribution.
I am planning to start investing in Vanguard ETF every 3 months around 3k.
Can you please help to understand pros and cons of VTS ? I am more positive towards US market then Euro/Asia

bigchrisb

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Re: Australian Investing Thread
« Reply #3056 on: May 03, 2017, 11:32:18 PM »
Thought I would circle back on the VGS vs VEU+VTS evaluation.  I've always struggled to choose between these, but have stuck with the VEU/VTS combination as that's where I already had my money, and changing would result in a CGT impact.

However, based on the last 12 months returns from the Vanguard Australia webpage, I can't reconcile the differences:

VGS: 16.4%
VTS: 19.06%
VEU: 14.9%
VGE: 17.94%

VGS is approx 60% US and 40% developed international.  That would suggest a return of approx 17.4%, if blending 60/40 VTS/VEU, compared to 16.4% for VGS. 

Given that VEU is about 25% emerging markets / 75% developed, and the relative difference between VGE and VEU, it looks like the emerging markets made up most of the 1% performance difference.

All have been very healthy returns.  However, on this, I think I'll stick with the VEU/VTS combination for my international stock allocations.

mjr

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Re: Australian Investing Thread
« Reply #3057 on: May 04, 2017, 03:54:57 AM »
gsp, my thinking is as yours.  I'm cold on Europe and as such VTS is my entire international exposure. 

About 1.6-1.7% dividends these days, bigchrisb has listed the returns above.  Obviously there's currency volatility, but I like that the underlying currency is in USD, it's a hedge on the AUD.  Trades and dividends are all remitted in AUD, so taxes are simple.  FIlling out the appropriate form lowers the withholding tax to 15% which can be credited against other taxes.

Note that if you have an SMSF in pension phase, you won't have any taxes to credit against.  Even then though, as withholding tax is 15% of 1.6% of the holding value, it's not a huge price to pay for the US market exposure.
« Last Edit: May 04, 2017, 03:59:17 AM by mjr »

Realist35

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Re: Australian Investing Thread
« Reply #3058 on: May 04, 2017, 06:55:20 AM »
Hi all:),

I would like to invest 100k in shares and I have a big headache from the info overload. My main idea is to invest in low cost index funds/ETFs. I'm not too sure about LIC's as they require more involvement. Also LICs try to beat the market which is unlikely in the long term. They provide less diversification then index funds. Does all this make sense?

I'm thinking of investing in Vanguard wholesale high growth index fund, or a mix of VAS and VGS? Still very confused and don't understand this whole retail/wholesale thing..

Also should I invest 100k all in one go?

Thanks a lot:)!

cakie

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Re: Australian Investing Thread
« Reply #3059 on: May 04, 2017, 04:51:15 PM »
I guess it depends how deep you want to learn about it, Realist. I'm in ETFs because I grew it slowly (no lump sum), so couldn't access wholesale funds and also had time to decide a good mix of ETFs for my needs. But a diversified fund sounds like a good hands-off choice if you already meet the minimum :)

Todge

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Re: Australian Investing Thread
« Reply #3060 on: May 04, 2017, 05:52:59 PM »
Realist, the main differences between the retail and wholesale funds are the amount you need to invest to 'buy into' them and the costs (fees) involved. The underlying assets they hold are the same.

For example - management fee of the Retail High Growth Fund is .90%; that's a little high in my view. The same wholesale fund is .37%. So you will pay more in fees in the retail fund. In the same way that compound interest helps grow your money over long periods, compound fees erode it.

Assuming a 7% annual rate of return on 100k invested over 10 years, the difference in fees between these two products would cost you just shy of 10k. This tool will allow you to check the impact of fees on your investment: https://www.dinkytown.net/java/CompareFees.html

One benefit of the retail and wholesale funds are no transaction fees. So no brokerage fees. Although, that's not really true though as you don't get anything for free in the financial industry. The brokerage is simply passed onto you through those .9% and .37% management costs. But if you are investing small amounts often or switching your investments a lot, this might be a good option as paying brokerage for small trades adds up.

With 100k to play with, maybe the VAS/VGS ETF would be better than the retail/wholesale funds. The ETF fees are lower (VAS .14% and VGS .18%), because you pay for brokerage. Over time these lower fees will help your money grow - all things being equal. Let's say you adopt a 50/50 split - your management fees would be .16%. Buying 100k on the share market through a bank brokerage like NAB would cost you .11% of the trade value - so $110 (plus .11% when you sell). Each year you'll then pay $160 in management fees on that 100k. The retail fund costs nothing in brokerage but you'll pay $900 per year and the wholesale fund will cost you $370.

