Author Topic: Australian Investing Thread  (Read 2613106 times)

Wadiman

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XTBs (Exchange Traded Bonds) revisited - SMSF
« Reply #3350 on: July 28, 2017, 08:43:31 PM »
Hi all -

A while back I had a quick look at XTBs https://xtbs.com.au/ and decided that it wasn't going to work well for my ex-super portfolio.

However, now that I have a SMSF I decided to take another look and I'm tempted to purchase a few XTBs with current yield to maturity of circa 3.2-3.4%.

The reason i like the idea is that bonds held to maturity are fairly low risk and in the current low-interest rate environment the yield is about 1.2 - 1.4 percentage points above term deposits or savings accounts.  However, I am conscious that if interest rates rise that newer bond issues will offer better returns.

My asset allocation to fixed interest in the SMSF is circa 10% so I was thinking about committing to a 5% holding (made up of two-three bonds from different companies) and hold back another 5% in the cash ETF (AAA) which is currently paying about 2% in distributions and wait a year or two to see if better bond terms are available.

Any thoughts?

BRAFRA

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Re: Australian Investing Thread
« Reply #3351 on: July 29, 2017, 05:12:00 AM »
Thanks for the feedbacks, really useful.

If you use a broker to purchase VAS ETFs, how will you know the amount of franking credits you receive ? Is it automatically dividend/7x3 ? Or you need to look on the Vanguard website ?

marty998

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Re: Australian Investing Thread
« Reply #3352 on: July 29, 2017, 05:29:32 AM »
Only a proportion of the distribution will be fully franked. Not every company in the ASX 300 pays fully franked dividends, so not all of the VAS distribution will be fully franked.

Some will be foreign income, some will be unfranked. A small part will be tax deferred.

It's got nothing to do with you broker. Vanguard (through the share registry Computershare) will send you a tax summary in July each year.

mjr

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Re: Australian Investing Thread
« Reply #3353 on: July 29, 2017, 05:30:29 AM »
The distribution announcement that Vanguard releases to the ASX includes the franking credits.

deborah

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Re: Australian Investing Thread
« Reply #3354 on: July 29, 2017, 08:55:09 AM »
GUESS WHAT!!!!

We now have our own SUBFORUM - The Australian Tax Subforum! - a subforum to "Taxes".

superannuationfreak

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Re: XTBs (Exchange Traded Bonds) revisited - SMSF
« Reply #3355 on: July 29, 2017, 05:20:24 PM »
Hi all -

A while back I had a quick look at XTBs https://xtbs.com.au/ and decided that it wasn't going to work well for my ex-super portfolio.

However, now that I have a SMSF I decided to take another look and I'm tempted to purchase a few XTBs with current yield to maturity of circa 3.2-3.4%.

The reason i like the idea is that bonds held to maturity are fairly low risk and in the current low-interest rate environment the yield is about 1.2 - 1.4 percentage points above term deposits or savings accounts.  However, I am conscious that if interest rates rise that newer bond issues will offer better returns.

My asset allocation to fixed interest in the SMSF is circa 10% so I was thinking about committing to a 5% holding (made up of two-three bonds from different companies) and hold back another 5% in the cash ETF (AAA) which is currently paying about 2% in distributions and wait a year or two to see if better bond terms are available.

Any thoughts?

If you have an SMSF exchange traded bonds are not a great deal in my view.  Term deposits of up to 12 months (e.g. Ubank and Mebank) are paying 2.7-2.8% p.a. without the interest rate risk or credit risk.  Those bonds paying a yield to maturity of 3.2+% today are barely investment grade so not comparable to a government-guaranteed term deposit.  If you looked at the banks themselves, for example, a NAB Dec 2021 issue has indicative yield 2.45%.

Wadiman

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Re: Australian Investing Thread
« Reply #3356 on: July 29, 2017, 07:29:00 PM »
Thanks for the thoughts superannfreak -

Fair points re extra risk - with the bond duration terms I was looking at (around 5 yrs) I agree that there is a fair chance of rate hikes between now and then which would negate the 0.5% yield difference currently on offer between say a Ubank TD and an XTB.  Shame a retail investor has no access to the initial wholesale coupon rates for XTBs - that would make the risk/return equation a little different!
« Last Edit: July 29, 2017, 07:36:14 PM by Wadiman »

FFA

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Re: Australian Investing Thread
« Reply #3357 on: July 30, 2017, 05:25:32 AM »

...
So I'm now coming to the conclusion that being so concentrated in Australia is the real risk - particularly if a significant part of our market is profitable due to the never ending leveraging of residential real estate.  I guess I don't feel as confident that the companies making up the Top 10 of VAS (and top half of the fund by value) will be as successful at creating value, driving innovation, and growing profits as much as the companies in the Top 10 of VGS.

