Author Topic: Australian Investing Thread  (Read 763349 times)

mjr

  • Stubble
  • **
  • Posts: 106
  • Age: 52
  • Location: Brisbane, Qld
Re: Australian Investing Thread
« Reply #3550 on: October 07, 2017, 06:45:34 PM »
So, if I retire and pull out $18k of distributions, then that would be tax free right?  What if I pulled out $35k and contributed $17k of that to my super? How would that help my taxes if my distributions from a non-super Vanguard account was my only income and Iím under 60yo?

Not sure what you mean by "pull out".  Your managed fund will give you an amount of distributions which will depend on how much you have invested.  You don't choose how much to "pull out" as distributions.  You can only choose how many units to sell if you want to "pull out" funds and such funds will be subject to capital gains tax.

If you receive $18k in distributions or capital gains, then that's under the tax-free threshold and you'll pay no tax if that's your only income.

If you pulled out $35k and contributed $17k to super, then that $17k will incur 15% tax as opposed to the 19% tax (plus Medicare levy) that you'd incur if you didn't seek the personal contribution tax deduction.

MrThatsDifferent

  • Stubble
  • **
  • Posts: 215
Re: Australian Investing Thread
« Reply #3551 on: October 08, 2017, 12:04:14 AM »
So, if I retire and pull out $18k of distributions, then that would be tax free right?  What if I pulled out $35k and contributed $17k of that to my super? How would that help my taxes if my distributions from a non-super Vanguard account was my only income and Iím under 60yo?

Not sure what you mean by "pull out".  Your managed fund will give you an amount of distributions which will depend on how much you have invested.  You don't choose how much to "pull out" as distributions.  You can only choose how many units to sell if you want to "pull out" funds and such funds will be subject to capital gains tax.

If you receive $18k in distributions or capital gains, then that's under the tax-free threshold and you'll pay no tax if that's your only income.

If you pulled out $35k and contributed $17k to super, then that $17k will incur 15% tax as opposed to the 19% tax (plus Medicare levy) that you'd incur if you didn't seek the personal contribution tax deduction.

Thanks MJR.  If you get a lower tax rate, why wouldnít an early retiree cash out the extra $25k and put in super, seems like you get a 4% tax benefit. It seems like if I can shift money from Vanguard into the super from 50-60, that money will be tax free at 60. Iím trying to figure out how to access the most money while paying the least in taxes, legally of course. Iím thinking I should have a fair chunk of cash reserves that I can add to the $18k distributions.  So much to figure out!

BattlaP

  • Stubble
  • **
  • Posts: 121
Re: Australian Investing Thread
« Reply #3552 on: October 08, 2017, 12:17:27 AM »
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3553 on: October 08, 2017, 12:55:30 AM »
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.

You don't have to wait (seem to recall having this conversation before :) apologies if I'm giving the same answer)

Fresh Bread

  • Pencil Stache
  • ****
  • Posts: 858
  • Location: Australia
  • Insert dough/bread/crust joke
Re: Australian Investing Thread
« Reply #3554 on: October 08, 2017, 01:06:53 AM »
I'm getting to the nitty gritty of how we actually draw income in retirement since it might happen next year. I've always just assumed a 3.5% WR because I've only ever really looked at total growth and thought that was reasonable, but today I've been thinking further about Mark and his dividends.

Maybe if we move more towards a 50/50 Aussie/International split (we are currently 40/60) then I could switch our retirement 'withdrawal rate' income to being actual fund distributions and go from an assumption of 3.5% to 4% or maybe even 5% including franking credits.

Do these sums make sense: Vanguard fund income over the last 10 yrs was roughly 5% Aussie / 3% International. So if I have my funds invested 50/50, the income would average at 4%. But then I need to add franking credits: 5% + 2% = 7% so would my income average at 5% of total investment? 

We have other sources of income so are ok with fluctuations in the fund distributions. If the fund income drops away we'd still have plenty, just maybe cut back travel or whatever.

mjr

  • Stubble
  • **
  • Posts: 106
  • Age: 52
  • Location: Brisbane, Qld
Re: Australian Investing Thread
« Reply #3555 on: October 08, 2017, 01:59:54 PM »
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.

Mine appeared weeks ago.  With an error in the pre-fill as well which is still not resolved.  Just use your tax statement.

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3556 on: October 08, 2017, 02:30:50 PM »
I'm getting to the nitty gritty of how we actually draw income in retirement since it might happen next year. I've always just assumed a 3.5% WR because I've only ever really looked at total growth and thought that was reasonable, but today I've been thinking further about Mark and his dividends.

Maybe if we move more towards a 50/50 Aussie/International split (we are currently 40/60) then I could switch our retirement 'withdrawal rate' income to being actual fund distributions and go from an assumption of 3.5% to 4% or maybe even 5% including franking credits.

Do these sums make sense: Vanguard fund income over the last 10 yrs was roughly 5% Aussie / 3% International. So if I have my funds invested 50/50, the income would average at 4%. But then I need to add franking credits: 5% + 2% = 7% so would my income average at 5% of total investment? 

