Author Topic: Australian Investing Thread  (Read 538152 times)

potm

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Re: Australian Investing Thread
« Reply #450 on: December 17, 2014, 06:12:05 AM »
Interactive brokers, option express.
Don't bother with commsec, fees are stupid.

dungoofed

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Re: Australian Investing Thread
« Reply #451 on: December 17, 2014, 04:30:42 PM »
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

I've decided to hold off a little for a couple of reasons, specifically:

1) I need to set up a proper brokerage account (thanks potm, and thanks AustralianMustachio for asking the question),
2) I'm not quite at a point financially where I can throw money into what is essentially a speculative trade. I need to do more of the "boring" investing for a while first,
3) (keeping in mind it is a completely speculative, un-mustachian trade) Yesterday the index bounced back quite a bit, indicating there are still quite a few bulls in the market. I need it to crash a little yet.


bigchrisb

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Re: Australian Investing Thread
« Reply #452 on: December 17, 2014, 08:07:14 PM »
With the recent market stumble, anyone do a bit of a re-balance?  I tinkered a bit, and managed to harvest a reasonable quantity of tax losses along the way - will come in handy with some other capital gains realized this year. 

MsRichLife

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Re: Australian Investing Thread
« Reply #453 on: December 17, 2014, 08:47:59 PM »
While GOLD was down last month I bought $20K and have bought $20K into equities this week. So I guess I'm slowly rebalancing out of cash :)

I sold out of Santos when it hit my 20% stop loss. Tumbled another 25% afterwards, so I'm happy I harvested those tax losses when I did.

This_Is_My_Username

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« Reply #454 on: December 17, 2014, 10:08:10 PM »
i'm going to buy something tomorrow, but I haven't decided yet. 

I want AFIC or ARGO, but they are trading at a premium to Net Tangible Assets.

So, probably VAS or VHY

AustralianMustachio

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Re: Australian Investing Thread
« Reply #455 on: December 17, 2014, 11:36:38 PM »
I hold 10% of my portfolio in bonds at the moment via Vanguard's VAF fund. Anyone know why it went up 1.55% today? Is it due to the Feds comments on US interest rates?

I found it surprising since its a very large move for a fixed interest fund. And also suprising because it's made up of Australian bonds, not American, so one would think RBA comments would have a greater impact than the fed. I ask as I am only just learning about bonds, and don't really understand them yet

deborah

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Re: Australian Investing Thread
« Reply #456 on: December 18, 2014, 12:07:27 AM »
Traditionally stocks go up and bonds go down and vice versa



potm

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Re: Australian Investing Thread
« Reply #457 on: December 18, 2014, 12:47:08 AM »
If it's an Australian bond fund then it will go up when Australian interest rates go down.
Australian goverment bond yields have fallen significantly in recent times, anticipating that the RBA are more likely to lower benchmark interest rates than raise them.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #458 on: December 18, 2014, 12:53:11 AM »
Traditionally stocks go up and bonds go down and vice versa

Yeah, which is why I was confused that they moved together today.

If it's an Australian bond fund then it will go up when Australian interest rates go down.
Australian goverment bond yields have fallen significantly in recent times, anticipating that the RBA are more likely to lower benchmark interest rates than raise them.

Ah, so it could just be a movement by the bond market in anticipation

dungoofed

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Re: Australian Investing Thread
« Reply #459 on: December 18, 2014, 01:34:37 AM »
Not sure if it is relevant but VAF contains a small percentage of corporate bonds. Seeing as these tend to move based on the health of the underlying company (and therefore their ability to be able to continue paying interest plus the principal) it may explain why VAF moved differently today than, say, VGB, which was down 0.22%

MsRichLife

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Re: Australian Investing Thread
« Reply #460 on: December 18, 2014, 01:36:05 AM »
I saw IAF was down today as well and wondered why VAF was up so much. My entire portfolio was green today. I felt rich!

AustralianMustachio

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Re: Australian Investing Thread
« Reply #461 on: December 18, 2014, 02:16:39 AM »
Maybe it was a glitch or correction? 1.55% moves seems large for bond markets

I was wondering why the return was lower up till this point on vaf vs vgb, as corporate bonds are supposedly a bit riskier and therefore should give a pay more return.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #462 on: December 18, 2014, 05:51:28 PM »
Yep, appears it was a glitch as it's down 1.61% today

Wadiman

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Sharesight
« Reply #463 on: December 21, 2014, 04:50:46 PM »
Hi -

I'm sure many of you are across this but I've just set up an account to track my ETFs.

http://www.sharesight.com.au/

It's free for a portfolio of 10 equities or less and imports trades and dividend payments etc from most brokers. 