Thoughts?

Yes I came to this conclusion about 18-24 months ago and reckon I probably posted about it upthread, but not as much lately. What did I do? Have been gradually shifting my VAS into better diversified options such as MVW, EX20, MVS and some LIC's too. I still have around 55% of my Oz equity investments in VAS, but a decent amount is now in these other products too.

PDM

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Re: Australian Investing Thread
« Reply #3358 on: July 30, 2017, 09:42:13 PM »
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials.  Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.

Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie

Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.

I 100% agree with this. People have home country bias. The ASX is a bankwater stock exchange dominated by banks, and mining companies and a couple of supermarkets.  - with an economy that was all about a mining boom which morphed into a housing boom. I can't help being pessimistic about the ASX top 10 getting hammered in any potential downturn.

Another thing to consider is that the 'standard' superannuation fund portfolio typically includes most of the ASX top companies. So your super is likely exposed to companies you're buying in your ETFs.

Often further compounded by being employed in Australia by an Australian company. 

Wadiman

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Re: Australian Investing Thread
« Reply #3359 on: July 31, 2017, 02:08:17 AM »
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials.  Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.

Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie

Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.

I 100% agree with this. People have home country bias. The ASX is a bankwater stock exchange dominated by banks, and mining companies and a couple of supermarkets.  - with an economy that was all about a mining boom which morphed into a housing boom. I can't help being pessimistic about the ASX top 10 getting hammered in any potential downturn.

Another thing to consider is that the 'standard' superannuation fund portfolio typically includes most of the ASX top companies. So your super is likely exposed to companies you're buying in your ETFs.

Often further compounded by being employed in Australia by an Australian company.

Love that - how accurate!

marty998

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Re: Australian Investing Thread
« Reply #3360 on: July 31, 2017, 02:28:19 AM »
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials.  Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.

Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie

Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.

If Westfield had not split into Scentre then it would be between Wesfarmers and Woolworths.

BHP and Rio are probably the greatest cases of mismanagement in Australian corporate history. The only reason why that hasn't made the headlines is because they are still standing.

There are not too many companies that can lay claim to blowing up over 50 billion dollars each... Rio with Alcan and BHP with potash, and then there was that Brazilian tailings dam mine disaster...

deborah

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Re: Australian Investing Thread
« Reply #3361 on: July 31, 2017, 02:35:06 AM »
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials.  Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.

Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie

Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.

If Westfield had not split into Scentre then it would be between Wesfarmers and Woolworths.

BHP and Rio are probably the greatest cases of mismanagement in Australian corporate history. The only reason why that hasn't made the headlines is because they are still standing.

There are not too many companies that can lay claim to blowing up over 50 billion dollars each... Rio with Alcan and BHP with potash, and then there was that Brazilian tailings dam mine disaster...
OK Tedi

misterhorsey

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Re: Australian Investing Thread
« Reply #3362 on: July 31, 2017, 03:24:16 AM »
Yes I came to this conclusion about 18-24 months ago and reckon I probably posted about it upthread, but not as much lately. What did I do? Have been gradually shifting my VAS into better diversified options such as MVW, EX20, MVS and some LIC's too. I still have around 55% of my Oz equity investments in VAS, but a decent amount is now in these other products too.

Would love to hear some thoughts on how that's been travelling for you, although perhaps too early to tell really.  I dip in and out of this thread so probably missed it the first time round or didn't appreciate it's import.  But wondering what strategic or administrative issues you may have come across in creating a more

I think my main aim is raising the issue again was alerting newer investors to certain risks that aren't really front and centre in the index investing literature. Most of the material is tailored to US investors, and Australian Vanguard doesn't, as far as I know, address the concentration of something like VAS.  A newbie might think they are doing the best thing by getting into VAS, and sure you could do a lot worse things, but may not appreciate some of the risks of homebias/lack of diversification.

I 100% agree with this. People have home country bias. The ASX is a bankwater stock exchange dominated by banks, and mining companies and a couple of supermarkets.  - with an economy that was all about a mining boom which morphed into a housing boom. I can't help being pessimistic about the ASX top 10 getting hammered in any potential downturn.

Another thing to consider is that the 'standard' superannuation fund portfolio typically includes most of the ASX top companies. So your super is likely exposed to companies you're buying in your ETFs.

Often further compounded by being employed in Australia by an Australian company.

Yep.