We have other sources of income so are ok with fluctuations in the fund distributions. If the fund income drops away we'd still have plenty, just maybe cut back travel or whatever.

Your franking credit refund will depend on your tax rate, which will depend on your total income distributions.

E.g. if you derive $20,000 distributions from international shares, and $30,000 from domestic shares, then your income is $50k + the franking credits. Puts you well into the 34.5% marginal tax rate, which means you don't get a franking refund (you owe 4.5% on the Aus income).

Hard to know for sure without your full income details (you don't have to post that obviously if you don't want to).

Fresh Bread

  • Pencil Stache
  • ****
  • Posts: 858
  • Location: Australia
  • Insert dough/bread/crust joke
Re: Australian Investing Thread
« Reply #3557 on: October 08, 2017, 04:11:05 PM »
Yes of course, cheers Marty. Since there's two of us I think I'll fall into the 19% bracket, hubby may not retire so will be very high. I'll do a spreadsheet - now we've sold an IP and moved to shares we of course have different deductions and what not and I haven't worked it all out. I haven't even done my tax yet for 16/17 and there's all the sale stuff to work out for 17/18 :(

Hey, we did sign the contract in July in the end (I think it was you that pointed out the benefit of the delay?) I've put the amount for the potential CGT bill in a 2.85% esaver so that's a nice little bonus I didn't expect.

lush

  • 5 O'Clock Shadow
  • *
  • Posts: 32
Re: Australian Investing Thread
« Reply #3558 on: October 08, 2017, 11:28:50 PM »
Has anyone found out from Vanguard when their auto-fill info for the managed funds will get submitted? I want to do my tax return and it's still not reporting anything from them automatically. Annoyance.

I called them and they said they have moved it to the end of Oct! So dosen't leave much time to to meet the ATO deadline.

For those of you wondering why I am waiting, when I plugged in the numbers on mytax, I have a threshold of CGT affect and try as I might I am in a loop of hell that won't seem to fix itself. So I have decided to wait to see if the pre-fill might fix the problem. I don't have the time to talk to the ATO about this right now.

MrThatsDifferent

  • Stubble
  • **
  • Posts: 215
Re: Australian Investing Thread
« Reply #3559 on: October 09, 2017, 01:00:34 AM »
I'm getting to the nitty gritty of how we actually draw income in retirement since it might happen next year. I've always just assumed a 3.5% WR because I've only ever really looked at total growth and thought that was reasonable, but today I've been thinking further about Mark and his dividends.

Maybe if we move more towards a 50/50 Aussie/International split (we are currently 40/60) then I could switch our retirement 'withdrawal rate' income to being actual fund distributions and go from an assumption of 3.5% to 4% or maybe even 5% including franking credits.

Do these sums make sense: Vanguard fund income over the last 10 yrs was roughly 5% Aussie / 3% International. So if I have my funds invested 50/50, the income would average at 4%. But then I need to add franking credits: 5% + 2% = 7% so would my income average at 5% of total investment? 

We have other sources of income so are ok with fluctuations in the fund distributions. If the fund income drops away we'd still have plenty, just maybe cut back travel or whatever.

Your franking credit refund will depend on your tax rate, which will depend on your total income distributions.

E.g. if you derive $20,000 distributions from international shares, and $30,000 from domestic shares, then your income is $50k + the franking credits. Puts you well into the 34.5% marginal tax rate, which means you don't get a franking refund (you owe 4.5% on the Aus income).

Hard to know for sure without your full income details (you don't have to post that obviously if you don't want to).

What then, if anything, can we do to lower taxes? Invest those distributions into super?

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3560 on: October 09, 2017, 01:17:13 AM »
I'm getting to the nitty gritty of how we actually draw income in retirement since it might happen next year. I've always just assumed a 3.5% WR because I've only ever really looked at total growth and thought that was reasonable, but today I've been thinking further about Mark and his dividends.

Maybe if we move more towards a 50/50 Aussie/International split (we are currently 40/60) then I could switch our retirement 'withdrawal rate' income to being actual fund distributions and go from an assumption of 3.5% to 4% or maybe even 5% including franking credits.

Do these sums make sense: Vanguard fund income over the last 10 yrs was roughly 5% Aussie / 3% International. So if I have my funds invested 50/50, the income would average at 4%. But then I need to add franking credits: 5% + 2% = 7% so would my income average at 5% of total investment? 

We have other sources of income so are ok with fluctuations in the fund distributions. If the fund income drops away we'd still have plenty, just maybe cut back travel or whatever.

Your franking credit refund will depend on your tax rate, which will depend on your total income distributions.

E.g. if you derive $20,000 distributions from international shares, and $30,000 from domestic shares, then your income is $50k + the franking credits. Puts you well into the 34.5% marginal tax rate, which means you don't get a franking refund (you owe 4.5% on the Aus income).

Hard to know for sure without your full income details (you don't have to post that obviously if you don't want to).

What then, if anything, can we do to lower taxes? Invest those distributions into super?

Split income as much as you can - via companies, trusts, or just generally holding equal balances.

The cheeky answer is that if you really want to pay less tax then you can simply earn less.