We are comparing apples and oranges here though - but these are the fee differences in the funds you mention.

To learn more about this, there are great books suggested in this post: https://forum.mrmoneymustache.com/reader-recommendations/booksvideo-lessons-for-beginner-investor/msg1523893/#msg1523893


mjr

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Re: Australian Investing Thread
« Reply #3061 on: May 04, 2017, 06:21:20 PM »
One benefit of the retail and wholesale funds are no transaction fees. So no brokerage fees. Although, that's not really true though as you don't get anything for free in the financial industry. The brokerage is simply passed onto you through those .9% and .37% management costs.

Don't forget the 0.12% buy and sell spread

Realist35

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Re: Australian Investing Thread
« Reply #3062 on: May 04, 2017, 09:59:00 PM »
Hi Todge,

Thank you so much for such a great post:). That clarified quite a few things for me. Definitely sounds like etf combo is the way to go.

Just a quick question to you and other experienced investors with regards to asset allocation. Would it make sense if I went for one of these two options:

1. 60k in VAS and 40k in VTS, or
2. 60k in VAS and 40k in VGS.

I would invest 100k all in one go. I'll also be investing 15k quarterly in the above split. I'm investing with a min 15 yr time frame in mind. What are your thoughts?

I haven't included any bonds in the mix so I'm not sure whether that's considered too risky.

mjr

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Re: Australian Investing Thread
« Reply #3063 on: May 04, 2017, 11:06:14 PM »
Plenty of VGS vs VTS threads in Investor Alley.  Search is your friend.  I personally go VTS for the reasons I stated 6 posts ago.  Plenty of others here prefer VGS though.

With a 15 year timeframe and interest rates at the bottom of the cycle, I think you're ok with no bonds.  But *you* have to be comfortable and able to handle big drops in portfolio value without selling.

Todge

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Re: Australian Investing Thread
« Reply #3064 on: May 04, 2017, 11:48:20 PM »
Yep, plenty of experts like Charles Ellis argue that having no bonds is fine and will result in greater returns of the long run.  But as MJR said, this only works if you have the fortitude to stay the course and not panic sell if the market takes a downturn.

steveo

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Re: Australian Investing Thread
« Reply #3065 on: May 05, 2017, 05:14:09 AM »
Hi Guys,

My parents are about to leave their financial advisor because the financial advisor has been sacked from their company. I'm pretty stoked with this because I am sure they are getting fleeced.

A couple of questions:-

1. Where is the best spot to get a SMSF managed from a legal/accounting perspective at the best possible cost ?
2. They are pretty risk averse. I think the best option for them is something like the balanced vanguard diversified fund with a fee of .34%. Alternatively they could go the ETF route and diversity into something like VAF/VGS & VAS (I do this) and the fees will be a little cheaper. What do you think of the best option.
3. Are there any other options than Vanguard just to diversify across companies and do you think it is worth it ?

They will have I think about $3 million to invest and they also get a pension of about $50k per year to live off. Mum at 72 still works but she is crazy.

My opinion to keep it simple is to just chuck it all in the balanced Vanguard fund and transfer the super fund (already existing) to be managed via https://www.esuperfund.com.au/.
« Last Edit: May 05, 2017, 05:19:25 AM by steveo »

FFA

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Re: Australian Investing Thread
« Reply #3066 on: May 05, 2017, 06:26:38 AM »
Hi Steveo, working in 70's sounds crazy but then again a lot of retirees also go crazy when they stop working too....

1. I don't use SMSF so no direct experience but people seem to say esuperfund works well
2. As we've discussed many times, no right or wrong it's a personal preference. For someone in their 70's I could imagine keeping it simple and hands off might be preferable over skimming 0.1-0.2% in the MER..... If risk averse maybe check whether balanced or conservative is the appropriate option? Remember markets are due for a pullback, and you probably don't want them tapping you on the shoulder to explain why their balance just dropped by 10%, if they don't have the risk tolerance for it.
3. Blackrock is the biggest. Vanguard fast catching up. SPDR slowly losing the race. VanEck and Betashares are more niche/smart beta ETF's which it doesn't sound like you're after. If it gives you piece of mind just substitute STW/IOZ for VAS so that it's not all in the Vanguard basket. I think it's a very, very low risk but equally if it doesn't cost much to make the substitution (i.e. starting from scratch), then why not.

steveo

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Re: Australian Investing Thread
« Reply #3067 on: May 05, 2017, 03:31:21 PM »
Thanks FFA. Considering they also have a pension and mum has another $400k in her own Industry super account I think it may be best just to go with the one Vanguard fund. It's also extremely simple.