Without totally dismissing the significant amount of economic activity in Australia provided by the provision of healthcare, services industries, retail etc, i.e. the amount of economic activity just required to keep 22 million people alive and thriving, are we possibly in a fortunate position of being able to allocate a significant amount of our investments offshore and allowing the greater productivity of foreign businesses to effectively pay for our consumption/lifestyle?

If you lived in a developing country, say in South East Asia, then if you derived a large part of your earnings from a US based or World index, it would effective boost your spending power in your poorer home country.  Should we adopt a similar approach to living in Australia?  I appreciate there's quite a bit of complexity here, but curious about adopting the strategy in principle.

Or am I totally dismissing the fact that the Big 4 Australian Banks have just been churning out profits year in and year out, whereas banks in other jurisdictions have fallen in value or failed completely, and Australian banks and retail will continue to do so? Are we in fact a different case......

I'll start a new thread on this topic if there are enough people interested. Don't wish to hijack the entire thread for this topic, but I'd still love to hear more thoughts and experiences, and strategies in response to countering home bias / managing risk from lack of diversification in your home economy.

Might even flush out some insights from people in other countries that have economies with similar characteristics - Canadians in particular.

Edit: garbled grammer, too fast typing = typos
« Last Edit: July 31, 2017, 07:49:52 AM by misterhorsey »

FFA

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Re: Australian Investing Thread
« Reply #3363 on: July 31, 2017, 06:41:40 AM »
Yes a bit early to draw any meaningful conclusions, but I believe I've done better than I would've in VAS alone and I'm certainly more comfortable with the portfolio. Not to say VAS is a bad option, it is still my core and I happily suggest it for people who want an easy portfolio (e.g. VAS/VGS 50/50). But if you want to take a step further, blend in some MVW and/or EX20 to improve the diversification of the Oz share exposure.

Admin issues was triggering CGT in selling VAS to switch into these others. Retrospectively I wish I did more of this before the market ran up.

Strategic issues include placement in and out of Super. Since I use low cost industry funds I don't have these other ETF's available to me in Super, so I am maximizing them ex Super instead.

Philosophically I'm still cautious of "smart beta" and the proliferation of ETF's in recent years, but I do see the value in a handful i.e. VHY (yield), MVW and EX20 (diversifiers), MVS (if you want some small cap exposure, or else go active in this sector).

PDM

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Re: Australian Investing Thread
« Reply #3364 on: July 31, 2017, 05:44:39 PM »
As Australian investors I think we're all mindful of how small our economy is relative to the rest of the world, and how concentrated our economy is on a few key sectors - resources and financials.  Home bias may not be recommended for most investors, but at least if you're a US investor your home bias still gives you an enormous diversity of businesses to invest in.

Top 10 holdings for VAS are CBA, WBA, ANZ, NAB, BHP, CSL, Telstra, Wesfarmers, Woolworths, Macquarie

Whereas the only Australian company in the top 10 of VAS that gets me excited is CSL, and the top 10 accounts for half of the entire fund.

I 100% agree with this. People have home country bias. The ASX is a bankwater stock exchange dominated by banks, and mining companies and a couple of supermarkets.  - with an economy that was all about a mining boom which morphed into a housing boom. I can't help being pessimistic about the ASX top 10 getting hammered in any potential downturn.

Another thing to consider is that the 'standard' superannuation fund portfolio typically includes most of the ASX top companies. So your super is likely exposed to companies you're buying in your ETFs.

Often further compounded by being employed in Australia by an Australian company.

Love that - how accurate!

Hahaha, unintentional error makes me look like a genius!

misterhorsey

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Re: Australian Investing Thread
« Reply #3365 on: July 31, 2017, 05:56:16 PM »
I think it should become official terminology for our economy from now on!

JuicyCrab

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Re: Australian Investing Thread
« Reply #3366 on: August 03, 2017, 01:58:25 AM »
Yes a bit early to draw any meaningful conclusions, but I believe I've done better than I would've in VAS alone and I'm certainly more comfortable with the portfolio. Not to say VAS is a bad option, it is still my core and I happily suggest it for people who want an easy portfolio (e.g. VAS/VGS 50/50). But if you want to take a step further, blend in some MVW and/or EX20 to improve the diversification of the Oz share exposure.

Admin issues was triggering CGT in selling VAS to switch into these others. Retrospectively I wish I did more of this before the market ran up.

Strategic issues include placement in and out of Super. Since I use low cost industry funds I don't have these other ETF's available to me in Super, so I am maximizing them ex Super instead.