If you're not aware of it it's worth your while to check it out.


marty998

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Re: Australian Investing Thread
« Reply #464 on: December 22, 2014, 06:11:46 PM »
Fudge. Sold my WBC shares a day early and cost myself $700.

My order for 500 VHY is sitting in the queue at $63.48, I don't think it will get hit before end of year (barring 2% fall in the markets - unlikely with light Christmas holiday trade), but it might be a good idea to wait until it goes ex-div at the start of Jan and try and pick it up around $62....

hmm happy to sit with a credit in the margin loan balance whilst I wait.

deborah

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Re: Australian Investing Thread
« Reply #465 on: December 22, 2014, 06:46:30 PM »
Fudge. Sold my WBC shares a day early and cost myself $700.
Look at it this way - is it a significant % of your net worth?



AustralianMustachio

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Re: Australian Investing Thread
« Reply #466 on: December 23, 2014, 02:33:31 AM »
Made a nice little short term profit on santos. Was considering holding on longer, but after checking today, glad I sold out yesterday.

Also sitting on a nice profit on some gold stocks I bought very low. Unfortunately, I also lost a bit of money on them when I got cold feet and sold half my holding during a crashing price day in November (after OPEC announced). I am up about 20% on one stock, but since I effectively freaked out and sold at the bottom that day, my overall gain will only be around 5-8%. I learnt a lesson that day that having a significant % of my money in trading shares or individual shares isn't for me, and the appeal of the index fund really came into it's own.

Bought some NAB at the bottom, probably gonna sell that soon too for a little profit. Was considering today, but think there might be a few more days left in the Christmas jump.

dungoofed

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Re: Australian Investing Thread
« Reply #467 on: December 23, 2014, 03:42:34 PM »
Hi AustralianMustachio - gold was unhedged I assume as it has continued to slide against the USD pretty much all year. I think the medium-to-long-term outlook for gold in Australia is lower as well. I'm accumulating as a part of my strategy, and will keep doing so even with the expectation that in a decade or so it could be well south of $500 again. YMMV

AustralianMustachio

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Re: Australian Investing Thread
« Reply #468 on: December 23, 2014, 10:06:41 PM »
Yes over the year gold has fallen, but I'm talking strictly short term trading here. I bought in about a month ago mostly. I will probably exit pretty soon, unless a correction occurs in the US which should drive the price up.

Disclaimer - I know this isn't very mustachian banter

dungoofed

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Re: Australian Investing Thread
« Reply #469 on: December 24, 2014, 12:14:24 AM »
Yeah but it's an Australia thread. We bet on two flies crawling up a wall, this is just the sophisticated version : P


marty998

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Re: Australian Investing Thread
« Reply #470 on: January 01, 2015, 02:27:31 AM »
So what will be the economic theme of 2015 influencing the markets?

When the impact of lower oil prices starts washing through we should see a pick up in activity and consumer spending.

On the other hand, lower iron ore prices will most certainly see a tougher federal budget with a larger deficit.

We've had one very flat year on the ASX, I see the markets picking up and the index heading back towards 6000 by 31 Dec 2015, driven by the banks, who will continue to churn out record bumper profits.

terrier56

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Re: Australian Investing Thread
« Reply #471 on: January 01, 2015, 07:03:16 PM »
So what will be the economic theme of 2015 influencing the markets?

When the impact of lower oil prices starts washing through we should see a pick up in activity and consumer spending.

On the other hand, lower iron ore prices will most certainly see a tougher federal budget with a larger deficit.

We've had one very flat year on the ASX, I see the markets picking up and the index heading back towards 6000 by 31 Dec 2015, driven by the banks, who will continue to churn out record bumper profits.

6000 would be very nice indeed. Makes me want to buy more immediately but then i remind myself this is not a race and the market will always go up. The aussie market is on a little sale since the drop in oil and iron affected every other sector (got to love irrational investors).