Another point that I'm only just thinking about is I bet their current Super has all sorts of shares/bonds sitting all over the place. It might be best to leave some of that as it is or more slowly move it all into the Vanguard fund.

Basically maybe it's not all in Vanguard anyway.

MajorTom

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Re: Australian Investing Thread
« Reply #3068 on: May 05, 2017, 03:59:47 PM »
2. They are pretty risk averse. I think the best option for them is something like the balanced vanguard diversified fund with a fee of .34%.

The fees for the wholesale funds are dropping to 0.29% in July, in case that makes a difference for you. 

deborah

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Re: Australian Investing Thread
« Reply #3069 on: May 05, 2017, 04:05:38 PM »
Most accountants used to be able to manage a SMSF until last year. Now they need to be licensed to do so, or to recommend someone else. Your parents would be best to speak to their accountants, and get their recommendations.

As they have so much, I assume that they may need to put some of the money outside super, because one of them will probably have more than $1.6mill in super (particularly since the pension is valued at 16 times its annual amount if it is a DB pension and is separate from the rest of their super). This is a very bad time to be trying to change financial advisors because of the changes and people needing to move money to be within the cap by 1st July! If your father is not working there may be limited options for him to move stuff around since he is over 65.



Todge

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Re: Australian Investing Thread
« Reply #3070 on: May 05, 2017, 04:23:06 PM »
Steveo:
I've just done with with my parents - they've moved away from their financial advisor - who was charging them almost 1.5% for 'service'. They wanted to keep it simple with low fees so we went the ETF route.

My parents' main worry was not really knowing where their money was invested and seeing these large numbers as line items for fees when they only got a yearly phone call about their finances. They assumed that the advisor had them in some really advanced and complex asset structure. Nope. Basically they were in Vanguard wholesale funds. I showed them exactly what these were onthe Vanguard website and what they cost. They were paying fees to their financial advisor, and fees to the investment house the advisor used who then simply bought Vanguard wholesale funds. They decided to cut out the middle men and buy the same assets directly. So we were able to replicate the holdings they had through their advisor almost exactly with VAS, VGS and VAF.

We sought advice from an independent financial advisor via centrelink (you don't have to be on benefits to see them). She was able to confirm everything we thought and it made the folks happy to get a second opinion.The upshot is, they are saving thousands a year in fees (almost 2.5% lower now), feel far more in control of their finances as they now know what they own and how it all works. Also the Vanguard statement is much easier to read and understand for my dad to do his tax.

I guess the only issue is their concentration in Vanguard. But this is only one of their income streams and they were in Vanguard before via the Wholesale funds through an advisor and secondary investment broker.

mjr

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Re: Australian Investing Thread
« Reply #3071 on: May 05, 2017, 07:03:45 PM »
As they have so much, I assume that they may need to put some of the money outside super, because one of them will probably have more than $1.6mill in super

The new rules don't prohibit having more than $1.6m in super, rather a tax-free pension account.  Values over that can stay in super in an accumulation account where earnings incur the 15% tax.
« Last Edit: May 05, 2017, 10:28:06 PM by mjr »

marty998

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Re: Australian Investing Thread
« Reply #3072 on: May 05, 2017, 07:09:03 PM »
As they have so much, I assume that they may need to put some of the money outside super, because one of them will probably have more than $1.6mill in super

The new rules don't prohibit having more than $1.6m in super, rather a tax-free pension account.  Values over that can stay in super in an allocation account where earnings incur the 15% tax.


Exactly right. There is so much bad advice out there telling people there's a hard cap of $1.6m.