Philosophically I'm still cautious of "smart beta" and the proliferation of ETF's in recent years, but I do see the value in a handful i.e. VHY (yield), MVW and EX20 (diversifiers), MVS (if you want some small cap exposure, or else go active in this sector).

Building off this, what is everyones current split for different equity holdings?

Currently I'm going with:

IOZ (ASX200 ETF) - 60%
IVV (S&P500 ETF) - 30%
VEU (All World ex US ETF) - 10%

I would like to introduce some LIC's at some stage, just waiting for some discount timing WRT their NTA vs Price.

Would love to see what everyone else is doing!

GT

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Re: Australian Investing Thread
« Reply #3367 on: August 03, 2017, 05:35:43 AM »
This will surely affect not only the CBA share price, but most MF/ETF's in the country.

http://www.abc.net.au/news/2017-08-03/cba-risks-massive-fines-over-law-breaches/8770992

FFA

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Re: Australian Investing Thread
« Reply #3368 on: August 03, 2017, 05:32:32 PM »
hi Juicycrab,

Here is mine (overall both in and out of Super) :

VAS/ARG/ Super Oz index = 27.6%
MVW = 12.5%
Ex20 = 5.5%
MVS/FOR/WMI = 6.4%
Other Oz  LIC's = 5%
Direct/other = 3.1%
Oz total = 60%

VGS/Super GL index unhedged = 28.2%
Emerging mkt = 4.2%
GL index hedged = 4.8%
Global LIC's = 2.8%
GL total = 40%

misterhorsey

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Re: Australian Investing Thread
« Reply #3369 on: August 03, 2017, 11:26:32 PM »
Mine is (a bit of a mess)

- Directly held shares
Mix of blue chips, tiny resources, healthcare punts - 21%

- ETFs/LICs
CTN 4.65%
VAS 22.12%
VGS 3.43%   

- Vanguard Wholesale High Growth - 42.91%   
- Cash 5.25%


When I try and estimate my Australian v Global split, which also takes into account super as well as the fact some Australian companies derive a majority of earnings from OS, it comes to around 64% Australian, 32% Global.

My current plan is to liquidate CTN and most of my directly held shares and redirect it to VGS, but minimising CGT.  And try to get to 50/50. Maybe 60/40 in favour of OS.

This is a strategy for the next 40 years, but I do find it hard to implement the decision in the here and now.  I guess  it's like someone reallocating a portfolio back in 1977, and then enjoying the fruits today.  Quite a lot of things can change in that period of time so shouldn't sweat the small stuff.  But easier said than done.

marty998

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Re: Australian Investing Thread
« Reply #3370 on: August 04, 2017, 07:38:05 AM »
This will surely affect not only the CBA share price, but most MF/ETF's in the country.

http://www.abc.net.au/news/2017-08-03/cba-risks-massive-fines-over-law-breaches/8770992

CBA down 4% today. Results release next Wednesday is going to be totally overshadowed by this sorry saga.

Wadiman

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Re: Australian Investing Thread
« Reply #3371 on: August 05, 2017, 12:13:22 AM »
Here's my asset allocation for super:

Property-related: 20% (Unlisted property trusts - 12%, peer-to-peer - 8%)      
Cash   and term-deposits: 14% (cash - 5%, TDs - 9%)         
Gold: 6%      
Equities/ETFs: 60%      
      24%   MVW
      10%   VEU
      8%   VTS
      4%   DJRE (international property ETF)
      5%   IEM (emerging markets ETF)
      3%   TPM
      3%   NXT
      3%   SYR

ynotme

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Re: Australian Investing Thread
« Reply #3372 on: August 17, 2017, 06:09:52 AM »
Anyone investing in MVE (mid-cap ETF) to provide diversification outside the ASX large caps?

marty998

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Re: Australian Investing Thread
« Reply #3373 on: August 17, 2017, 06:12:31 AM »
Hate to be a Telstra shareholder right now... yikes.

Oh wait, I am through VAS :(

Rowellen

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Re: Australian Investing Thread
« Reply #3374 on: August 17, 2017, 06:32:28 AM »
Hate to be a Telstra shareholder right now... yikes.

Oh wait, I am through VAS :(

I had to Google to see what's going on. Oh dear.

My hubby bought in the T2 float. Whoops. He still has them. And probably will until he dies.

misterhorsey

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Re: Australian Investing Thread
« Reply #3375 on: August 17, 2017, 10:14:09 PM »
When I try and estimate my Australian v Global split, which also takes into account super as well as the fact some Australian companies derive a majority of earnings from OS, it comes to around 64% Australian, 32% Global.