The coming months will likely see VHY and VAS get a beating by my bank account. Iron ore demand looking to rise slightly after chinese winter finishes. Looking at a new equalibrium price of 80ish. oil to be down for the next 6 months but factors could change this. long term you could not be happier investing in oil companies. I feel the VAS, IVV probably has enough of them to keep me happy.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #472 on: January 01, 2015, 09:56:24 PM »
Themes of interest for me:

- The highest returning asset class in Australia in 2014 was government bonds. https://twitter.com/David_Scutt/status/547192876719804416/photo/1

- The highest returning ASX sector was healthcare. Some great companies in this sector. However, things are getting expensive

- Falling AUD vs USD. I've made a decent return in the last few months purely from buying the USD ETF. I suspect theres a bit more to go in this fall. Possibly quite a lot more. People have made a lot of money in things like VTS, and USD exposed ASX stocks

- US - from most sources I've read - sometime in the first half of 2015, the US indices which have been on an unstoppable run have been predicted to have a decent correction, bringing down the ASX with it. This will give a great buying opportunity for anyone with spare cash. Of course this is irrelevant if one simply averages in with an index fund.

- Europe and Japan most likely doing QE will be supportive for their asset prices. However I wonder if their respective currencies will also fall and cancel out the benefit of an unhedged ETF. Anyone care to shed some light on this?

- I think the falling Iron ore and oil price could go on much longer than people are guessing. However, for people who are patient, there is probably some good value around
« Last Edit: January 01, 2015, 09:58:03 PM by AustralianMustachio »

dungoofed

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Re: Australian Investing Thread
« Reply #473 on: January 02, 2015, 12:03:28 AM »
For the main 90% of my portfolio nothing will change - just stick the course.

If I'm going to have a punt,... ok first let's have a look at what the big macro stories for 2014 were. Locally, austerity became a policy, Medibank floated (gov commitment to continued privatisation), we joined the US in a war against ISIS, property continued to boom, the dollar dropped to 81c or so and we finished the year with oil/commodities prices lower. Internationally, I'd pick as a decent cross-section of big stories the China and Europe slowdown, the failure of Abenomics as a policy, the US Fed not increasing interest rates, the Russia story, oil, US's ostracism due to FATCA coming into effect, Bitcoin, maybe the US economy's bumper year for stocks and the continued slide of the price of gold.

With this in mind, I think the big story of 2015 is going to center around the continued weak consumer spending globally. The world is more connected (read: less ignorant) these days and in the developed world even a quote-unquote uptick in the economy over the last two years has inspired neither consumers nor companies to dip into their savings. Going forward global growth will largely be driven by consumer spending growth in China, India and a little bit of SE Asia. Maybe a little in LATAM. But it's not going to be much.

Now, whether this weak consumer spending or an increase in US interest rates is going to be enough to trigger the correction that all the talking heads seem to think is inevitable in 2015,... I'd give it a 15% chance of happening (and it doesn't change my strategy regardless).

Oil is the wildcard! I have no idea which way it is going to go during 2015 but it will affect absolutely everything globally. If one thing is certain it's that politicians globally will blame oil for the country's woes while taking credit for the places where oil has provided a little relief. Even so, the individual impacts will be small. $20 oil would be a different story.

I'm also bearish on USD hegemony long term, but I doubt the house of cards is going to fall apart in 2015.

Australia-specific, I think it's going to be another flat year, maybe slightly down. Oil/commodities/China narrative aside, my biggest "wildcard" concern for the ASX 200 is possible disruption in the banking sector. Payments are already under attack from Bitcoin and the technologies that harness the bitchain, robo-investing is putting downward pressure on the entire sector, meanwhile Australian politicians continue to alienate voters by signing in legislation such as GATCA (global FATCA), driving up demand among consumers for alternatives. It'll be a shame to see a massive chunk of this business go overseas to US technology firms but the Australian economy isn't exactly known for Silicon Valley-level innovation.

The other things I'd keep an eye on locally are changes to Superannuation legislation, negative gearing legislation and interest rates. But this has been the same for the last several years so should already be factored into one's strategy.

Actually, that reminds me of another thing: will 2015 be the year AGBs finally come of age in Australia?

**edit: I see AustralianMustachio posted about government bonds while I was typing. Maybe their heyday has arrived! (but I think they have just been pushed up by wealthy Chinese purchasing Australian residency/passports in 2014; it'll take changes to negative gearing legislation to really get the domestic bond market pumping).

marty998

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Re: Australian Investing Thread
« Reply #474 on: January 02, 2015, 12:57:37 AM »
I think we've already missed one good investment.

Should have bought NZ. Baaaaa

I reckon interest rates will stay on hold until well into 2016. The economy is simply just spluttering along and with nominal GDP growth exceptionally weak leading to much lower tax receipts and lower than expected bracket creep, the Gubbmint is going to have a gigantic headache passing even bigger cuts through the upper house.