It's still better to be taxed at 15% inside super than at marginal rates outside.

deborah

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Re: Australian Investing Thread
« Reply #3073 on: May 05, 2017, 07:24:19 PM »
As they have so much, I assume that they may need to put some of the money outside super, because one of them will probably have more than $1.6mill in super

The new rules don't prohibit having more than $1.6m in super, rather a tax-free pension account.  Values over that can stay in super in an allocation account where earnings incur the 15% tax.
Yes, but as their superannuation pension is not taxed, they can earn up to some revolting amount each year ($25,000?) outside super before being taxed at all, so for a group of people, it can be better to have any excess outside super if it isn't too large an amount. Considering just how much Steveo is talking about, I would think his parents would fall into that group.



steveo

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Re: Australian Investing Thread
« Reply #3074 on: May 06, 2017, 01:22:30 AM »
Heaps of good information here. Dad isn't working. So basically they get taxed 15% for any earnings above the cap amount and outside of Super they get taxed the marginal rates and pension income isn't included.

We can just transfer everything so that it is a self managed super fund rather than a super fund managed by financial advisors. I am pretty sure that they have two super funds each with about the cap in there I assume to maximise the tax benefits. I can just set up another couple of accounts -  say in Super and outside Super where they can put their excess money in.

Todge - I know that their financial advisor has put them into Vanguard funds.  My dad tells me and just shakes his head. Prior to this point I think mum wanted to tell people she had a financial advisor. Interestingly their financial advisor told them to let he children run it.
« Last Edit: May 06, 2017, 04:42:25 AM by steveo »

Realist35

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Re: Australian Investing Thread
« Reply #3075 on: May 06, 2017, 05:36:49 AM »
Hi guys,

From my reading so far, it sounds like ETFs might be the right choice for me. I'm thinking of investing 50k in VAS and 50k in VGS. However I'm really struggling to understand the potential returns. I'm planning to hold for at least 15 years. If the last 15 yr history repeats, what sort of return can I expect to get on 100k in 15 years, with dividend and FF credits reinvestment and quarterly 5k DCA contributions?

There are FF credits there at play as well and I'm struggling to get my head around everything (I don't think I'd get FF on VGS).

Your thoughts would be much appreciated:).

steveo

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Re: Australian Investing Thread
« Reply #3076 on: May 06, 2017, 06:19:53 PM »
Realist35 - my advice is to pick an asset allocation and stick to it. You can't predict returns with any certainty but you can have a solid plan and stick to it.

I use ETF's. I use VAS, VGS and VAF. I also have an industry Super account. VAS will give you FF credits but the Australian market is also much less diversified than the entire world market. I think the sanest approach is to put everything into VGS and VAF based on your risk profile but I use VAS because I think there are benefits to VAS such as FF credits and less impact of foreign currency fluctuations.

I have a goal to get too outside of super. For me it is 200k VAS, 100k VAF and 100k VGS and I just invest on that basis when I get 10k saved up. I have some direct Australian shares which I'm not going to sell and I just group that into the VAS allocation.

I think you will probably get real returns of about 5% but I don't really focus on that.

FFA

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Re: Australian Investing Thread
« Reply #3077 on: May 06, 2017, 08:53:14 PM »
if you google "vanguard long term chart" they publish a chart each year, with long-term asset class returns on it. Typically 8-10% total return based on history. Real returns are lower as steveo said.

Correct, no franking on VGS but you might get some foreign tax credits. If you want to adjust the VAS return for franking roughly, consider the income component approx. 4.5% at average 80% franking level and gross it up (i.e. divide that by 0.7) = 5.1%. So franking is an additional 0.6% approximately.

Realist35

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Re: Australian Investing Thread
« Reply #3078 on: May 07, 2017, 01:25:09 PM »
Realist35 - my advice is to pick an asset allocation and stick to it. You can't predict returns with any certainty but you can have a solid plan and stick to it.

I use ETF's. I use VAS, VGS and VAF. I also have an industry Super account. VAS will give you FF credits but the Australian market is also much less diversified than the entire world market. I think the sanest approach is to put everything into VGS and VAF based on your risk profile but I use VAS because I think there are benefits to VAS such as FF credits and less impact of foreign currency fluctuations.

I have a goal to get too outside of super. For me it is 200k VAS, 100k VAF and 100k VGS and I just invest on that basis when I get 10k saved up. I have some direct Australian shares which I'm not going to sell and I just group that into the VAS allocation.

I think you will probably get real returns of about 5% but I don't really focus on that.
Thanks a lot for your thoughts mate, really appreciate it:)!