Took the bit between the teethes, and spent the past two days doing a bit of wheeling and dealing and have gone from
 
- 64% Australian 32% Global

to

- 59% Australian to 36% global.

Traumatic!

(Doesn't add up to 100% due to cash holdings).

But it's good to feel detachment form past prices. No sellers remorse.



misterhorsey

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Re: Australian Investing Thread
« Reply #3376 on: August 17, 2017, 10:17:49 PM »
Hate to be a Telstra shareholder right now... yikes.

Oh wait, I am through VAS :(

VAS would have been reducing it's position as TLS declined from $7 in 2014 to just under $4 today, no?

I guess that's one advantage of holding a index position in a fund, rather than holding directly.  The index fund should automatically reallocate it's position to recognise the decline in value. 

I had a very small Telstra holding that I ignored while it declined and declined.  Even so, dividends over the years made it return approximately 10% per annum for the time I held them (2009 - $3.40 to 2017 - $3.80).

bigchrisb

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Re: Australian Investing Thread
« Reply #3377 on: August 17, 2017, 11:25:34 PM »
Hate to be a Telstra shareholder right now... yikes.

Oh wait, I am through VAS :(

VAS would have been reducing it's position as TLS declined from $7 in 2014 to just under $4 today, no?

I guess that's one advantage of holding a index position in a fund, rather than holding directly.  The index fund should automatically reallocate it's position to recognise the decline in value. 

I had a very small Telstra holding that I ignored while it declined and declined.  Even so, dividends over the years made it return approximately 10% per annum for the time I held them (2009 - $3.40 to 2017 - $3.80).

Not quite.  An index fund (at least a cap market weighted one like VAS) does not buy or sell as stock prices go up for down.  However, the percentage of the fund in a stock will go up and down based on market values.

Confused yet?   Think of it this way.  A year ago, say Telstra was 4% of the ASX 300.  VAS would hold enough shares to meet this 4% allocation.  Say the price has fallen in half relative to the rest of the market, and TLS now makes up 2% of the ASX300.  Vanguard hasn't bought or sold shares, but the drop in relative price means that its exposure to Telstra has now fallen to 2% of the fund value.   The 4% and 2% are numbers picked for the argument.

This lack of trading with market prices is one of the reasons that cap market funds are so efficient.  It means that they don't trade stock, but just sit on the same shares, unless there is a change in the number of shares issued, or the stocks that make up the index.  It keeps trading costs and capital gains unrealised (low tax).

By holding VAS, you have less $ in Telstra than you did 12 months ago, but exposure to the same number of shares.

misterhorsey

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Re: Australian Investing Thread
« Reply #3378 on: August 17, 2017, 11:42:21 PM »
Thanks for the explanation bigchrisb.  Confused? Yes, a little!

But it's very insightful.  I guess it's a reminder to me that it's an index.  So there's no point thinking of it as a basket of individual shares in companies. 

Rather, it's a proxy for a particular economy (or sector, depending on the index).  Perhaps it's more useful to let go of thinking of specific companies, but rather, as an aggregated data set that represents the subject of the index.

It's all rather zen.

potm

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Re: Australian Investing Thread
« Reply #3379 on: August 18, 2017, 04:51:47 AM »
Nope, its more accurate to think of it as a basket of shares.
VAS tries to mimic the ASX 300. Sometimes companies are removed and added from the list of approximately 300 companies.
No need for Vanguard to sell down Telstra shares, it's reduced value does the job. If it was to fall so badly that it gets removed from the ASX 300 then Vanguard would have to sell it down.

marty998

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Re: Australian Investing Thread
« Reply #3380 on: August 18, 2017, 05:02:15 AM »
Yeah that's right, you get the good with the bad.

Why can't I find a fund manager who can buy the index but just remove the shit companies.

Seriously it can't be that hard?*

* I may or may not have had way too much to drink tonight. Probably should not be on here ;)

Rowellen

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Re: Australian Investing Thread
« Reply #3381 on: August 18, 2017, 06:11:49 AM »
Yeah that's right, you get the good with the bad.

Why can't I find a fund manager who can buy the index but just remove the shit companies.

