Author Topic: Australian Investing Thread  (Read 686717 times)

HappierAtHome

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Re: Australian Investing Thread
« Reply #400 on: December 05, 2014, 04:44:56 PM »
All of the above is on the money, quite hilarious the extremely poor advice you where given at a MMM meet up.

Ouch! Those people post here too y'know :-) and were answering my question to the very best of their knowledge.

The Falcon

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Re: Australian Investing Thread
« Reply #401 on: December 05, 2014, 04:56:58 PM »
Which is why one should not offer advice on things they know nothing about. This is simple tax planning 101.

dungoofed

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Re: Australian Investing Thread
« Reply #402 on: December 05, 2014, 06:31:51 PM »
Getting a bit off topic here but does it make any different whose name an investment is under when a divorce is initiated?

edit: just asking, not actually divorcing.
« Last Edit: December 05, 2014, 08:54:05 PM by dungoofed »

slothman

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Re: Australian Investing Thread
« Reply #403 on: December 05, 2014, 06:51:48 PM »
Hi guys,

I've been slowly dipping my toes into the sharemarket over the past couple of years. Purchases to date have been funded by taking monies out of the home loan offset (PPOR).

I'm starting to get a good feel for the sharemarket and starting to feel more comfortable with gearing.

Rather than continuing to withdraw funds from the home loan offset (and thereby increasing my non-deductible debt), I was thinking to use borrowed funds. I've got some equity from an investment property that I could use to fund further share purchases.

What kind of records do I need to keep to ensure that the interest expenses are deductible? Do I need to silo the shares purchased using own funds vs shares purchased using borrow funds? I couldn't find anything on the ATO website specific to using debt to purchase shares.

Are there any spreadsheets/calculators I can use to model the returns (dividend income + capital growth) vs. interest cost and the net tax position?

Any tips would be greatly appreciated.

edit: If it helps I plan to purchase large low-cost LICs, and Vanguard ETFs such as VAS and VGS.

The Falcon

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Re: Australian Investing Thread
« Reply #404 on: December 05, 2014, 10:18:39 PM »
Getting a bit off topic here but does it make any different whose name an investment is under when a divorce is initiated?

edit: just asking, not actually divorcing.

Simple answer, all things being equal, from an asset protection stand point, doesn't matter. Assets will be pooled and then apportioned.

The Falcon

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Re: Australian Investing Thread
« Reply #405 on: December 05, 2014, 10:24:41 PM »
Ah Slothman, that's a bugger. Instead of drawing on your offset, you could have taken a line of credit against your PPOR equity and made that debt deductable. Simple answer is make it as clean as possible. Create LOC or sub account, transfer to cmt linked to brokerage account, have divis paid back to cmt, transfer to LOc as required. Keep all records...please note I don't do my own tax!

slothman

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Re: Australian Investing Thread
« Reply #406 on: December 05, 2014, 11:23:45 PM »
Ah Slothman, that's a bugger. Instead of drawing on your offset, you could have taken a line of credit against your PPOR equity and made that debt deductable. Simple answer is make it as clean as possible. Create LOC or sub account, transfer to cmt linked to brokerage account, have divis paid back to cmt, transfer to LOc as required. Keep all records...please note I don't do my own tax!

I know it wasn't the most tax effective approach, but I wanted to develop the mindset to be able to continually purchase and filter out the market noise. I've been able to prove to myself I can do it so I'm ready to go harder now using leverage.

I've already taken out a new loan account against the increased equity of an investment property, and have the funds parked in its own offset account.

Couple of questions:

1) Can I subscribe to have my divs re-invested? Pros/Cons when using borrowed funds?
2) If I choose to receive divs instead of div re-investment, can I transfer from cmt to my PPOR offset account to reduce my non-deductible debt? I currently do this with my rental income(s).
3) When submitting tax return is it as simple as tallying up all the investment income and then subtracting the interest expense?
4) What happens if I purchase additional units using borrowed funds into an existing investment purchased using own funds? Does it matter?

Avabs

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Re: Australian Investing Thread
« Reply #407 on: December 06, 2014, 12:31:02 AM »
I've been hooked on this thread since discovering it last week and have finally caught up on everything that has been posted here (thanks to everyone for sharing your thoughts). I'd love a critique of my current investments.