I may be a leftard, but money doesn't grow on trees. It comes out of my pay @ $500 a week. The Senate should just pass the cuts, let everyone bitch and moan for a year and then we can all get on with life.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #475 on: January 02, 2015, 03:56:53 AM »
**edit: I see AustralianMustachio posted about government bonds while I was typing. Maybe their heyday has arrived! (but I think they have just been pushed up by wealthy Chinese purchasing Australian residency/passports in 2014; it'll take changes to negative gearing legislation to really get the domestic bond market pumping).

I very much agree here. Home bias aside, Australian super accounts aren't diversified enough. It's all property and equities for the average SMSF, and not enough fixed interest. Part of the problem is a lack of fixed interest products here that compare to overseas.

I think the main problem is, as you mentioned, is the favourable tax treatment of property (via negative gearing) and equities (franking credits) vs fixed interest. We need a broader and better bond market in Australia, and right now the demand simply isn't there due to the superior tax treatment of the riskier asset classes.

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Re: Australian Investing Thread
« Reply #476 on: January 02, 2015, 09:22:13 PM »
Long-time lurker, first-time poster checking in

What structure does the MMM Australian investor use for shares?

I'm fairly young with a small super balance so a SMSF doesn't seem to be a benefit right now. I have a small amount of holdings in Vanguard ETFs.

I'm single but starting to think about creating a discretionary trust to hold my share investments, since I will be adding to my holdings on a regular basis from this point. No dependents or spouse at the moment but I think a trust would be a good structure for that in the future ....

Any thoughts?

steveo

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Re: Australian Investing Thread
« Reply #477 on: January 03, 2015, 03:13:18 AM »
What structure does the MMM Australian investor use for shares?

My approach is as follows:-

1. Pay the bare minimum into super.
2. Pay off the house.
3. Save into vanguard or similar ETF's under personal accounts.
4. Diversify when we have a fair amount in point 3.
5. Once we reach point 4 I think we will start to work less in the form of less days per week or increased holidays. Once we have enough diversification then I assume that I will retire. I think my wife will work less earlier than myself.

I have no issues with just using an industry super fund basically because they follow a low cost index fund approach. I also have no issues with just buying shares under my personal name. I don't think we will have a large income when we retire so I don't think there will be significant tax implications.

I'm not sure if in Australia it makes sense to buy a house because the costs are freaken ridiculous however its the choice that we have made. I suppose the benefits from my perspective is that we should always have a roof over our head and our house will be our buffer if things go wrong.
« Last Edit: January 03, 2015, 03:15:52 AM by steveo »

marty998

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Re: Australian Investing Thread
« Reply #478 on: January 03, 2015, 04:50:35 AM »
**edit: I see AustralianMustachio posted about government bonds while I was typing. Maybe their heyday has arrived! (but I think they have just been pushed up by wealthy Chinese purchasing Australian residency/passports in 2014; it'll take changes to negative gearing legislation to really get the domestic bond market pumping).

I very much agree here. Home bias aside, Australian super accounts aren't diversified enough. It's all property and equities for the average SMSF, and not enough fixed interest. Part of the problem is a lack of fixed interest products here that compare to overseas.

I think the main problem is, as you mentioned, is the favourable tax treatment of property (via negative gearing) and equities (franking credits) vs fixed interest. We need a broader and better bond market in Australia, and right now the demand simply isn't there due to the superior tax treatment of the riskier asset classes.

As well the Fixed Interest products that do exist do not offer an adequate margin above the cash rate and/or term deposits.

Many a retiree has seen their savings blow up in Fincorp, Bridgecorp and various other "safe" fixed interest investments.

We just don't trust them. After all, if a property developer / business / scheme etc can't get finance from a bank, then why should you lend them your money?

Wadiman

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Re: Australian Investing Thread
« Reply #479 on: January 03, 2015, 02:03:19 PM »
I agree re the need to have an appropriate allocation in FI.

I have been pretty happy with the performance (approx 5%) of my semi-govt bond (RSM) ETF since purchase (six months ago) and like the allocation to state govt treasuries.  I see that the return for VGB is similar as well - the main difference appears to be that it has comm govt holdings.  Both have fairly low fees - 0.26 and 0.2% respectively.

dungoofed

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Re: Australian Investing Thread
« Reply #480 on: January 03, 2015, 05:40:40 PM »
Hi marty998 - to be clear I am talking specifically about government bonds. I suppose you can expand the list of issuers to include the government, but I'm assuming you're talking about corporate bonds. To be honest I've never seen the appeal of corporate bonds either - the risk of losing your principal is correlated to the risk of the company (same as buying stock in the company) but the returns are typically better to buy stock.