Seriously it can't be that hard?*

* I may or may not have had way too much to drink tonight. Probably should not be on here ;)

You must mean the one with the delorian. Make sure you share with us if you ever find him or her.

superannuationfreak

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Re: Australian Investing Thread
« Reply #3382 on: August 18, 2017, 11:32:27 PM »
There's extra admin fee of 0.1% as well for Sunsuper. It's still the cheapest index option if you want to set all your own percentages.
Hostplus would be the cheapest if you are happy with their percentage.
Some industry funds have been outperforming index options with their default balanced options even with the added fees in recent years.
Yeah I've been noticing that too, all the default balanced options for Hostplus, Sunsuper, Australian Super seem to have been easily outperforming their index alternatives in the past 1-3 years. Maybe infrastructure investments, poor fixed interest (index) performance, ...? I've been meaning to look into it more closely to try and understand what's causing it. Superannuationfreak might already know? Anyway I think I'll stick with the index approach as switching at times like these usually doesn't work out well!

I can't say with certainty but in my experience, with the funds that have been very strong over the last decade,
- About half of the outperformance has been from asset allocation into illiquid assets (Property and Infrastructure in particular, private equity and hedge funds have had much more mixed outcomes)
- About a third has been outperformance within traded asset classes (I'd say on average this has been all within Australian Shares, particularly from small-mid cap managers - some funds have outperformed within international but I don't think it is consistent among even the best performing funds or easy to figure out which fund will outperform in advance.  Over the last year a contributor would have been the EM overweight many funds have, with many Australian small-mid cap managers actually underperforming, but I wouldn't draw conclusions from 1 year)
- About a sixth has come from tactical asset allocation (typically small moves, keep in mind we're talking maybe 0.2-0.5% p.a.) - this again is hard to evaluate in advance from the outside

TJEH

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Re: Australian Investing Thread
« Reply #3383 on: August 20, 2017, 04:19:06 AM »
Has anyone bought shares for their kids? I'd be interested to know which options you took (shares in the parents name, shares in the parents name with kids as the beneficial owner, formal trust, etc) and how you arrived at the decision. My kids are 6 and under, I've been saving 50pw since they were born, and the funds have reached 25k. I have no formal plans for the funds, but hopefully it will give some options down the track. I'm wondering if it's possible to structure it so that:

a) The kids are not liable for the tax and do not have to complete returns (high tax rate as it is unearned income, plus the cost to complete the returns)

and

b) There is the option to transfer the shares to the kids without triggering cgt (if and when the funds are needed, it is likely they'll be on a low tax rate, so transferring the shares to the kids would seem to make sense)

Possible? (without a trust)

FFA

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Re: Australian Investing Thread
« Reply #3384 on: August 20, 2017, 07:10:59 AM »
thanks superannuationfreak, that was my first guess too, unlisted infrastructure/property.

TJEH, in my case I can see a possibility which is just to buy the shares in my name. We hold a large chunk of cash ex super as part of my AA. So come the time when I want to transfer the shares I'd just use this cash to buy new shares in the kids name, and keep the shares held on their behalf as my own (assuming these are shares I would want to keep, which I guess is likely if I'd chosen them for my kids). This of course may be specific to my case and not possible if you don't have enough cash handy to do so. Otherwise might need to look at trust/company/insurance bond (and bear in mind potential changes to trusts being proposed by Labour).

Julard

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Re: Australian Investing Thread
« Reply #3385 on: August 21, 2017, 01:08:54 AM »
Hi all,

I've got about $40k sitting in cash that I'd like to be doing something more productive.  But... I'm hesitant to pop it into more shares because I'd love to think I might buy a house again in four or five years or so.  This may well not be realistic at all (house prices here, potentially needy kids, potential job uncertainty) but still, I like to think it's possible.

Wondering if there are any options people might suggest in between the paltry bank interest rate and the roller coaster share market?

Julard

TJEH

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Re: Australian Investing Thread
« Reply #3386 on: August 21, 2017, 02:15:53 AM »
FFA, that is an interesting option, it takes the guesswork out of what will happen re tax laws for minors in the future. This option would be a possibility for me too, as my AA is currently tilted to cash more than I'd like. I want to grow the 25k (possibly more if I keep contributing) via shares as a means to generate a stronger return than cash.....theoretically of course. The timeframe I'm looking at is 10+ years. Were you considering how you'd translate today's investment in cash to a future value for the share purchase?