Background:
  • 29 and just promoted to 100k a year (pretax)
  • Focused on growing investment portfolio
  • Currently rent (I'll likely be state hoping in 1-3years)
  • Asset allocation is at 90% stocks & 10% bonds
  • Stock split is 60AUS/40INT with 65% of international holdings in VTS
  • Thus allocation at the moment is approximately 14% ARG, 40% VAS, 23% VTS, 13% VEU & 10% VAF

Concerns:
  • Asset allocation, sometimes I feel like my home bias is to high and that I should be holding closer to 70% of my international allocation in US stock to better represent the international market. I rationalise my home bias as my career will likely land me in the top tax bracket and the frank dividends are going to be even sweeter there.
  • Diversifying my Australia holdings, it's been discussed a little in this thread, the financial/mining focus is hard to overcome. Part of the reason why I've been investing in ARG to dilute my holdings a little (they hold something like 6% BHP compared to VAS 10% for example). Is it worth getting into VAP? or maybe VHY to further diversify my Australian holdings? I've looked at VSO as well but really not sure.
  • Is a financial planner worth it? I've managed to track down a fee-only one near me and got quoted $3k-$5k for a SoA or they charge ~$300/hour for advice. This is something I might want to look at in say 5 years time when I have more assets.


Thanks for any help.

This_Is_My_Username

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Re: Australian Investing Thread
« Reply #408 on: December 06, 2014, 04:22:26 AM »
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/

This article was very useful! It also backs up what potm said:

Quote
Investor 4 might decide to buy the parcel of shares in his spouse’s name who doesn’t earn any income and therefore take advantage of the capacity to gain a full refund of the franking credits instead of him having to pay an extra $176.79 in tax.

What is the 30% ownership level for franking credits?  WHat does it actually mean?  How does it work?

"the franking credit is denied if the resident taxpayer has eliminated 70 per cent or more of the ownership risk through other financial transactions during that period. Hence, the rule also specifies a 30 per cent minimum level of ownership risk."

https://www.ato.gov.au/Business/Imputation/In-detail/Dividends---imputation/Company-tax--franking-credit-trading-rules/Company-tax-franking-credits--overview/

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« Reply #409 on: December 06, 2014, 04:38:22 AM »
Avabs, good of you to join in, the more the merrier.  I'm in a similar situation to you. 

some ideas:

1. consider switching to 100% shares for higher returns but higher volatility.

2. There is no correct asset allocation.  Excluding (1) diversification, (2) rebalancing, and (3) tax loss harvesting (is that a thing in australia?), There is no way to know if asset allocation A is better than asset allocation B, on a risk adjusted basis.   So, just make something up, and surely that will be fine.  Worry less about it. 

3. You sound like you know what you are talking about, you probably don't need a financial planner.  Fee-only is the only realistic option, but 3-5k is a lot of money to tell you what you probably know already. 

4.  consider borrowing to invest for higher risk and higher expected returns.  borrowing at 6% seems about the break-even point between too expensive and worthwhile taking the loan. 

marty998

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Re: Australian Investing Thread
« Reply #410 on: December 06, 2014, 05:20:51 AM »
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/

This article was very useful! It also backs up what potm said:

Quote
Investor 4 might decide to buy the parcel of shares in his spouse’s name who doesn’t earn any income and therefore take advantage of the capacity to gain a full refund of the franking credits instead of him having to pay an extra $176.79 in tax.

What is the 30% ownership level for franking credits?  WHat does it actually mean?  How does it work?

"the franking credit is denied if the resident taxpayer has eliminated 70 per cent or more of the ownership risk through other financial transactions during that period. Hence, the rule also specifies a 30 per cent minimum level of ownership risk."

https://www.ato.gov.au/Business/Imputation/In-detail/Dividends---imputation/Company-tax--franking-credit-trading-rules/Company-tax-franking-credits--overview/

Hard to find an explanation (I tried) but my uninformed view is that this may relate to people who have hedged their capital exposure, for example by buying a put option. The rule appears to be aimed at preventing people picking up risk free franking credits.

potm

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Re: Australian Investing Thread
« Reply #411 on: December 06, 2014, 05:35:42 AM »
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/

This article was very useful! It also backs up what potm said:

Quote
Investor 4 might decide to buy the parcel of shares in his spouse’s name who doesn’t earn any income and therefore take advantage of the capacity to gain a full refund of the franking credits instead of him having to pay an extra $176.79 in tax.