I can see a reason for banks to buy bonds in a company however, especially if the only other option is for the company to default on their loans.

Having said that, Australian government bonds are also more tightly coupled to the Australian economy than say the in US. We could decouple somewhat by lowering corporate income tax.

dungoofed

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Re: Australian Investing Thread
« Reply #481 on: January 03, 2015, 05:47:58 PM »
btw the reason I hold AGBs is not just for the return, but for the speculative uptick when something like a GFC next rears its head, and investors run to safety. It helps makes sure you always have something to sell and scoop up the bargain-basement shares.

BattlaP

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Re: Australian Investing Thread
« Reply #482 on: January 03, 2015, 07:34:12 PM »
Is there anywhere to get a simplified summary of the vanguard etf distributions each quarter?
I get the announcements and summaries but I'd like to see at a glance what the % return is without having to get each cents per unit and figure it out manually.

marty998

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Re: Australian Investing Thread
« Reply #483 on: January 03, 2015, 08:19:29 PM »
Hi marty998 - to be clear I am talking specifically about government bonds. I suppose you can expand the list of issuers to include the government, but I'm assuming you're talking about corporate bonds. To be honest I've never seen the appeal of corporate bonds either - the risk of losing your principal is correlated to the risk of the company (same as buying stock in the company) but the returns are typically better to buy stock.

I can see a reason for banks to buy bonds in a company however, especially if the only other option is for the company to default on their loans.

Having said that, Australian government bonds are also more tightly coupled to the Australian economy than say the in US. We could decouple somewhat by lowering corporate income tax.

Yes but why would you hold a government bond when cash in a high yield bank savings account gets you the same or better return with no risk of capital loss (up to the $250k deposit guarantee per financial institution)?

Remember that the 1996-2007 Liberal Government essentially eliminated the Sovereign Bonds Market by paying down all Federal debt, about 30billion was the total pool of bonds outstanding at one stage IIRC. Too small a market for everyone to be chasing.

It wasn't until the Labor 07-13 administration started borrowing again heavily that the asset class came back to life (we can debate the merits of this till Daisy The Cow comes home, but I'm trying not to be too political. FWIW my view is that the deficits from 08 to 12 were necessary, but Labor started losing the plot with NDIS, Gonski, Pensions, school kids bonuses and expenditure tied to a mining tax that came in 5 years too late and, though economically sound and rational, would be another 15 years before raking in serious money).

I'm getting off topic as usual,

btw the reason I hold AGBs is not just for the return, but for the speculative uptick when something like a GFC next rears its head, and investors run to safety. It helps makes sure you always have something to sell and scoop up the bargain-basement shares.

Anything that is exposed to variation in returns is by definition not risk-free (in a pure portfolio theory sense). Therefore again I make the point, why would you invest in a government bond*, instead of leaving money in cash?

* Some bonds that the federal and state governments issue are inflation-linked bonds, which, put simply, means your capital is preserved in real terms. This is probably a better bet than buying a 30 year non-inflation linked bond, which you would hope to be compensated for with a higher interest rate. Doesn't always happen in times of inverse yield curves.

marty998

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Re: Australian Investing Thread
« Reply #484 on: January 03, 2015, 08:29:16 PM »
Long-time lurker, first-time poster checking in

What structure does the MMM Australian investor use for shares?

I'm fairly young with a small super balance so a SMSF doesn't seem to be a benefit right now. I have a small amount of holdings in Vanguard ETFs.

I'm single but starting to think about creating a discretionary trust to hold my share investments, since I will be adding to my holdings on a regular basis from this point. No dependents or spouse at the moment but I think a trust would be a good structure for that in the future ....

Any thoughts?

Rusty - who will be trustee of your trust? You cannot be both trustee and beneficiary, though there are ways around this if you have a corporate trustee. The real question is why? It really depends on a number of factors - what you tax rate is, whether you have a business/professional practice, how comfortable you are deferring income in a trust or company, how likely you are to marry a gold digger, whether you are trying to avoid land tax on property purchases? List goes on.




dungoofed

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Re: Australian Investing Thread
« Reply #485 on: January 03, 2015, 10:24:14 PM »
Hi marty998 - to be clear I am talking specifically about government bonds. I suppose you can expand the list of issuers to include the government, but I'm assuming you're talking about corporate bonds. To be honest I've never seen the appeal of corporate bonds either - the risk of losing your principal is correlated to the risk of the company (same as buying stock in the company) but the returns are typically better to buy stock.