Seriously though... I can't imagine you are that unhappy about paying 4.5% tax are you?

MrThatsDifferent

  • Stubble
  • **
  • Posts: 215
Re: Australian Investing Thread
« Reply #3561 on: October 09, 2017, 02:16:48 AM »
Ok, yeah. I focused on the 34.5% figure.

mjr

  • Stubble
  • **
  • Posts: 106
  • Age: 52
  • Location: Brisbane, Qld
Re: Australian Investing Thread
« Reply #3562 on: October 12, 2017, 11:22:51 PM »
Nice kick along for the ASX this week.  It was wallowing for months.

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3563 on: October 15, 2017, 12:18:43 AM »
I am trying so hard to resist the urge to pile into the small and micro cap end of the market.

Have friends that have made an absolute motza on Argosy, Mustang and A2 Milk in the past few weeks.

Even had a buy order on Mustang at 10c but it jumped to 11, then 12, then 14, now 17.5c...

Difficult to keep calm and stay the course on VAS. A $2000 dividend reinvestment this week will soothe the soul.

ynotme

  • 5 O'Clock Shadow
  • *
  • Posts: 45
Re: Australian Investing Thread
« Reply #3564 on: October 18, 2017, 02:50:17 AM »
It is nice to see some gains in the ASX and VAS.

I'm trying to resist trading as well. Everyone seems to be making a killing in lithium stocks. It always feels like a market top when you hear about everyone starting to trade. However since the ASX hasn't done much, it sure doesn't feel like a bull market in Oz.
« Last Edit: October 18, 2017, 02:54:57 AM by ynotme »

FFA

  • Pencil Stache
  • ****
  • Posts: 521
    • Financially Free Australia
Re: Australian Investing Thread
« Reply #3565 on: October 18, 2017, 05:31:02 AM »
hearing everyone say it doesn't feel like a bull market or it's the most hated bull market in history, etc, is making me start to feel like a correction is coming. People are looking past all these bubbly signs in milk, lithium, fintech, cryptocurrency, etc stocks. And very complacent on geopolitical risk. Of course the market will probably keep marching higher for a long while yet as I'm usually far too early and the taxi driver hasn't given me any tips, as yet.

misterhorsey

  • Bristles
  • ***
  • Posts: 312
Re: Australian Investing Thread
« Reply #3566 on: October 18, 2017, 10:18:02 PM »
I'm trying to resist trading as well. Everyone seems to be making a killing in lithium stocks. It always feels like a market top when you hear about everyone starting to trade. However since the ASX hasn't done much, it sure doesn't feel like a bull market in Oz.

I am trying so hard to resist the urge to pile into the small and micro cap end of the market.

Have friends that have made an absolute motza on Argosy, Mustang and A2 Milk in the past few weeks.

Even had a buy order on Mustang at 10c but it jumped to 11, then 12, then 14, now 17.5c...

I was thinking about buying some LYC at 10c on the basis that it might go up, but if it just goes down back to 1c then there's some capital losses to offset against my gains for the year. Sort of like a speculative trade kind of underwritten by the ATO.

However, I have been so indoctrinated into indexing, and I love the relative boredom, that I didn't....this time. 

It's since been hanging around 20c. Oh well.
« Last Edit: October 19, 2017, 06:09:53 AM by misterhorsey »

GT

  • Handlebar Stache
  • *****
  • Posts: 1619
  • Location: Brisbane, Australia
Re: Australian Investing Thread
« Reply #3567 on: October 19, 2017, 09:19:35 PM »
Urgh, got an email from Aus Ethical telling me they're converting to Mercer for their administration.

Probs time I flipped it out and into Host Plus or SunSuper and picked up the Vanguard options available in their Super.

Shaz_Au

  • 5 O'Clock Shadow
  • *
  • Posts: 36
  • Location: Australia
Re: Australian Investing Thread
« Reply #3568 on: October 29, 2017, 09:40:42 PM »
Hi All,
Apologies for the silly questions,  I think I had a similar problem last year.
I have several Vanguard ETF holdings (VAS, VAF, VEU, VTS).  I've been waiting for the tax summaries before heading to my accountant to complete my tax return.  Have you received your summaries this year? When and how did you get them?

I contacted vanguard via email last week and they advised me to go to the share registrar (Computershare).  I logged into Computershare and went to Statements & Documents but there are no summaries available to download.  I can see the dividend payment summaries, etc for each holding.  Computershare does offer the purchase of a tax pack for $50 but I think that is just one of their "value-add" products...

Any help would be appreciated.
Cheers,
Shaz


Primm

  • Handlebar Stache
  • *****
  • Posts: 1277
  • Age: 48
  • Location: Australia
Re: Australian Investing Thread
« Reply #3569 on: October 29, 2017, 10:30:19 PM »
Hi All,
Apologies for the silly questions,  I think I had a similar problem last year.
I have several Vanguard ETF holdings (VAS, VAF, VEU, VTS).  I've been waiting for the tax summaries before heading to my accountant to complete my tax return.  Have you received your summaries this year? When and how did you get them?