What is the 30% ownership level for franking credits?  WHat does it actually mean?  How does it work?

"the franking credit is denied if the resident taxpayer has eliminated 70 per cent or more of the ownership risk through other financial transactions during that period. Hence, the rule also specifies a 30 per cent minimum level of ownership risk."

https://www.ato.gov.au/Business/Imputation/In-detail/Dividends---imputation/Company-tax--franking-credit-trading-rules/Company-tax-franking-credits--overview/

Hard to find an explanation (I tried) but my uninformed view is that this may relate to people who have hedged their capital exposure, for example by buying a put option. The rule appears to be aimed at preventing people picking up risk free franking credits.

Yep, that's it. Otherwise it would be easy to buy a share before a dividend and short using a CFD to perfectly hedge. Even after transaction costs and any spread the franking credit gives you profit.

marty998

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Re: Australian Investing Thread
« Reply #412 on: December 06, 2014, 05:41:51 AM »
yes the franking credit is the profit.

Because when you short you have to pay the value of the dividend when it goes ex-div. It offsets the dividend you receive on your long exposure, and therefore in theory puts you in a nil profit position, but you have the franking credit as the cream you lick off the top.

deborah

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Re: Australian Investing Thread
« Reply #413 on: December 06, 2014, 07:59:38 AM »
There are several government organisations to help with finances. We all know about MoneySmart - which is getting better all the time. However, there are two other organisations - NICRI and the Financial Information Service (FIS).

The FIS is run by Centrelink, though you do not need to be a Centrelink recipient to take advantage of their service. They run a lot of seminars on different subjects, like how to budget and what levels of Aged Care are available, and they also have one on one consultations (they say that they do not give financial advice - but you can ask questions about your finances and they can come up with interesting ideas) over the phone or face to face. I have been to a number of their seminars (usually about 2 hours - mainly in the capital cities, but they do give some at regional centres). All of this is free. Unfortunately, the seminars have probably finished for the year, so the web site won't have much information about the seminars.

NICRI is the National Information Centre on Retirement Investments based in Canberra, and they also do phone consultations (again, they stress that they are not Financial Planners). I have met them at the FIS seminars (I don't know if this happens everywhere, but in Canberra they often speak for half the FIS seminar, from a slightly different perspective).

The FIS people are willing to come and speak to clubs etc. about whatever topic the club chooses, so I think a Mustashian meetup may be able to have them along. FIS is supposed to be independent of Centrelink, but they can advise Centrelink if they think someone is trying to defraud Centrelink.

Anyway, these services are set up to provide financial information relevant to a particular person, and are currently FREE. So they might be worth talking to. Both sets of people obviously spend all day every day discussing people's finances, so they do have experience.

deborah

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Re: Australian Investing Thread
« Reply #414 on: December 06, 2014, 05:22:58 PM »
I found this  http://www.asx.com.au/documents/resources/russell_asx_long_term_investing_report_2011.pdf (an ASX report on  the long term returns on various investments in Australia) today. It is based upon returns in the 25 and 10 years prior to 2011.

As well as looking at investments it profiles investors - giving the returns if the investments are held in super, top marginal tax rate and bottom tax rate. Even more interestingly, it also looks at the returns with/without 50% gearing. I was surprised to see how little difference gearing made over 25 years.
« Last Edit: December 06, 2014, 05:32:17 PM by deborah »

potm

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Re: Australian Investing Thread
« Reply #415 on: December 06, 2014, 05:32:31 PM »
Interesting to note that the two asset classes that have performed the worse in the last 10 years to the date of that report have performed excellently since then.

deborah

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Re: Australian Investing Thread
« Reply #416 on: December 06, 2014, 08:40:24 PM »
Has anyone else looked at the Murray report?

Avabs

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Re: .
« Reply #417 on: December 06, 2014, 09:25:28 PM »
Avabs, good of you to join in, the more the merrier.  I'm in a similar situation to you. 

some ideas:

1. consider switching to 100% shares for higher returns but higher volatility.