A few questions if you don't mind:

1. I'm thinking between 75:25 vs 50:50 VAS:VGS. Which one do you think would make more sense? I'm planning to retire in 15 yrs and live in Europe; not sure whether that would affect the split decision.
2. What are your thoughts on LICS vs etf's? I'd love to find a study comparing performances of the big LICS Vs etfs.
3. If I plan to retire off dividends in Europe, are there any tax implications that I need to be aware of? Do I still pay tax on dividends in australia or just in the country that I move to?

Thanks a lot!

Realist35

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Re: Australian Investing Thread
« Reply #3079 on: May 07, 2017, 01:32:45 PM »
if you google "vanguard long term chart" they publish a chart each year, with long-term asset class returns on it. Typically 8-10% total return based on history. Real returns are lower as steveo said.

Correct, no franking on VGS but you might get some foreign tax credits. If you want to adjust the VAS return for franking roughly, consider the income component approx. 4.5% at average 80% franking level and gross it up (i.e. divide that by 0.7) = 5.1%. So franking is an additional 0.6% approximately.

Thanks mate!

I think I've read VAS dividends are 63% franked. How do I calculate grossed yield in this case?

Also, if I get a LIC that would cover international shares, would I get franking credits for that?


steveo

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Re: Australian Investing Thread
« Reply #3080 on: May 07, 2017, 04:03:29 PM »
Realist35 - my advice is to pick an asset allocation and stick to it. You can't predict returns with any certainty but you can have a solid plan and stick to it.

I use ETF's. I use VAS, VGS and VAF. I also have an industry Super account. VAS will give you FF credits but the Australian market is also much less diversified than the entire world market. I think the sanest approach is to put everything into VGS and VAF based on your risk profile but I use VAS because I think there are benefits to VAS such as FF credits and less impact of foreign currency fluctuations.

I have a goal to get too outside of super. For me it is 200k VAS, 100k VAF and 100k VGS and I just invest on that basis when I get 10k saved up. I have some direct Australian shares which I'm not going to sell and I just group that into the VAS allocation.

I think you will probably get real returns of about 5% but I don't really focus on that.
Thanks a lot for your thoughts mate, really appreciate it:)!

A few questions if you don't mind:

1. I'm thinking between 75:25 vs 50:50 VAS:VGS. Which one do you think would make more sense? I'm planning to retire in 15 yrs and live in Europe; not sure whether that would affect the split decision.
2. What are your thoughts on LICS vs etf's? I'd love to find a study comparing performances of the big LICS Vs etfs.
3. If I plan to retire off dividends in Europe, are there any tax implications that I need to be aware of? Do I still pay tax on dividends in australia or just in the country that I move to?

Thanks a lot!

My opinions in relation to your questions are:-

1. if were going to live in Europe I would definitely do 50:50 however I'd probably just do 100 VGS.
2. I use ETF's. I think LIC's are good especially if you can get them at a below NAV.
3. I honestly don't know however I would assume in the country that you move too.

Realist35

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Re: Australian Investing Thread
« Reply #3081 on: May 07, 2017, 04:18:52 PM »
Thanks mate:).

Would you be elaborate on the first point?

Also do you think LICS involve more risk due to the manager risk?

steveo

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Re: Australian Investing Thread
« Reply #3082 on: May 07, 2017, 08:44:10 PM »
Thanks mate:).

Would you be elaborate on the first point?

Also do you think LICS involve more risk due to the manager risk?

I think VGS is basically a better fund compared to VAS. VGS is an international fund. It's going to be much more diversified because of that. The risk to me with VGS if you are living in Australia is mainly due to foreign currency fluctuations. If I was living in Europe I'd think VGS would be safer.

I think LIC's may have a little more risk because they are actively managed however from what I know about the LIC's in Australia they have performed really well and they are low cost options.

bigchrisb

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Re: Australian Investing Thread
« Reply #3083 on: May 07, 2017, 09:03:48 PM »
Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage.  They also provide a different currency exposure.  If expecting to spend a lot in AUD, it makes sense to have more domestic exposure.  However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.

In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%).  This means you are getting exposure to 5% more shares for the same price compared to an index fund.  I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.

Note that this is different to saying that the share market is good or bad value at the moment.  However, getting exposure through LICs is better value than ETFs right now. 