I contacted vanguard via email last week and they advised me to go to the share registrar (Computershare).  I logged into Computershare and went to Statements & Documents but there are no summaries available to download.  I can see the dividend payment summaries, etc for each holding.  Computershare does offer the purchase of a tax pack for $50 but I think that is just one of their "value-add" products...

Any help would be appreciated.
Cheers,
Shaz

When you look at the dividend payment summaries page, the one dated 21/7/17 is "Issuer Annual Tax Statement". This one downloads automatically without you having to pay.

It's not the most obvious.

Anatidae V

  • Walrus Stache
  • *******
  • Posts: 6332
  • Age: 28
  • Location: Fourecks
  • Nullus Anxietas
Re: Australian Investing Thread
« Reply #3570 on: October 29, 2017, 10:36:30 PM »
Hi All,
Apologies for the silly questions,  I think I had a similar problem last year.
I have several Vanguard ETF holdings (VAS, VAF, VEU, VTS).  I've been waiting for the tax summaries before heading to my accountant to complete my tax return.  Have you received your summaries this year? When and how did you get them?

I contacted vanguard via email last week and they advised me to go to the share registrar (Computershare).  I logged into Computershare and went to Statements & Documents but there are no summaries available to download.  I can see the dividend payment summaries, etc for each holding.  Computershare does offer the purchase of a tax pack for $50 but I think that is just one of their "value-add" products...

Any help would be appreciated.
Cheers,
Shaz

When you look at the dividend payment summaries page, the one dated 21/7/17 is "Issuer Annual Tax Statement". This one downloads automatically without you having to pay.

It's not the most obvious.
Thanks Shaz_Au and Primm, I had the same question!

Primm

  • Handlebar Stache
  • *****
  • Posts: 1277
  • Age: 48
  • Location: Australia
Re: Australian Investing Thread
« Reply #3571 on: October 29, 2017, 10:38:36 PM »
I was getting really frustrated with the stupid Computershare site until Husband (logical to the point of Spock) pointed it out to me.

Shaz_Au

  • 5 O'Clock Shadow
  • *
  • Posts: 36
  • Location: Australia
Re: Australian Investing Thread
« Reply #3572 on: October 29, 2017, 11:17:02 PM »
Thanks for the help Primm and  thanks to AV for not making me feel like I'm the only one!
That has resolved the issue for VAS and VAF but not the others VEU and VTS and WPL, any further ideas?  Thanks

dbm

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Australian Investing Thread
« Reply #3573 on: October 30, 2017, 12:31:20 AM »
Thanks for the help Primm and  thanks to AV for not making me feel like I'm the only one!
That has resolved the issue for VAS and VAF but not the others VEU and VTS and WPL, any further ideas?  Thanks

You won't receive a tax statement for WPL, you can just use the dividend statements.  For VTS and VEU, they are USA domiciled funds, so probably won't issue tax statements (apart from the 1042-s after the end of the US tax year), and are generally treated as foreign income and foreign income tax credits on your tax return.

Just remember, if you haven't provided computershare (or whoever) with a W8 form, and tax was withheld at 30%, you can only claim tax withheld at 15%...

JuicyCrab

  • 5 O'Clock Shadow
  • *
  • Posts: 27
  • Age: 29
  • Location: Perth - Australia
Re: Australian Investing Thread
« Reply #3574 on: October 30, 2017, 06:53:31 PM »
Hey guys,

For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?

Seeking some diversification into the future so I'm not 100% in equities (which I currently am).

Cheers
Juicy Crab
insert any quote from Alan Watts....

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3575 on: October 31, 2017, 04:22:00 AM »
Hey guys,

For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?

Seeking some diversification into the future so I'm not 100% in equities (which I currently am).

Cheers
Juicy Crab

Sorry this is not a helpful answer but my mortgage offset account is a pretty good (tax-free) proxy for a risk free return.

The risk for government bonds is obviously less, but for corporate bonds I don't think they are paying enough of a coupon premium to justify the additional risk at the moment.

Low interest rates are leading to bonds returning diddly squat.

Llewellyn2006

  • 5 O'Clock Shadow
  • *
  • Posts: 25
  • Location: Australia
Re: Australian Investing Thread
« Reply #3576 on: October 31, 2017, 05:03:21 AM »
Hey guys,

For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?

Seeking some diversification into the future so I'm not 100% in equities (which I currently am).

Cheers
Juicy Crab

I'm looking at the Russell Govt Bond ETF (RGB) to add a bit of diversity to my portfolio but haven't made up my mind yet. The return so far seems pretty good, at least for 3 years or more at around 3-4%.

Itchyfeet

  • Bristles
  • ***
  • Posts: 363
Re: Australian Investing Thread
« Reply #3577 on: October 31, 2017, 12:38:05 PM »
Hey guys,

For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?

Seeking some diversification into the future so I'm not 100% in equities (which I currently am).

Cheers
Juicy Crab

Sorry this is not a helpful answer but my mortgage offset account is a pretty good (tax-free) proxy for a risk free return.

The risk for government bonds is obviously less, but for corporate bonds I don't think they are paying enough of a coupon premium to justify the additional risk at the moment.