I can see a reason for banks to buy bonds in a company however, especially if the only other option is for the company to default on their loans.

Having said that, Australian government bonds are also more tightly coupled to the Australian economy than say the in US. We could decouple somewhat by lowering corporate income tax.

Yes but why would you hold a government bond when cash in a high yield bank savings account gets you the same or better return with no risk of capital loss (up to the $250k deposit guarantee per financial institution)?

Remember that the 1996-2007 Liberal Government essentially eliminated the Sovereign Bonds Market by paying down all Federal debt, about 30billion was the total pool of bonds outstanding at one stage IIRC. Too small a market for everyone to be chasing.

It wasn't until the Labor 07-13 administration started borrowing again heavily that the asset class came back to life (we can debate the merits of this till Daisy The Cow comes home, but I'm trying not to be too political. FWIW my view is that the deficits from 08 to 12 were necessary, but Labor started losing the plot with NDIS, Gonski, Pensions, school kids bonuses and expenditure tied to a mining tax that came in 5 years too late and, though economically sound and rational, would be another 15 years before raking in serious money).

I'm getting off topic as usual,

btw the reason I hold AGBs is not just for the return, but for the speculative uptick when something like a GFC next rears its head, and investors run to safety. It helps makes sure you always have something to sell and scoop up the bargain-basement shares.

Anything that is exposed to variation in returns is by definition not risk-free (in a pure portfolio theory sense). Therefore again I make the point, why would you invest in a government bond*, instead of leaving money in cash?

* Some bonds that the federal and state governments issue are inflation-linked bonds, which, put simply, means your capital is preserved in real terms. This is probably a better bet than buying a 30 year non-inflation linked bond, which you would hope to be compensated for with a higher interest rate. Doesn't always happen in times of inverse yield curves.

Hi marty998 -

Appreciate the Australia-specific intelligent discussion. If possible, could you help me think through the following two low-likelyhood scenarios:


Scenario 1: A bank implodes and the Australian Government doesn't have the cash on hand to pay depositors.

Scenario 2: The Australian Government lowers the $250K guarantee back down to $100K.


In the first scenario I'd imagine the Government would have to issue debt in order to pay back depositors (I'd like to think there would be a government document outlining how they'd go about this but haven't managed to find anything).

In the second, I'd expect we'd see a fair movement of cash back into AGBs. But would appreciate your thoughts on both cases.


Regarding TIBs, the problems I see are 1) you have to trust the inflation figures provided by the government, and 2) TIBs are more correlated to other asset classes. I know 1) sounds like conspiracy theory but there is an ongoing incentive for the government to under-report inflation. Regarding 2), if bonds were the only asset you were allowed to purchase then there is an argument for inflation-adjusted bonds but I think there is more value in being invested long term in a less-correlated asset class ie regular TBs/AGBs. Same reason I'd choose VGB over VAF, despite the liquidity - the latter is too correlated with regular stocks.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #486 on: January 03, 2015, 10:42:45 PM »
Anything that is exposed to variation in returns is by definition not risk-free (in a pure portfolio theory sense). Therefore again I make the point, why would you invest in a government bond*, instead of leaving money in cash?

* Some bonds that the federal and state governments issue are inflation-linked bonds, which, put simply, means your capital is preserved in real terms. This is probably a better bet than buying a 30 year non-inflation linked bond, which you would hope to be compensated for with a higher interest rate. Doesn't always happen in times of inverse yield curves.

Well maybe I'm missing something here, but aren't the returns on bonds a fair bit better than cash?

Vanguard's Index Diversified Bond Fund has grossed a return of 7.68% since it started in 2000.
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vidbf.pdf?20141226|091500

In 2011 it returned over 10%, in the same year that their Australian Shares fund lost more than 10%. Isn't this the main reason, that shares and bonds tend to be uncorrelated asset classes?

I know that's true in the US, and the 2011 example seems to back it up for AUS, but not sure about long term correlations. I saw some US data that simply adding a small amount of bonds to your portfolio reduces risk whilst increasing returns, which seemed quite appealing
« Last Edit: January 03, 2015, 10:44:23 PM by AustralianMustachio »

marty998

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Re: Australian Investing Thread
« Reply #487 on: January 04, 2015, 02:59:46 AM »
Anything that is exposed to variation in returns is by definition not risk-free (in a pure portfolio theory sense). Therefore again I make the point, why would you invest in a government bond*, instead of leaving money in cash?

* Some bonds that the federal and state governments issue are inflation-linked bonds, which, put simply, means your capital is preserved in real terms. This is probably a better bet than buying a 30 year non-inflation linked bond, which you would hope to be compensated for with a higher interest rate. Doesn't always happen in times of inverse yield curves.