Todge

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Re: Australian Investing Thread
« Reply #3084 on: May 08, 2017, 05:24:53 AM »
Realist:
Generally speaking, as a 'non resident' for tax purposes, you will be liable for tax on dividends (no tax free threshold either) but capital gains tax exempt on shares.  The ATO website has all the updated info on this - tax treaties also impact how this is applied.


Realist35

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Re: Australian Investing Thread
« Reply #3085 on: May 08, 2017, 09:42:16 AM »
Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage.  They also provide a different currency exposure.  If expecting to spend a lot in AUD, it makes sense to have more domestic exposure.  However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.

In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%).  This means you are getting exposure to 5% more shares for the same price compared to an index fund.  I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.

Note that this is different to saying that the share market is good or bad value at the moment.  However, getting exposure through LICs is better value than ETFs right now.
Thanks a lot:).

What do you think with this approach: Argo (25k), API (25K), 50K VGS. So that's a 100k lump sum and all in one go, now.

From this point on, whenever I have cash on hand I'll buy LICs if they trade at a discount, otherwise I'll buy VAS.

Would this be considered a fairly safe and reasonable approach?

Realist35

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Re: Australian Investing Thread
« Reply #3086 on: May 08, 2017, 09:51:59 AM »
Realist:
Generally speaking, as a 'non resident' for tax purposes, you will be liable for tax on dividends (no tax free threshold either) but capital gains tax exempt on shares.  The ATO website has all the updated info on this - tax treaties also impact how this is applied.
Thanks:).

Just looked into it a bit further. From the link below, it seems that:

1. If the dividend income is Australian sourced they are tax free when fully franked.
2. If the dividends are unfranked, they are taxed at 30% unless their is a tax treaty with that country so it might be 15%.

Or am I missing something?

https://www.ato.gov.au/forms/you-and-your-shares-2013-14/?page=14

mjr

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Re: Australian Investing Thread
« Reply #3087 on: May 08, 2017, 02:49:07 PM »

1. If the dividend income is Australian sourced they are tax free when fully franked.

https://www.ato.gov.au/forms/you-and-your-shares-2013-14/?page=14

This isn't what that web page says.  The franked component is tax-free.  Up to 30% can be franked. The unfranked component is subject to withholding tax.

You're looking at a complicated area here.  You really should call the ATO and ask them.

steveo

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Re: Australian Investing Thread
« Reply #3088 on: May 08, 2017, 04:27:51 PM »
Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage.  They also provide a different currency exposure.  If expecting to spend a lot in AUD, it makes sense to have more domestic exposure.  However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.

In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%).  This means you are getting exposure to 5% more shares for the same price compared to an index fund.  I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.

Note that this is different to saying that the share market is good or bad value at the moment.  However, getting exposure through LICs is better value than ETFs right now.
Thanks a lot:).

What do you think with this approach: Argo (25k), API (25K), 50K VGS. So that's a 100k lump sum and all in one go, now.

From this point on, whenever I have cash on hand I'll buy LICs if they trade at a discount, otherwise I'll buy VAS.

Would this be considered a fairly safe and reasonable approach?

I think so. The only question is how much to you have in Australia market compared to the international market.

FFA

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Re: Australian Investing Thread
« Reply #3089 on: May 08, 2017, 04:40:49 PM »

1. If the dividend income is Australian sourced they are tax free when fully franked.

https://www.ato.gov.au/forms/you-and-your-shares-2013-14/?page=14

This isn't what that web page says.  The franked component is tax-free.  Up to 30% can be franked. The unfranked component is subject to withholding tax.

You're looking at a complicated area here.  You really should call the ATO and ask them.
I think that's right, fully franked div's, you just leave them off your tax return as a non-resident. Unfranked div's will have withholding tax deducted if you declare you TFN status as non-resident. (I was a non-resident for many years so know this first hand)

bigchrisb

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Re: Australian Investing Thread
« Reply #3090 on: May 08, 2017, 05:10:50 PM »
Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage.  They also provide a different currency exposure.  If expecting to spend a lot in AUD, it makes sense to have more domestic exposure.  However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.

In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%).  This means you are getting exposure to 5% more shares for the same price compared to an index fund.  I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.

Note that this is different to saying that the share market is good or bad value at the moment.  However, getting exposure through LICs is better value than ETFs right now.
Thanks a lot:).

What do you think with this approach: Argo (25k), API (25K), 50K VGS. So that's a 100k lump sum and all in one go, now.

From this point on, whenever I have cash on hand I'll buy LICs if they trade at a discount, otherwise I'll buy VAS.