FFA

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Re: Australian Investing Thread
« Reply #3387 on: August 21, 2017, 05:55:24 AM »
My idea was just to use a spreadsheet to keep track of it. It might be a bit messy as you'd need to exclude those shares from your own asset allocation. Also at the end of 10 years there might be a large chunk of shares to buy in your kids name at the prevailing market price (which could be high at that particular time, if you're unlucky). You could do this rateably in line with your own regular contributions (just buy them in your kid's name and re-allocate the shares held on their behalf as now being your own). Anyway, it might be more messy that I initially thought. Insurance bonds might be an option to look at. That will limit the tax on dividends to 30% and they are CGT exempt if held for 10+ years. No admin/tax returns. The downside is the fees are higher, e.g. an extra 0.6% to invest in Vanguard options.

misterhorsey

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Re: Australian Investing Thread
« Reply #3388 on: August 21, 2017, 06:27:32 PM »
I've got about $40k sitting in cash that I'd like to be doing something more productive.  But... I'm hesitant to pop it into more shares because I'd love to think I might buy a house again in four or five years or so.  This may well not be realistic at all (house prices here, potentially needy kids, potential job uncertainty) but still, I like to think it's possible.

Wondering if there are any options people might suggest in between the paltry bank interest rate and the roller coaster share market?

I don't think there is an asset class that combines the capital guarantee of cash and the growth of equities.

If you don't want to lose your capital, because you want to tip it into a house later on, then keep it in cash and pay the premium for that privilege (which is low returns).  But also bear in mind that inflation will eat away at it's value and you'll be taxed on the interest you earn, which I'm are you're aware of.

I was in a similar position to you not that long ago. I never did buy a house.  In hindsight, what I might have done would have been to split my capital between cash and equities - which is effectively creating your own diversified middle ground between cash and shares. Scratch that itch for higher returns, but keep a substantial amount boring but secure.

The other thing is, what proportion is the $40k of your net worth?  That should be a factor in how you develop your strategy.


deborah

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Re: Australian Investing Thread
« Reply #3389 on: August 21, 2017, 06:50:19 PM »
What about the new super house deposit thing?

Fresh Bread

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Re: Australian Investing Thread
« Reply #3390 on: August 21, 2017, 09:47:25 PM »
Hi all,

I've got about $40k sitting in cash that I'd like to be doing something more productive.  But... I'm hesitant to pop it into more shares because I'd love to think I might buy a house again in four or five years or so.  This may well not be realistic at all (house prices here, potentially needy kids, potential job uncertainty) but still, I like to think it's possible.

Wondering if there are any options people might suggest in between the paltry bank interest rate and the roller coaster share market?

Julard

There's always peer to peer lending, depending on your appetite for risk. At the moment through Ratesetter you'd get about 7.8-8% for a three year period and that's fixed. It's hard to get it loaned out quickly though - I'm trying to get 100k in there after an IP sale and it took 2 or 3 days for my first 10k to get loaned out.

misterhorsey

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Re: Australian Investing Thread
« Reply #3391 on: August 21, 2017, 11:31:45 PM »
Sorted

10k in ING Direct
10K in VAS ETF
10k in RateSetter
10k in Super Home Saving Scheme (only starting from July 2018 - https://www.ato.gov.au/General/New-legislation/In-detail/Super/First-home-super-saving-scheme/)

Luckyvik

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Re: Australian Investing Thread
« Reply #3392 on: August 22, 2017, 12:11:31 AM »
Sorted

10k in ING Direct
10K in VAS ETF
10k in RateSetter
10k in Super Home Saving Scheme (only starting from July 2018 - https://www.ato.gov.au/General/New-legislation/In-detail/Super/First-home-super-saving-scheme/)
The home Super saving scheme hasn't been through parliament yet so I wouldn't put any money in there that I want to get out in the next few years.


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Fresh Bread

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Re: Australian Investing Thread
« Reply #3393 on: August 22, 2017, 12:11:48 AM »
Sorted

10k in ING Direct
10K in VAS ETF
10k in RateSetter
10k in Super Home Saving Scheme (only starting from July 2018 - https://www.ato.gov.au/General/New-legislation/In-detail/Super/First-home-super-saving-scheme/)

You can withdraw your extra contributions to super from July 2018 but you can start putting the voluntary contributions in this fin year. It's for a first home deposit though and Julard says "buy a home again" so they'd have to check eligibility.

Also, Qudos is doing 3.2% on 10k plus on 3 year term deposits. It is very easy to open online.

Julard

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Re: Australian Investing Thread
« Reply #3394 on: August 22, 2017, 03:01:40 AM »
Thanks Freshwater and yes, I did say "again" so I'd not count on any government/super related concessions.  I'll have a look at Ratesetter, sounds interesting.  I'd probably quail at putting the lot in something like that, but might experiment a bit.  Qudos looks promising too, certainly better than my current bank, though I might call them and ask if they could offer something better before I take my money elsewhere.  I'm possibly paying the laziness premium right now.