Low interest rates are leading to bonds returning diddly squat.

Not sure I am quite aligned with the logic here.

Putting cash in your offset account reduces debt, interest expense and risk. However, for me Paying down debt is making a decision to deleverage to reduce risk, which is slightly different to picking less risky investments. You are still exposed to the same risky asset that you borrowed money for originally, but now it's financed with less debt so it's not quite as risky as a risky asset financed with some level of leverage.

I am guessing that your logic goes "if the risk free return I'll get on bonds is less than the interest expense of debt (taxes considered) then why bother." I do understand this and I agree, why bother!! Borrowing money to buy a low risk asset doesn't make sense. If you are borrowing money you are making a decision to take on risk ie: you are not looking to invest risk free.

Maybe it's from too many years working in finance but the way I look at things is that I will finance my investments with a mixture of debt and my stash (equity) with the aim of achieving equity/stash returns (above my personal WACC). The cost of debt must be less than the returns I am chasing from stocks. Much less, to justify the risk.

One day I will want to pursue a safer path, but for today I continue to carry more than $1million in debt and I don't invest in risk free assets.

mjr

  • Stubble
  • **
  • Posts: 106
  • Age: 52
  • Location: Brisbane, Qld
Re: Australian Investing Thread
« Reply #3578 on: October 31, 2017, 03:44:42 PM »
Will the All Ords touch 6000 today?

Primm

  • Handlebar Stache
  • *****
  • Posts: 1277
  • Age: 48
  • Location: Australia
Re: Australian Investing Thread
« Reply #3579 on: October 31, 2017, 11:36:40 PM »
Will the All Ords touch 6000 today?

Yes, apparently!

All Ordinaries   6,005.500   

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3580 on: November 01, 2017, 01:50:30 AM »
Hey guys,

For those investing part of their portfolio in bonds as a defensive asset, which ETF's are you using for both local and global exposure? Is there much risk between going for a government/treasury bond compared to a corporate bond ETF?

Seeking some diversification into the future so I'm not 100% in equities (which I currently am).

Cheers
Juicy Crab

Sorry this is not a helpful answer but my mortgage offset account is a pretty good (tax-free) proxy for a risk free return.

The risk for government bonds is obviously less, but for corporate bonds I don't think they are paying enough of a coupon premium to justify the additional risk at the moment.

Low interest rates are leading to bonds returning diddly squat.

Not sure I am quite aligned with the logic here.

Putting cash in your offset account reduces debt, interest expense and risk. However, for me Paying down debt is making a decision to deleverage to reduce risk, which is slightly different to picking less risky investments. You are still exposed to the same risky asset that you borrowed money for originally, but now it's financed with less debt so it's not quite as risky as a risky asset financed with some level of leverage.

I am guessing that your logic goes "if the risk free return I'll get on bonds is less than the interest expense of debt (taxes considered) then why bother." I do understand this and I agree, why bother!! Borrowing money to buy a low risk asset doesn't make sense. If you are borrowing money you are making a decision to take on risk ie: you are not looking to invest risk free.

Maybe it's from too many years working in finance but the way I look at things is that I will finance my investments with a mixture of debt and my stash (equity) with the aim of achieving equity/stash returns (above my personal WACC). The cost of debt must be less than the returns I am chasing from stocks. Much less, to justify the risk.

One day I will want to pursue a safer path, but for today I continue to carry more than $1million in debt and I don't invest in risk free assets.

I follow your line of thinking here. For me it's a little more basic - parking money in an offset is simply just that - I get a guaranteed return of 4.5% tax free until I figure out what to do with it (buy more shares or buy more properties).

The conclusion is why buy bonds for this interim holding time period when a dollar saved in interest is worth more than a dollar earned in interest. I guess it's not quite a fair matchup - the comparison should be between cash in a bank account vs cash in an offset.

Itchyfeet

  • Bristles
  • ***
  • Posts: 363
Re: Australian Investing Thread
« Reply #3581 on: November 01, 2017, 08:08:28 AM »
Yep, basical we have come to the same conclusion not to buy bonds whilst we are still carrying debt.

Grogounet

  • Stubble
  • **
  • Posts: 194
  • Location: Australia
    • http://www.quest2independence.com
Re: Australian Investing Thread
« Reply #3582 on: November 01, 2017, 11:34:34 PM »
I am trying so hard to resist the urge to pile into the small and micro cap end of the market.

Have friends that have made an absolute motza on Argosy, Mustang and A2 Milk in the past few weeks.

Even had a buy order on Mustang at 10c but it jumped to 11, then 12, then 14, now 17.5c...

Difficult to keep calm and stay the course on VAS. A $2000 dividend reinvestment this week will soothe the soul.

Why wouldn't you want to keep say 5% of your portfolio for this exercise?
little risk and frustration gone

middo

  • 5 O'Clock Shadow
  • *
  • Posts: 42
  • Location: Country Western Australia
  • Learning.
Re: Australian Investing Thread
« Reply #3583 on: November 02, 2017, 12:17:29 AM »
Hi All,

I thought I would post a question here that I have.  I have outlaid some of this in my journal, but I do have a specific question about the order of investment I should be following.  Note that I will appreciate any advice that is well meaning!