Would this be considered a fairly safe and reasonable approach?

I think so. The only question is how much to you have in Australia market compared to the international market.

Presume you mean 25% AFI, not 25% API.  API is a good company (I hold some shares in it), but a diversified LIC it is not.  Assuming 25% ARG, 25% AFI and 50% VGS, that seems like a pretty sensible buy and hold forever portfolio to me.  We can all argue about the right domestic/international mix, but 50/50 seems like a good enough starting point to me.

Todge

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Re: Australian Investing Thread
« Reply #3091 on: May 08, 2017, 05:25:23 PM »
Whatever you choose 70/30 50/50, stick to it. This gives a pretty good summation of why: http://www.cbsnews.com/news/john-bogles-10-rules-of-investing/

Realist35

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Re: Australian Investing Thread
« Reply #3092 on: May 09, 2017, 02:07:02 AM »
Agree on the comments of the Australian economy being fairly narrow, and international indices providing much broader industry coverage.  They also provide a different currency exposure.  If expecting to spend a lot in AUD, it makes sense to have more domestic exposure.  However, if you are going to retire in Europe, I'd be having a lower than usual Australian exposure.

In terms of risk of ETFs vs LICs, the major LICs are currently trading below NTA (all of MLT, ARG and AFI are, by up to 5%).  This means you are getting exposure to 5% more shares for the same price compared to an index fund.  I don't believe the LICs will under perform the index by 5%, so this provides an extra margin of safety compared to ETFs, all else considered equal.

Note that this is different to saying that the share market is good or bad value at the moment.  However, getting exposure through LICs is better value than ETFs right now.
Thanks a lot:).

What do you think with this approach: Argo (25k), API (25K), 50K VGS. So that's a 100k lump sum and all in one go, now.

From this point on, whenever I have cash on hand I'll buy LICs if they trade at a discount, otherwise I'll buy VAS.

Would this be considered a fairly safe and reasonable approach?

I think so. The only question is how much to you have in Australia market compared to the international market.

Presume you mean 25% AFI, not 25% API.  API is a good company (I hold some shares in it), but a diversified LIC it is not.  Assuming 25% ARG, 25% AFI and 50% VGS, that seems like a pretty sensible buy and hold forever portfolio to me.  We can all argue about the right domestic/international mix, but 50/50 seems like a good enough starting point to me.
Thanks a lot:).

I've been reading more over the last couple of days and I'm thinking of even going all in Oz market. Maybe holding long term AFI, ARG, MLT, BKI, WHF. The idea is to own all of them and try buying them when they are trading at discount. I'm favoring to go all Australian due to fully franked dividends. If I reinvest them this should be a big advantage over going for VAS (only 70-80% franked) and VGS (not franked). What are your thoughts?

The only reason I would go for VAS over LICs is to eliminate the key person risk. How big do you think this risk is with the above mentioned 5 LICs?

Realist35

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Re: Australian Investing Thread
« Reply #3093 on: May 09, 2017, 02:10:38 AM »
Whatever you choose 70/30 50/50, stick to it. This gives a pretty good summation of why: http://www.cbsnews.com/news/john-bogles-10-rules-of-investing/
That's such an excellent read! Really enjoyed it. My options are slowly starting to become more clear.

Todge

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Re: Australian Investing Thread
« Reply #3094 on: May 09, 2017, 05:43:41 AM »
Yep, on the face of it , it's pretty simple - diversify and keep costs low. The only concern I have is your plan to live in Europe in 15 years.  If that's 100% certain then going 'all in' to the Oz market be a little constraining.

FFA

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Re: Australian Investing Thread
« Reply #3095 on: May 09, 2017, 05:50:13 AM »
I don't see much key man risk in the traditional LIC's. Maybe of these 5, I rate Frank Gooch at MLT the highest and if he disappeared it might leave a gap. The risks I see are - NTA discounts (even if you're buying at a discount, it could get bigger), concentration risk. These LIC's are even heavier in the banks than the index itself. There are so many other products now both ETF's and LIC's that help you diversify, some examples I've posted about and hold include MVW, EX20, MVS (ETF's) and PIC. I also hold ARG of the five traditional LIC's mentioned. There is nothing wrong with them at all, especially at NTA discounts, but I'd just pick one or two instead of all five, and then add some other products that improve the diversification of your underlying investment and avoid having all your eggs in the traditional LIC basket (unlikely but just in case).