2. There is no correct asset allocation.  Excluding (1) diversification, (2) rebalancing, and (3) tax loss harvesting (is that a thing in australia?), There is no way to know if asset allocation A is better than asset allocation B, on a risk adjusted basis.   So, just make something up, and surely that will be fine.  Worry less about it. 

3. You sound like you know what you are talking about, you probably don't need a financial planner.  Fee-only is the only realistic option, but 3-5k is a lot of money to tell you what you probably know already. 

4.  consider borrowing to invest for higher risk and higher expected returns.  borrowing at 6% seems about the break-even point between too expensive and worthwhile taking the loan.

Thanks for the responses.

1. I have been considering this, it also kind of plays into the high earnings potential in my career which might see me in the top bracket. Shares have the added bonus of delaying taxes (or franking credits) where as fixed interest is going to be taxed at my marginal tax rate which is already high and only going up.

2. I think worry less is definitely important here. I'll try to relax.

3. Still on the fence, I think maybe in 5-10years it would be nice to get my situation analysed by a professional to help find some holes. Hopefully $3-5k will be nothing in a decades time!

4. I think I'm way to rise averse to consider borrowing to invest, but thanks for the suggestion.

Primm

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Re: Australian Investing Thread
« Reply #418 on: December 07, 2014, 03:06:58 AM »
Has anyone else looked at the Murray report?

Not yet, just the sound bites I've heard on the news. Have you?

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Re: Australian Investing Thread
« Reply #419 on: December 07, 2014, 04:03:13 AM »
Even more interestingly, it also looks at the returns with/without 50% gearing. I was surprised to see how little difference gearing made over 25 years.

is the reason that a margin loan has a rate of roughly -8%, while shares return roughly 9% pa?

so the benefit is quite small ?

marty998

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Re: Australian Investing Thread
« Reply #420 on: December 07, 2014, 04:29:11 AM »
Has anyone else looked at the Murray report?

Seen the headlines. The banks knew it was coming and would have already factored it into their business plans.

I thought it was actually quite tame to be frank. Banking is far too easy and far too insulated from competition and loss in this country.

The vertically integrated model of banking, finance and wealth management milks customers easily. It needs a shake up through a combination of better targeted regulation, raising the collective public knowledge of money management and breaking down competition barriers.

Until then, super will remain a gravy train and we'll continue to pay higher interest rates than necessary.

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Re: Australian Investing Thread
« Reply #421 on: December 07, 2014, 01:18:56 PM »
Ah Slothman, that's a bugger. Instead of drawing on your offset, you could have taken a line of credit against your PPOR equity and made that debt deductable. Simple answer is make it as clean as possible. Create LOC or sub account, transfer to cmt linked to brokerage account, have divis paid back to cmt, transfer to LOc as required. Keep all records...please note I don't do my own tax!

I know it wasn't the most tax effective approach, but I wanted to develop the mindset to be able to continually purchase and filter out the market noise. I've been able to prove to myself I can do it so I'm ready to go harder now using leverage.

I've already taken out a new loan account against the increased equity of an investment property, and have the funds parked in its own offset account.

Couple of questions:

1) Can I subscribe to have my divs re-invested? Pros/Cons when using borrowed funds?
2) If I choose to receive divs instead of div re-investment, can I transfer from cmt to my PPOR offset account to reduce my non-deductible debt? I currently do this with my rental income(s).
3) When submitting tax return is it as simple as tallying up all the investment income and then subtracting the interest expense?
4) What happens if I purchase additional units using borrowed funds into an existing investment purchased using own funds? Does it matter?

I came across this in my researching, good to keep in mind for what you want to attempt

http://www.smh.com.au/articles/2004/05/28/1085641713197.html?from=storylhs

I think the article above basically summarizes as any income generated from the loans investment must go towards the interest payments, and any shortfall must be covered out of your own pocket. (I assume the excess you can use as you please)

Also from what i've read, its good to keep any tax deductible loans entirely seperate from private loans, and you want to be able to prove the funds were directly transferred to the account used to purchase the investment.

I just refinanced my ppor mortgage with various sized splits. I plan to pay a split down to $0 then redraw the funds entirely to my brokerage account

I enquired into LOC's, every bank i spoke to said splits would achieve the same purpose
« Last Edit: December 07, 2014, 01:31:46 PM by idjces »

deborah

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Re: Australian Investing Thread
« Reply #422 on: December 07, 2014, 01:42:16 PM »
Has anyone else looked at the Murray report?