Well maybe I'm missing something here, but aren't the returns on bonds a fair bit better than cash?

Vanguard's Index Diversified Bond Fund has grossed a return of 7.68% since it started in 2000.
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vidbf.pdf?20141226|091500

In 2011 it returned over 10%, in the same year that their Australian Shares fund lost more than 10%. Isn't this the main reason, that shares and bonds tend to be uncorrelated asset classes?

I know that's true in the US, and the 2011 example seems to back it up for AUS, but not sure about long term correlations. I saw some US data that simply adding a small amount of bonds to your portfolio reduces risk whilst increasing returns, which seemed quite appealing

Ahh but it's 6.88%* after management costs and the composition of that return was 5.81% income and 1.07% capital growth. The returns should be better than cash because you should be compensated for bearing the risk of losing capital.

I don't have to hand what the average RBA cash rate was for 2000-2014, but if it is 5.81% or higher, or higher than the government bond rate then it would neatly prove my point :)

* That fund also includes corporate bonds and foreign government bonds, so is not directly comparable to pure Aust Government bond returns

AustralianMustachio

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Re: Australian Investing Thread
« Reply #488 on: January 04, 2015, 03:08:55 AM »
Yes but I guess my point was that if you were buying the bonds directly you wouldn't have the MER cost - which I guess some people do.

But yeah if the cash rate was that high then I'd totally agree with what's the point. Tho I guess the uncorrelated feature would still stand - if shares fell then you'd benefit from the capital growth you identified.

On the other hand it might be better to have cash on hand in a crash - you could scoop up the bargains in the share market and set yourself up nicely for the future!

marty998

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Re: Australian Investing Thread
« Reply #489 on: January 04, 2015, 03:28:49 AM »
Hi marty998 -

Appreciate the Australia-specific intelligent discussion. If possible, could you help me think through the following two low-likelyhood scenarios:

Scenario 1: A bank implodes and the Australian Government doesn't have the cash on hand to pay depositors.

Scenario 2: The Australian Government lowers the $250K guarantee back down to $100K.

In the first scenario I'd imagine the Government would have to issue debt in order to pay back depositors (I'd like to think there would be a government document outlining how they'd go about this but haven't managed to find anything).

In the second, I'd expect we'd see a fair movement of cash back into AGBs. But would appreciate your thoughts on both cases.

RE: #1. The big 4 collectively hold about $500 billion in liquid assets. There's also an emergency credit facility with the RBA that banks can tap if required.

In times of stress, the preferred method of bailout is to be acquired by another bank. This was the case with Westpac acquiring St George, and CBA acquiring Bankwest. Both SGB and BW would likely have failed had they not been taken over. Regarding the big 4, it's extremely unlikely one would fail, though given their relative sizes, either CBA or WBC could potentially swallow NAB if required. I would consider given the way that CBA and WBC are managed it would take the wholesale destruction of the entire East Coast for one of those 2 to fall over.

In ANZ's 2014 results presentation the bank made the point that the average dynamic LVR (i.e. the current LVR, not the starting LVR at loan origination) of its residential property loan portfolio was hovering around 40%
So in the event the economy goes to shit and if property prices crashed say 30%, the bank would still recover substantially all of the outstanding loans and borrowers would still walk away with some equity. Sure shareholders may take a hit but the bank would still be standing.

In summary a lot of dominoes would have to fall over before the taxpayer is required to bail out a bank. If it did have to happen, we'll all have bigger problems than worrying about how to fund it.

Edit to add: to fully answer your question - the government cannot run out of money. Now that the debt ceiling has been abolished, the Government can issue an unlimited amount of debt to fund itself.

RE#2. The guarantee is per institution. If you had a million dollars in cash (unlikely, because if you had that net worth you'd be investing it) you could split that between 10 different banks and still be covered fully.

The guarantee is more of a confidence thing. It was made available if required, but not a single dollar has ever had to be paid.

Interestingly by charging the banks a fee to have it in place, the Government since 2007 has actually made a profit on it. The banks recover the cost by upping your home loan interest rate a couple of basis points. Another case of government intervention/reassuring the punters/vote-buying putting up the prices for everyone.
« Last Edit: January 04, 2015, 03:39:26 AM by marty998 »

AustralianMustachio

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Re: Australian Investing Thread
« Reply #490 on: January 04, 2015, 04:06:53 AM »
Also as a comparison the vanguard share fund only returned ~1% higher over the same fourteen ish period. Seems like bonds have performed very well for "low risk," over the last 14 years at least.