I don't think you can look at the franking of VAS vs traditional LIC's in isolation. Even more so as a driver to decide your asset allocation. You need to think about total returns - capital, income, tax. Not just one aspect of tax. The key reason to invest globally is access to a whole raft of companies like Google, Amazon, Apple, Facebook, etc that you have no hope of accessing in the Australian market which is 2-3% of global equities. The Oz market is very small and very concentrated. Historically it has held up very well versus global indices but that may not be the case forever, so these are the factors I'd be thinking about

Realist35

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Re: Australian Investing Thread
« Reply #3096 on: May 09, 2017, 06:23:03 AM »
I don't see much key man risk in the traditional LIC's. Maybe of these 5, I rate Frank Gooch at MLT the highest and if he disappeared it might leave a gap. The risks I see are - NTA discounts (even if you're buying at a discount, it could get bigger), concentration risk. These LIC's are even heavier in the banks than the index itself. There are so many other products now both ETF's and LIC's that help you diversify, some examples I've posted about and hold include MVW, EX20, MVS (ETF's) and PIC. I also hold ARG of the five traditional LIC's mentioned. There is nothing wrong with them at all, especially at NTA discounts, but I'd just pick one or two instead of all five, and then add some other products that improve the diversification of your underlying investment and avoid having all your eggs in the traditional LIC basket (unlikely but just in case).

I don't think you can look at the franking of VAS vs traditional LIC's in isolation. Even more so as a driver to decide your asset allocation. You need to think about total returns - capital, income, tax. Not just one aspect of tax. The key reason to invest globally is access to a whole raft of companies like Google, Amazon, Apple, Facebook, etc that you have no hope of accessing in the Australian market which is 2-3% of global equities. The Oz market is very small and very concentrated. Historically it has held up very well versus global indices but that may not be the case forever, so these are the factors I'd be thinking about
What do you think about reversion to the mean theory? Australian shares (ASX200 All Ordinaries) has had 9.1% return over the last 30 years. That`s very good.

A silly question. Can a LIC go bust/bankrupt and all their shareholders lose money? Can that happen to an ETF (such as Vanguard)?

Realist35

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Re: Australian Investing Thread
« Reply #3097 on: May 09, 2017, 06:27:00 AM »
Yep, on the face of it , it's pretty simple - diversify and keep costs low. The only concern I have is your plan to live in Europe in 15 years.  If that's 100% certain then going 'all in' to the Oz market be a little constraining.
Constraining as in a currency risk?

Todge

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Re: Australian Investing Thread
« Reply #3098 on: May 09, 2017, 07:17:56 AM »
Yes, constrained in terms of Currency risk, taxation, diversification.

Currency - Not just FOREX rates but also the costs of moving money internationally.

Taxation - What are the tax rules where you plan on living - some european countries have high (relative) tax, also the current OZ rules may change as they give a pretty good deal to overseas investors - especially the CGT aspect.

Diversification - The companies you mention ARG, AFI MLT etc are pretty concentrated in the Oz market.

I just don't see why you'd want to be neck deep in Oz if you plan on living in Europe.

Realist35

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Re: Australian Investing Thread
« Reply #3099 on: May 09, 2017, 07:36:36 AM »
Yes, constrained in terms of Currency risk, taxation, diversification.

Currency - Not just FOREX rates but also the costs of moving money internationally.

Taxation - What are the tax rules where you plan on living - some european countries have high (relative) tax, also the current OZ rules may change as they give a pretty good deal to overseas investors - especially the CGT aspect.

Diversification - The companies you mention ARG, AFI MLT etc are pretty concentrated in the Oz market.

I just don't see why you'd want to be neck deep in Oz if you plan on living in Europe.
Well my reasons for going all in Oz are:

1. Fully franked dividends and I wouldnt pay any tax on them in Australia. Also I would only pay 9% tax in my home country. That sounds pretty good:),
2. Second reason - reversion to the mean. ASX All Ordinaries had 9.1% growth over the last 30 years (see the link below). If reversion to the mean theory makes any sense (and John Bogle believes in it from my memory), 9.1% is what we can expect in the long run.
http://www.fidelity.com.au/FidelityP2/index.cfm?LinkServID=B9210BF9-C60F-E304-B34EDDAC8FD13D52

What are your thoughts?