Not yet, just the sound bites I've heard on the news. Have you?

Loaded down the 350 pages yesterday, and read the fact sheets, which were interesting - the report can be found here http://fsi.gov.au/publications/

terrier56

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Re: Australian Investing Thread
« Reply #423 on: December 07, 2014, 03:04:58 PM »
http://www.reddit.com/r/personalfinance/comments/2ohq90/people_are_in_general_terrible_with_money/

I found this and decided to post it here instead of opening something in the anti-mustashian. It's referencing australians so i think this is a good home for it.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #424 on: December 09, 2014, 05:52:28 AM »
Thanks for that report you posted deborah, interesting read.

One interesting part given the prior discussion of whether or not to hedge international exposure. Unhedged international shares were by far the worst performing investment for the twenty years up till 2011, with negative returns. Makes sense to me with the AUD rising in that period, and the lack of availability of broad ETFs such as those we have now. I wonder what sort of international shares they were (I just skimmed through it)

At the moment with the rising USD unhedged seems a lot more appealing

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Re: Australian Investing Thread
« Reply #425 on: December 09, 2014, 02:38:52 PM »
I found this  http://www.asx.com.au/documents/resources/russell_asx_long_term_investing_report_2011.pdf (an ASX report on  the long term returns on various investments in Australia) today. It is based upon returns in the 25 and 10 years prior to 2011.

As well as looking at investments it profiles investors - giving the returns if the investments are held in super, top marginal tax rate and bottom tax rate. Even more interestingly, it also looks at the returns with/without 50% gearing. I was surprised to see how little difference gearing made over 25 years.

The 2014 version is available at http://www.russell.com/au/assets/pdfs/insights/R_RPT_ASX_Report_V1F_1405_WEB-1.pdf
This is one of the documents I try to have a look at each year.

deborah

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Re: Australian Investing Thread
« Reply #426 on: December 09, 2014, 02:59:03 PM »
Thanks Chris - I thought there should be a later one - you are wonderful (or at least a mine of information). This brings up an interesting point - what things do people read regularly to keep abreast of investing, and why?

And why did it change from 25 years to 20 years?
« Last Edit: December 09, 2014, 03:14:51 PM by deborah »

dungoofed

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Re: Australian Investing Thread
« Reply #427 on: December 09, 2014, 03:24:09 PM »
Thanks for that report you posted deborah, interesting read.

One interesting part given the prior discussion of whether or not to hedge international exposure. Unhedged international shares were by far the worst performing investment for the twenty years up till 2011, with negative returns. Makes sense to me with the AUD rising in that period, and the lack of availability of broad ETFs such as those we have now. I wonder what sort of international shares they were (I just skimmed through it)

At the moment with the rising USD unhedged seems a lot more appealing

I think it becomes important to distinguish between a one-time investment (either 10 or 20 years ago, as per the report), or periodic investments over the course of the 10 or 20 year period. Most reports tend to focus on the former, but if you have been cheaply increasing your holdings of unhedged overseas stocks over this time then you are most likely reaping the rewards this year.

Note that I don't believe the reverse is true (ie that one should be investing in hedged products now). Of course it depends on one's strategy but for periodic investments I believe unhedged will win out over the long term.

Wadiman

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Portfolio structure in super vs outside of super
« Reply #428 on: December 11, 2014, 01:37:24 AM »
Folks -

I have a variety of etfs, lics and direct shares in my portfolio within super.  I also have a simple five etf portfolio that I am building outside of super.

I have been thinking about how to optimise allocations across these two different vehicles.

For those of you that do this - how have you approached this?

In my approach I use the super for mainly direct shares across a wide range of sectors including a few longer term plays and want to keep the outside of super investments strictly focused on a limited number of etfs.

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Re: Australian Investing Thread
« Reply #429 on: December 11, 2014, 05:06:24 AM »
Hi Wadi,

when you say allocations you mean diversify across the holdings? or you mean transfer amounts from outside super into super?

If you just want to make post-tax contributions to super or transfer assets into super im pretty sure its possible up to a cap of 180k in value.