Firstly, both I and my wife work, approximate salaries $105,000 before tax p.a. each.

Our assets are:

We have 5 properties in total:

Hobby farm (home) Value: $370 000.  Overdraft owing: $78 600
Rental Property 1 Value: $600 000.  Mortgage owing: $425 000
Rental Property 2 Value: $400 000.  Mortgage owing: $151 000
Holiday unit in Perth Value: 250 000  Mortgage owing: $219 000
Vacant block of land Value: $125 000  No mortgage

Only one of these works for us with the Australian taxation system, as Rental property 2 was an inheritance and the mortgage was taken out to cover the cost of boarding school for our youngest, and the "Holiday unit" is our weekend retreat when visiting our kids.  That may change next year when one of the kids rents it and we get to claim interest as deductions.

Superannuation: Me $170,000
Wife: $150,000

We currently do not contribute anything to super (9.5% SG only)

We are paying down the line of credit on the home at the rate of $1700 per fortnight.  We are planning on selling the vacant lot and paying off or severely reducing the mortgage on property 2.

I have avoided paying extra into super over the years for a couple of reasons:
  • I saw the superannuation scandals of Westpac and others in the late '80's and have a fear of mismanagement wiping out my savings  like it did for some of my fathers friends.
  • I am always cautious of anything that locks me in.  A couple of years ago I could have accessed my super in 2025.  Now that date is 2030.  Will it change again?
    • I spent the money.  Facepunch me.

    We hope to pay off the line of credit over the next 14 months, and then redevelop property #2.  It is a double block, and about $500,000 of extra value should be able to be created with a couple of spec homes built on the site.  Units are not possible due to council rules.

    So, considering the likelihood of future loans and expenses to demolish an almost derelict home, and build two new ones, and the time lag in getting the capital returns on this investment, should we start (now) ramping up our super contributions to at least the $25,000 salary-sacrifice level?  We would get about a $6000 benefit a year, BUT, we would have $18,000 less to reduce our debt NOW, and fund our redevelopment.

    Do I understand it correctly?  What should we do?

Notch

  • 5 O'Clock Shadow
  • *
  • Posts: 41
  • Location: Gladstone, QLD, Australia
Re: Australian Investing Thread
« Reply #3584 on: November 02, 2017, 01:01:24 AM »
Do I understand it correctly?  What should we do?

Your question might get a better, more complex answer from someone else smarter than me, but I would recommend maximising your super contributions.

At $105,000, your marginal tax rate is 39%.  If you salary sacrifice an extra 14% of your income to hit the limit, your take-home pay will drop $9000, but you will end up with an extra $12,500 in super.  That difference of $3500, on $9000 'invested', is an instant 38.9% return on your money.  It would take you 5 years at a 7% growth rate to make that elsewhere -- that's huuuge!  The tax breaks are too good to pass up, especially when you earn as much as you do.
« Last Edit: November 02, 2017, 05:59:48 AM by Notch »

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3585 on: November 02, 2017, 04:00:59 AM »
I am trying so hard to resist the urge to pile into the small and micro cap end of the market.

Have friends that have made an absolute motza on Argosy, Mustang and A2 Milk in the past few weeks.

Even had a buy order on Mustang at 10c but it jumped to 11, then 12, then 14, now 17.5c...

Difficult to keep calm and stay the course on VAS. A $2000 dividend reinvestment this week will soothe the soul.

Why wouldn't you want to keep say 5% of your portfolio for this exercise?
little risk and frustration gone

Well thank god I didn't . Quite a bit of shenanigans going on with MUS :)

Grogounet

  • Stubble
  • **
  • Posts: 194
  • Location: Australia
    • http://www.quest2independence.com
Re: Australian Investing Thread
« Reply #3586 on: November 02, 2017, 04:06:23 AM »
Do I understand it correctly?  What should we do?

Your question might get a better, more complex result from someone else smarter than me, but I would recommend maximising your super contributions.

At $105,000, your marginal tax rate is 39%.  If you salary sacrifice an extra 14% of your income to hit the limit, your take-home pay will drop $9000, but you will end up with an extra $12,500 in super.  That difference of $3500, on $9000 'invested', is an instant 38.9% return on your money.  It would take you 5 years at a 7% growth rate to make that elsewhere -- that's huuuge!  The tax breaks are too good to pass up, especially when you earn as much as you do.

+ 1

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3587 on: November 02, 2017, 05:23:17 AM »
Do I understand it correctly?  What should we do?

Your question might get a better, more complex result from someone else smarter than me, but I would recommend maximising your super contributions.

At $105,000, your marginal tax rate is 39%.  If you salary sacrifice an extra 14% of your income to hit the limit, your take-home pay will drop $9000, but you will end up with an extra $12,500 in super.  That difference of $3500, on $9000 'invested', is an instant 38.9% return on your money.  It would take you 5 years at a 7% growth rate to make that elsewhere -- that's huuuge!  The tax breaks are too good to pass up, especially when you earn as much as you do.

+ 1

I agree with this too. It's basically the best legal tax rort going around.