AustralianMustachio

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Re: Australian Investing Thread
« Reply #491 on: January 04, 2015, 06:02:04 PM »

I don't have to hand what the average RBA cash rate was for 2000-2014, but if it is 5.81% or higher, or higher than the government bond rate then it would neatly prove my point :)


Also, if the RBA cash rate for that time was 5.81% or higher, then IMO that would more be an argument not to invest in anything. Vanguard's Aus share fund returned 8.33% over that period. 2.5% above cash doesn't seem great for all the volatility of shares over that period.

Of course the last 14 years is a poor point of reference for shares - starting at the year 2000 top and including both the tech bubble crash and the GFC crash.

dungoofed

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Re: Australian Investing Thread
« Reply #492 on: January 06, 2015, 08:00:29 AM »
Was wondering whether anyone else found the attached chart interesting. It's 2014 relative performance for gold in USD (decreased 2%), gold in AUD (increased 7%) and VAS (increased 2%).

What's interesting for me is that while if you were US-centric, you'd have been much better off in stocks last year, but that's not the case for Australian investors.

Looking ahead to 2015, when you're hearing things like "markets are overvalued" or "gold is going to continue to slide," remember it probably doesn't apply to Australia.

(TL;DR stick to your strategy)

deborah

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Re: Australian Investing Thread
« Reply #493 on: January 06, 2015, 02:37:12 PM »
The chart doesn't say which colour is which - I assume the blue is USD gold, the black is AUD gold and the green is VAS?



LonerMatt

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Re: Australian Investing Thread
« Reply #494 on: January 06, 2015, 03:56:16 PM »
So I am going to buy a chunk of stocks by the end of the month, I remember we previously had a conversation about different index funds.

I'm thinking I need more international exposure (since many of my other assets are in AUD), any recommendations for global index funds?

I really need to clean up my investing stuff.

Ugh, maybe in ten years.
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dungoofed

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Re: Australian Investing Thread
« Reply #495 on: January 06, 2015, 04:29:37 PM »
The chart doesn't say which colour is which - I assume the blue is USD gold, the black is AUD gold and the green is VAS?

OMG sorry! Charts 101 FAIL! Yes, that is correct.


AustralianMustachio

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Re: Australian Investing Thread
« Reply #496 on: January 06, 2015, 05:57:29 PM »
So I am going to buy a chunk of stocks by the end of the month, I remember we previously had a conversation about different index funds.

I'm thinking I need more international exposure (since many of my other assets are in AUD), any recommendations for global index funds?

I really need to clean up my investing stuff.

Ugh, maybe in ten years.

VGS / VGAD might be what you're after. All world ex-Australia index ETFs through Vanguard. Look back through the last few pages of this thread to see discussion regarding them

dungoofed

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Re: Australian Investing Thread
« Reply #497 on: January 06, 2015, 07:00:37 PM »
Hi LonerMatt - these are your options, in my order of preference:

VGS: Vanguard MSCI Index International Shares (New. So-so liquidity. Australian-domiciled, dividends reinvested, 0.18% MER)
WXOZ: SPDR S&P World ex Australia (So-so liquidity, Australian-domiciled)
IOO: iShares S&P Global 100 (Good liquidity, US-domiciled)
VTS: Vanguard US All Market (Good liquidity. Low MER. US companies only)
IVV: iShares S&P 500 (Good liquidity. US companies only)


MsRichLife

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Re: Australian Investing Thread
« Reply #498 on: January 07, 2015, 01:53:14 AM »
Was wondering whether anyone else found the attached chart interesting. It's 2014 relative performance for gold in USD (decreased 2%), gold in AUD (increased 7%) and VAS (increased 2%).

What's interesting for me is that while if you were US-centric, you'd have been much better off in stocks last year, but that's not the case for Australian investors.

Looking ahead to 2015, when you're hearing things like "markets are overvalued" or "gold is going to continue to slide," remember it probably doesn't apply to Australia.

(TL;DR stick to your strategy)

Thinking that the USD was going to become stronger against AUD I decided to invest reasonably heavily in GOLD during the slump in October/November. It's paid off reasonably well so far. I intend to keep buying the dips when they occur as part of my strategy to diversify towards somewhat of a 'permanent portfolio'.

dungoofed

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Re: Australian Investing Thread
« Reply #499 on: January 07, 2015, 05:08:55 AM »
It's paid off reasonably well so far.

It paid off 2.5% today