Personally, being a younger person I contribute minimum to super and maximize external savings through VAS, VGBS and VGB. Between those three I feel quite safe atm, and plan to convert from ETF to the actual index fund once my holdings exceed 150k.

If you were nearing the age of 55, consider reading up on re-contributions to see how you can turn the taxable component of your superfund into tax-free money? ( When i say this I mean you can withdraw a limit of up to 185k in taxable super money if you are >55 this year without incurring tax or penalties, and re-contribute this as tax-free money so that it doesn't get taxed if you plan to take it out).

Hope this helps? I dont know if i quite answered your question

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Re: Australian Investing Thread
« Reply #430 on: December 11, 2014, 01:51:57 PM »
LolzM -

Thanks for your thoughts.

I should have made the post a little clearer.

I have maximized my super contributions and the savings outside of super are there to do two things:  1) Provide a source of income between my planned retirement age and preservation age - a 3-6 year gap.  2) Provide a buffer against legislative risk if the preservation age is increased (a small but possible risk).

What I'm not sure about is whether to:
1) Work out an overall (global) allocation that pools the investments in each sector (ie it then doesn't matter whether a particular sector is represented within the super account or ex-super account as long as the overall percentage allocations to each sector are correct).

2) Apply separate investment strategies to each account (I have a specific strategy for the ex-super account - 5 ETFs only) to diversify overall holdings (eg I could structure the super account to focus on longer term capital appreciation or focus on yield via direct shares with higher dividend streams).


deborah

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Re: Australian Investing Thread
« Reply #431 on: December 11, 2014, 03:00:40 PM »
To take advantage of the tax advantages of super you would tend to put all the high dividend investments into super and the low income investments outside super. When you reach preservation age, you can always put everything into super (if it's less than $450k - using the bring forward rule).

Wadiman

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Re: Australian Investing Thread
« Reply #432 on: December 11, 2014, 04:03:34 PM »
Makes sense Deborah - thanks!

bigchrisb

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Re: Australian Investing Thread
« Reply #433 on: December 11, 2014, 04:10:02 PM »
I take an overall asset allocation approach.  I have four investment vehicles, each with different tax and ownership issues:
- Self managed super fund
- Family trust
- Company beneficiary of the trust
- Myself.

I have a broad overall asset allocation target.  But I don't care which is in which holding entity.  So, the way this has worked out is:
- Self managed super - low tax environment, so the high yield stuff goes in here.  Its mostly large cap ASX or LICs
- Own name - High tax.  Low yield, hold forever stuff (international ETFs, CSL, CPU etc and some mostly tax deferred REITS). I also gear this as much as possible - works out cash flow negative (negative gearing)
- Company - medium tax, but no capital gains discount. Medium to high yeild, hold forever stuff.
- Family trust - everything else.  I stream capital gains and tax deferred income to myself and ordinary income (dividend, interest etc) to the company

That works for me as a reasonably tax efficient holding structure.  But its probably only became worth the running costs with a total of $1m+ in investable assets.

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Re: Australian Investing Thread
« Reply #434 on: December 11, 2014, 04:14:21 PM »
LolzM -

Thanks for your thoughts.

I should have made the post a little clearer.

I have maximized my super contributions and the savings outside of super are there to do two things:  1) Provide a source of income between my planned retirement age and preservation age - a 3-6 year gap.  2) Provide a buffer against legislative risk if the preservation age is increased (a small but possible risk).

What I'm not sure about is whether to:
1) Work out an overall (global) allocation that pools the investments in each sector (ie it then doesn't matter whether a particular sector is represented within the super account or ex-super account as long as the overall percentage allocations to each sector are correct).

2) Apply separate investment strategies to each account (I have a specific strategy for the ex-super account - 5 ETFs only) to diversify overall holdings (eg I could structure the super account to focus on longer term capital appreciation or focus on yield via direct shares with higher dividend streams).

assuming you have enough outside of super to last until preservation age, you probably want to put the maximum possible in to super to minimise tax. 

However, australian income tax rates are 0%(0 to 18,200) and 19% (18,201 to 37,000).  If your annual income post-retirement is less than 37k, there is less benefit in relying on super because it can be taxed on withdrawl at 15%.  Unless you are able to receive tax-free withdrawls?

Also, there is a mandatory withdrawl rate from super, which starts at 4%, and increases as you age.