Misterhorsey - it's about 8% so not critical, but not negligible either.  All up I've got at least 15% in cash which is more than I'd prefer.


marty998

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Re: Australian Investing Thread
« Reply #3395 on: August 22, 2017, 03:08:37 AM »
I know hybrids get a bad rap because the risks are not very well understood by most investors, but I would suggest bank hybrids as a way of parking your funds.

Wouldn't touch the stuff issued by most corporates, but with the banks you can be pretty sure you'll get your $100 per security back on the reset dates.

Wadiman

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Re: Australian Investing Thread
« Reply #3396 on: August 22, 2017, 03:39:23 PM »
Marty - what bank hybrids are on offer ATM that you are aware of?

TJEH

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Re: Australian Investing Thread
« Reply #3397 on: August 23, 2017, 06:43:51 AM »
My idea was just to use a spreadsheet to keep track of it. It might be a bit messy as you'd need to exclude those shares from your own asset allocation. Also at the end of 10 years there might be a large chunk of shares to buy in your kids name at the prevailing market price (which could be high at that particular time, if you're unlucky). You could do this rateably in line with your own regular contributions (just buy them in your kid's name and re-allocate the shares held on their behalf as now being your own). Anyway, it might be more messy that I initially thought. Insurance bonds might be an option to look at. That will limit the tax on dividends to 30% and they are CGT exempt if held for 10+ years. No admin/tax returns. The downside is the fees are higher, e.g. an extra 0.6% to invest in Vanguard options.

I'm not sure how I would track it either, and over time I may decide not to :)
 
I have considered insurance bonds in the past, and the simplicity appeals to me.

I looked at the lifeplan option for the returns.

Ref: https://www.australianunity.com.au/wealth/investment-bonds/~/media/lifeplan/performance%20and%20unit%20prices/open/nextgen/lib-pre-month-performance-110817.ashx

Details for the Vanguard Aus Shares Index:

1yr 3.98%
3yr 3.42%
5yr 7.52%

From the above site:
"Returns are: net of taxes, ongoing management costs, performance fees and other operating expenses (if applicable); based on the unit prices for the periods quoted; exclusive of the effect of any policy specific transactions such as contribution fees, transaction costs, stamp duty and management fee rebates;not annualised for periods of less than one year. The investment mix and specific investment holdings may vary on a daily basis."

According to Vanguards VAS factsheet, returns on VAS ETF are:
Ref: https://api.vanguard.com/rs/gre/gls/stable/documents/7639/au

1yr 6.94%
3yr 4.97%   
5yr 10.56%

The above is the total (not gross) return. From the fact sheet:

"Returns assume reinvestment of all distributions. Returns for periods longer than 1 year are annualised. ETF gross returns are before management fees and taxes, but after transaction and operational costs. ETF total return is the ETF gross return less management fees. Index returns do not allow for taxes, management, transaction and operational costs"

"Returns assume that an investor purchased units at Net Asset Value (NAV) and does not reflect the transaction costs imposed on the creation and redemptions of ETF units, brokerage or the bid ask spread that investors pay to buy and sell ETF securities on the Australian Securities Exchange."

At a glance, lifeplan does not look great, but no cgt is obviously something to consider, as is no brokerage (good for trickle feed, up to the 125% rule). On the other hand, the ETF also has franking credits.

My brain is too full to digest this after the week at work so far, so will think about it later :)

misterhorsey

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Re: Australian Investing Thread
« Reply #3398 on: August 23, 2017, 06:46:04 PM »
Thanks Freshwater and yes, I did say "again" so I'd not count on any government/super related concessions.  I'll have a look at Ratesetter, sounds interesting.  I'd probably quail at putting the lot in something like that, but might experiment a bit.  Qudos looks promising too, certainly better than my current bank, though I might call them and ask if they could offer something better before I take my money elsewhere.  I'm possibly paying the laziness premium right now.

Misterhorsey - it's about 8% so not critical, but not negligible either.  All up I've got at least 15% in cash which is more than I'd prefer.

In that case, maybe you should look at your risk and asset allocation across the whole of portfolio?  Instead of the $40k in isolation?

On the face of it, I personally agree that 15% in cash is too much cash. But if for example everything else is in riskier assets, and if you've got that future property purchase on your mind, then maybe it's actually not a bad allocation?

The lack of volatility of cash is a feature that is sometimes worth paying for.

Shaz_Au

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Re: Australian Investing Thread
« Reply #3399 on: August 23, 2017, 10:36:40 PM »
So who else holds VEU and/or VTS and received an email recently about voting in an upcoming Joint Special Meeting?  It looks to me that I can't even see what I would be voting on without logging in to vote...  Can anyone shed some light?