PDM

  • Stubble
  • **
  • Posts: 169
  • Age: 2012
  • Location: Australia
Re: Australian Investing Thread
« Reply #3588 on: November 02, 2017, 05:31:09 AM »
Our assets are:

We have 5 properties in total:

Hobby farm (home) Value: $370 000.  Overdraft owing: $78 600
Rental Property 1 Value: $600 000.  Mortgage owing: $425 000
Rental Property 2 Value: $400 000.  Mortgage owing: $151 000
Holiday unit in Perth Value: 250 000  Mortgage owing: $219 000
Vacant block of land Value: $125 000  No mortgage

We hope to pay off the line of credit over the next 14 months, and then redevelop property #2.  It is a double block, and about $500,000 of extra value should be able to be created with a couple of spec homes built on the site.  Units are not possible due to council rules.


Do I understand it correctly?  What should we do?

Wow. So much property. I would say you could benefit from diversifying your assets. Are your valuations current? WA market has taken a beating and some brave punters are calling the bottom but who knows?

In terms of redeveloping property #2 how much additional debt and risk would you have to take on to make that happen? Are you comfortable with more property debt?

Overall you're not in such a bad position from a networth perspective with $573k of assets excluding super. The problem is it's all properties in WA.

You mentioned rental property 1 works for you in the tax system. So negatively geared i.e making a loss. Do you foresee it being positively geared any time soon? Any potential for good capital gains to make it worthwhile? Do you see potential for good rental growth in Perth?

Maybe sell the block, the holiday unit and one of the rental houses (personally I'd sell both). Pay off as much debt as possible, own your own home, dump as much as allowed into super and then look at ETFs.

middo

  • 5 O'Clock Shadow
  • *
  • Posts: 42
  • Location: Country Western Australia
  • Learning.
Re: Australian Investing Thread
« Reply #3589 on: November 02, 2017, 05:50:53 AM »
Our assets are:

We have 5 properties in total:

Hobby farm (home) Value: $370 000.  Overdraft owing: $78 600
Rental Property 1 Value: $600 000.  Mortgage owing: $425 000
Rental Property 2 Value: $400 000.  Mortgage owing: $151 000
Holiday unit in Perth Value: 250 000  Mortgage owing: $219 000
Vacant block of land Value: $125 000  No mortgage

We hope to pay off the line of credit over the next 14 months, and then redevelop property #2.  It is a double block, and about $500,000 of extra value should be able to be created with a couple of spec homes built on the site.  Units are not possible due to council rules.


Do I understand it correctly?  What should we do?

Wow. So much property. I would say you could benefit from diversifying your assets. Are your valuations current? WA market has taken a beating and some brave punters are calling the bottom but who knows?

In terms of redeveloping property #2 how much additional debt and risk would you have to take on to make that happen? Are you comfortable with more property debt?

Overall you're not in such a bad position from a networth perspective with $573k of assets excluding super. The problem is it's all properties in WA.

You mentioned rental property 1 works for you in the tax system. So negatively geared i.e making a loss. Do you foresee it being positively geared any time soon? Any potential for good capital gains to make it worthwhile? Do you see potential for good rental growth in Perth?

Maybe sell the block, the holiday unit and one of the rental houses (personally I'd sell both). Pay off as much debt as possible, own your own home, dump as much as allowed into super and then look at ETFs.

Yes, too much property.  Some of it is inheritance, some of it is due to my wife's belief in it's safety.  However, she has seen recently that it is not necessarily a great investment longer term.

Property #2 is not in the WA market (in Melbourne), and has a very neglected house on it, which makes any sale of the property into a "how much does it cost to remove the asbestos house" equation for any buyers.  Instead, we are capable of moving there for 12 months or more, removing said house and redeveloping two on the two blocks.  I am sure that there are at least 500,000 in gains to be made, but I have erred on conservative estimates of house prices and sales.  As a rental, even if we did not sell, they would both be positively geared.  We would expect to sell both properties and invest the profit into index funds.

The rental that is negatively geared is in a long term growth area and is worth more than the value I place on it, But I am using purchased value for it.  It would sell today for at least 750,000, but the rental returns would look even worse then...  I use the cost I paid at the moment as the market is low.  It will recover.  WA is growing again, just not at boom levels.

Thanks for the suggestions and point of view.  If I was starting out again I know I would do things very differently now.  My kids are being advised very differently in money matters than I ever was.

chasingthegoodlife

  • Stubble
  • **
  • Posts: 131
Re: Australian Investing Thread
« Reply #3590 on: November 02, 2017, 02:13:45 PM »
Middo, you say you’d do things differently but were these properties to give you huge cap gains over the next five years you might change your tune I think the mood on this board can be somewhat pro-equities and suspicious of holding property for capital gains, which is not at all surprising when so many Americans have been underwater or seen their home drop in value during the GFC. However, there have undoubtedly been strong returns for IPs in Australia’s high demand cities over the last few decades and I’m not sure anyone here is qualified to pick the ‘top’, so I’d evaluate each property on its own risk/return potential rather than a simple ‘less property more equities’ approach. (Although if I were you I would be adjusting my asset allocation in that direction).