Also, you want to have unrealised capital gains in your outside-super investments, and dividend investments within super.

You also need to consider if you are eligible for a part-pension.

yes, it can become very complicated. 

deborah

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Re: Australian Investing Thread
« Reply #435 on: December 13, 2014, 02:06:44 AM »
LolzM -

Thanks for your thoughts.

I should have made the post a little clearer.

I have maximized my super contributions and the savings outside of super are there to do two things:  1) Provide a source of income between my planned retirement age and preservation age - a 3-6 year gap.  2) Provide a buffer against legislative risk if the preservation age is increased (a small but possible risk).

What I'm not sure about is whether to:
1) Work out an overall (global) allocation that pools the investments in each sector (ie it then doesn't matter whether a particular sector is represented within the super account or ex-super account as long as the overall percentage allocations to each sector are correct).

2) Apply separate investment strategies to each account (I have a specific strategy for the ex-super account - 5 ETFs only) to diversify overall holdings (eg I could structure the super account to focus on longer term capital appreciation or focus on yield via direct shares with higher dividend streams).

assuming you have enough outside of super to last until preservation age, you probably want to put the maximum possible in to super to minimise tax. 

However, Australian income tax rates are 0%(0 to 18,200) and 19% (18,201 to 37,000).  If your annual income post-retirement is less than 37k, there is less benefit in relying on super because it can be taxed on withdrawal at 15%.  Unless you are able to receive tax-free withdrawals?

Also, there is a mandatory withdrawal rate from super, which starts at 4%, and increases as you age.

Also, you want to have unrealised capital gains in your outside-super investments, and dividend investments within super.

You also need to consider if you are eligible for a part-pension.

yes, it can become very complicated. 
Actually, I think you are incorrect. Currently preservation age is between 55 and 60, so you can start getting your super before you are 60. There are three types of super - untaxed (everything added before tax and that the super fund didn't pay tax on - this is usually only government pensions, and I won't say anything more about this), taxable (everything you added before tax - salary sacrifice, employer contributions... - the superannuation fund has paid 15% tax on these when they entered the fund) and tax-free (everything you added after tax). When you take anything out of super, it is assumed to come proportionally from the three components.

Tax-free has already paid tax, so you don't have to pay any tax on it when you withdraw.

Taxable has only paid 15% tax. If you are under 60 you pay some tax on it when you withdraw, but because it has already been taxed at 15%, you pay less, to a maximum of 21.5%. However, as soon as you are over 60 you also withdraw this tax free.

So most people pay no tax on their super when they withdraw it. I expect this to change some time.

marty998

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Re: Australian Investing Thread
« Reply #436 on: December 13, 2014, 04:25:35 AM »
To take advantage of the tax advantages of super you would tend to put all the high dividend investments into super and the low income investments outside super. When you reach preservation age, you can always put everything into super (if it's less than $450k - using the bring forward rule).

Contribution cap is actually currently $540,000 under the 3 year bring forward rule. The non-concessional cap of $180k is set at 6 times the concessional cap of $30k, which rises by inflation rounded to the nearest $5,000 each year.


deborah

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Re: Australian Investing Thread
« Reply #437 on: December 15, 2014, 03:18:52 PM »
As the result of a question in another thread, I am wondering what distribution split between Australian Shares/US Shares/International Shares is recommended? I can't seem to find this with google, so I thought I would ask here. Also, if you don't have this split - why?


deborah

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Re: Australian Investing Thread
« Reply #439 on: December 15, 2014, 04:55:13 PM »
Thanks very much for that article Potm - it helps you to work out what your actual split should be which is very useful.

However, it suggests that the average Australian has a 25%Int/75%Aus split, but it doesn't say what the normal recommendations actually are. From looking at funds, I am beginning to think that a 40%Int/60%Aus is about what is normally recommended.

What sort of share split do you go for, and why?

bigchrisb

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Re: Australian Investing Thread
« Reply #440 on: December 15, 2014, 06:11:34 PM »
Thanks very much for that article Potm - it helps you to work out what your actual split should be which is very useful.

However, it suggests that the average Australian has a 25%Int/75%Aus split, but it doesn't say what the normal recommendations actually are. From looking at funds, I am beginning to think that a 40%Int/60%Aus is about what is normally recommended.

What sort of share split do you go for, and why?

As usual, I'll be controversial and avoid the canned "rule of thumb" on international/domestic asset allocations.  Instead of looking at what stock exchange my investments are based on (which is totally arbitrary, and probably driven more by international tax and policy than fundamentals), I prefer to dig through the annual reports for each company I own to find the regions in which revenue is generated.

For example, some Australian listed companies have a massive proportion of their earnings overseas - of stocks I own, some quick examples are WFD (US/Europe plus others), CSL (US, Germany), CPU (Mostly US), UOS (all Malaysia), AHD (German cinemas) and so on. I have about 30% of investments in foreign ETFs, but once you add in the overseas earnings of my ASX stocks, its more like 70% of earnings are out of Australia. Even the big AUS stocks have non-trivial overseas earnings - for example 35% of ANZ's profit came from outside Australia.

deborah

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Re: Australian Investing Thread
« Reply #441 on: December 15, 2014, 06:30:50 PM »
Thanks Chris, I agree that a lot of Australian stocks are like this. In some ways it's the best of both worlds - getting franked dividends and international exposure.

This_Is_My_Username

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« Reply #442 on: December 15, 2014, 09:28:34 PM »
chris, are you saying that it is less important than it seems to buy WXOZ, VGS, VEU, VTS; because you get international exposure via most companies in the ASX200?

dungoofed

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Re: Australian Investing Thread
« Reply #443 on: December 15, 2014, 09:30:14 PM »
Personally I'd target around 20% Australian equity.

As Bigchrisb mentioned it's a moving target, and exposure in Australian equity doesn't include exposure through say holdings in gold, property, AUD, nor the fact that anyone who has a job in Australia also has massive exposure to the Australian economy. In fact, there is probably a fair argument for never investing in Australian stocks whatsoever.

Bigchrisb and the Vanguard also mentioned tax treatment, among other factors. My thoughts on this are that the reason for diversification in the first place is so that you can weather any storm, and that diversity should be your goal first and foremost, provided the costs are justified.

I'd never begrudge someone choosing VTS, IVV, or IOO over WXOZ/VGE for their international exposure. Especially VTS with it's low MER.

So why have anything invested in Australian equity at all? Well, I would have hated to have been an Australian fully exposed to the overseas market in 2007, looking to retire in 2008.

dungoofed

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Re: Australian Investing Thread
« Reply #444 on: December 15, 2014, 09:34:57 PM »
PS This_Is_My_Username - looks like we had a crosspost here, where I touched on your question but didn't fully answer it. Anyway, I didn't ignore it, just don't have the time now to update mine to make it look like it's not completely ignoring yours :)

dungoofed

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Re: Australian Investing Thread
« Reply #445 on: December 15, 2014, 09:38:41 PM »
...and another quick, unrelated question. Does anyone know the best way for an Australian to get quick exposure to the Russian economy? It's not quite "blood in the streets" but I'd consider chucking $5000 in there as a speculative investment. Is IBK my only real option here?

The Falcon

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Re: Australian Investing Thread
« Reply #446 on: December 17, 2014, 12:06:50 AM »
^ if you have a brokerage account buy one of the NYSE listed Russia ETFs.........at the current earnings multiple its pretty much blood in the streets.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #447 on: December 17, 2014, 01:39:52 AM »
You're a braver man than I dungoofed. From what I've been reading it's definitely getting to "blood on the streets" territory! The currency plunging ten percent in a night, etc

AustralianMustachio

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Re: Australian Investing Thread
« Reply #448 on: December 17, 2014, 01:46:13 AM »
Also, still haven't managed to find NYSE and other foreign listed ETFs via online brokerage accounts like nabtrade. Do I have to open up the IRESS trader system perhaps?  I had to do that for creating conditional orders such as stop losses before

If anyone has success please let me know

Or perhaps it's only something you get via a full service broker.

This_Is_My_Username

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Re: Australian Investing Thread
« Reply #449 on: December 17, 2014, 04:22:44 AM »
if you ring your broker (nabtrade), they should be able to do it, but the brokerage will cost a lot more.

here is the commsec international brokerage brochure:

https://www.commsec.com.au/content/dam/EN/PDFs/Product/International/Brochure/internationalsecuritiestrading