A few thoughts:
You say the figures you are using are the purchase price rather than current value. Before you make any big decisions about your portfolio, I’d hit up local agents for current values and base your decision on these.
Also sound out an experienced local agent, the council planning department and builders about the redevelopment you are considering and make sure the assumptions you are using are correct.
Then, factor in the sales cost and CGT implications of each sale.

Another thing to consider is your timeline for starting to draw down on your stash and what you want your asset allocation and inside/outside super to look like at that time. For me, I will not buy any more property now as I’m getting closer to FI and would probably want to convert to equities at that time for ease of draw down. If you want to stop working in 10 years and want to have $XX in super at that time, what do you need to start contributing now to make that happen?

Just my 2c of course, good luck with your decision.
« Last Edit: November 02, 2017, 02:49:47 PM by chasingthegoodlife »

PDM

  • Stubble
  • **
  • Posts: 169
  • Age: 2012
  • Location: Australia
Re: Australian Investing Thread
« Reply #3591 on: November 02, 2017, 05:02:42 PM »
In terms of the redevelopment in Melbourne, surely the easiest/best return for effort is to get a DA for two houses (if required) and sell it to a developer? You might get a lower return than building, but you get it with much less stress and risk and a lot quicker.

I'm pretty negative on property though, but I'm fairly young and feel very hard done and view the current market as a massive bubble which will end poorly.

middo

  • 5 O'Clock Shadow
  • *
  • Posts: 42
  • Location: Country Western Australia
  • Learning.
Re: Australian Investing Thread
« Reply #3592 on: November 02, 2017, 07:08:29 PM »
In terms of the redevelopment in Melbourne, surely the easiest/best return for effort is to get a DA for two houses (if required) and sell it to a developer? You might get a lower return than building, but you get it with much less stress and risk and a lot quicker.

I'm pretty negative on property though, but I'm fairly young and feel very hard done and view the current market as a massive bubble which will end poorly.

We have thought of that, but there is also some personal interest in developing the block.  As an inheritance, it has a little more value than purely $, but the "stress" of building is something that my wife and I would enjoy, probably a lot more than the average.

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3593 on: November 06, 2017, 04:57:06 AM »
Pretty flat result from Westpac today. $8.062bn cash profit, driven mostly by a reduction in bad debts/impairment charges.

No real nasties but nothing to get excited about. Points towards an economy that will simply grind on rather than power ahead.

Final dividend of 94c, payable on 22 December. Not a bad yield play - pay 30 bucks for $1.88 in dividends a year.


Llewellyn2006

  • 5 O'Clock Shadow
  • *
  • Posts: 25
  • Location: Australia
Re: Australian Investing Thread
« Reply #3594 on: November 06, 2017, 05:24:42 AM »
Pretty flat result from Westpac today. $8.062bn cash profit, driven mostly by a reduction in bad debts/impairment charges.

No real nasties but nothing to get excited about. Points towards an economy that will simply grind on rather than power ahead.

Final dividend of 94c, payable on 22 December. Not a bad yield play - pay 30 bucks for $1.88 in dividends a year.

At my average buy price the yield on my WBC shares is between 7 - 8%. Absolute proof that it's been better value to have money in the banks shares than in the bank itself.

mjr

  • Stubble
  • **
  • Posts: 106
  • Age: 52
  • Location: Brisbane, Qld
Re: Australian Investing Thread
« Reply #3595 on: November 06, 2017, 02:31:46 PM »
I have no idea why WBC was sold down yesterday. Results were fine - it's a stodgy conservative big bank, it performed as one would expect.

Llewellyn2006

  • 5 O'Clock Shadow
  • *
  • Posts: 25
  • Location: Australia
Re: Australian Investing Thread
« Reply #3596 on: November 06, 2017, 04:26:38 PM »
I have no idea why WBC was sold down yesterday. Results were fine - it's a stodgy conservative big bank, it performed as one would expect.

Me either - no pleasant or nasty surprises. Maybe the market was disappointed with the dividend staying the same as the last couple of years but that might actually be a good idea considering the challenges that will face the banks once interest rates start rising. NAB had the same reaction when they released their results - markets are a fickle thing sometimes.

Eucalyptus

  • Stubble
  • **
  • Posts: 162
  • Location: South Australia

Little Aussie Battler

  • Stubble
  • **
  • Posts: 107
Re: Australian Investing Thread
« Reply #3598 on: November 07, 2017, 12:19:24 AM »
It does feel like there's more downside risk right now than upside potential.

(said every chump - like me - hiding on the sidelines)

marty998

  • Magnum Stache
  • ******
  • Posts: 4898
  • Location: Sydney, Oz
Re: Australian Investing Thread
« Reply #3599 on: November 07, 2017, 02:43:46 AM »
NAB was sold down because of the "6000 jobs to go" message. The market sees a number that large and thinks "oh my god the redundancy payouts will be huge".

The interesting thing is that 6000 jobs is probably 1-2 years natural staff turnover. Surely they can let people naturally die off and then re-organise internal teams, rather than flagging cuts of that magnitude...