Author Topic: Australian Investing Thread  (Read 758321 times)

AustralianMustachio

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Re: Australian Investing Thread
« Reply #750 on: April 06, 2015, 08:49:17 PM »
^^ MVW might be worth looking into. Churn / tax issues can be a big deal with these "smart beta" ETFs, makes most of them not particularly smart IMO.

However due to Australia's preponderence of miners, I believe MVW is a good idea. I also don't have a particularly high income, so tax is less of a concern. So I hold about 1/3rd MVW to 2/3 VAS.

I'm still hanging out for Vanguard or someone to come up with an Australia Shares Ex Resources ETF!

dungoofed

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Re: Australian Investing Thread
« Reply #751 on: April 06, 2015, 08:56:17 PM »
+1.

Even better, ex-resources, ex-financials

slothman

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Re: Australian Investing Thread
« Reply #752 on: April 06, 2015, 09:05:59 PM »
Might aswell be ex-australia if thats the case

This_Is_My_Username

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« Reply #753 on: April 06, 2015, 09:36:22 PM »
MVW has only $20m in the fund ?!

VAS has $9,200m

does that concern anyone?

AustralianMustachio

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Re: Australian Investing Thread
« Reply #754 on: April 06, 2015, 09:59:20 PM »
Might aswell be ex-australia if thats the case

Haha very true. Yeah even though banks are viewed as "defensive" and clearly are not, I'm more ok with them making up a large proportion of the index vs the resources sector which has no real control over their profits.

Quote
MVW has only $20m in the fund ?!

VAS has $9,200m

does that concern anyone?

This is what I was talking about above. I'm not crystal clear on this, but I believe this is the explanation: Because it's so small, it can't benefit from economies of scale to the same degree, and this will cause a high degree of churn. I.e. a higher proportion of buying and selling and thus worse after tax implications for the investor.

marty998

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Re: Australian Investing Thread
« Reply #755 on: April 07, 2015, 03:58:33 AM »
A fund of $20m is not economic for a fund manager to run, index or no index.

Slightly on a tangent, but a little known issue with master trusts is the problem of being the "last man standing". If a fund is suffering from a mass of redemptions, the remaining unitholders are the ones who may have to bear the tax liability of crystallised capital gains, due to all the selling that has to be done within the portfolio to meet those redemptions.

LIC's will raise a deferred tax liability provision on unrealised gains, because a LIC, being a Company is liabile for tax at 30% on gains (eventually) with no CGT discount.

Trusts (and hence most managed funds) are another matter - as trust income is taxable in the hands of the beneficiary, the trust won't have the tax position built into the exit unit price. If you are the last person to leave the trust, you may find yourself quite screwed indeed.

_ _ _ _

Separate issue, the RBA held the cash rate steady today...quite obvious what the market was betting - index immediately fell 1% at 2:30pm.

Statement from the Governor was that the Bank is still leaning to an easing bias but is being patient for now.

_ _ _ _

Also today Atlas Iron put itself in voluntary suspension after the IO price fell 24% in March. The reason cited was that the financial outlook for the business has materially changed since the HY results were released (no shit sherlock), and, reading between the lines, that it just might be all over for them.

If that is the case, expect there to be a similar outcome for BCI, MGX and probably even FMG. In the words of my Scottish friends, "they're all fooked".
« Last Edit: April 07, 2015, 04:08:57 AM by marty998 »

slothman

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Re: Australian Investing Thread
« Reply #756 on: April 07, 2015, 04:15:34 AM »
Any idea why AFIC's share price has been getting a hammering in the past few weeks?

Are they overexposed to resource/energy?

marty998

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Re: Australian Investing Thread
« Reply #757 on: April 07, 2015, 04:17:51 AM »
err...AFI is trading near it's 12 month high? Just like the ASX index?

slothman

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Re: Australian Investing Thread
« Reply #758 on: April 07, 2015, 04:20:23 AM »
Sorry I meant relative to it's NTA. It's trading at a discount to NTA whereas it's been at a premium for a while now (last couple of years if my memory serves me correct).

marty998

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Re: Australian Investing Thread
« Reply #759 on: April 07, 2015, 04:58:17 AM »
Can't answer that one, but not a good sign. Yes you can buy in cheaper than the sum of parts but weird shit happens when the discount persists.

They either start doing buybacks, in which their size and scale gets reduced meaning higher average ongoing fees, or if the discount is great enough a corporate raider comes in, buys up a chunk on the cheap, sacks the manager, installs themselves and runs the fund for their own benefit and not necessarily yours.

Unlikely to happen with the established larger ones like AFI but small ones can and do get ripped up every now and again.

This_Is_My_Username

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« Reply #760 on: April 07, 2015, 09:00:44 PM »
Quote
Sorry I meant relative to it's NTA. It's trading at a discount to NTA whereas it's been at a premium for a while now (last couple of years if my memory serves me correct).

from what I can tell, today AFI is only 2% cheaper than NAV. (?)

Emjay

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Re: Australian Investing Thread
« Reply #761 on: April 09, 2015, 03:21:26 AM »
Hi Everyone,

A technical question - I have VTS shares bought through Vanguard Aust. I have filled out the W-8BEN form to have only 15% tax taken out by USA. I know I can claim the tax against any tax due in Aust, but the issue is that I currently don't pay tax (SAHM, just started working part time, Prob below the $18k tax free threshold this financial year). So as time goes on I will pay tax and this issue will resolve in those years, BUT my husband and I are not planning to draw more than about $18k each when we FIRE in 8 years and then if my income is all VTS I will still pay the 15% tax to US and can't get it back here as won't owe any tax in Aust.

Any suggestions on how I should proceed? Can I do a US tax return?

The plan at the moment is for me to create a passive income so that we can earn similar amounts when we FIRE to reduce tax generally.

Hope this makes sense?

Thanks in advance for any suggestions which I can then research further.

Emjay

Wadiman

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Re: Australian Investing Thread
« Reply #762 on: April 09, 2015, 04:50:17 AM »
Emjay - i'm sure you know this but in case you don't - the US tax is only payable on dividends which are pretty low yield (about 1.65% pa).   US tax is not payable on capital gains for "aliens".

Emjay

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Re: Australian Investing Thread
« Reply #763 on: April 11, 2015, 01:31:20 AM »
Thanks Wadiman! I didn't know that and it helps a lot with my calculations.
Cheers Emjay

potm

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Re: Australian Investing Thread
« Reply #764 on: April 11, 2015, 02:44:46 AM »
Capital gains on US stocks is taxed in Australia though so if any capital gains raises your income to a level where you would pay tax then it will be relevant.

Emjay

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Re: Australian Investing Thread
« Reply #765 on: April 11, 2015, 03:16:47 AM »
Thanks! Yep i did get that, but I can control CGT events by how much and frequently I draw down from the account. Dividends will just come regardless.

I do appreciate input, even if I already know the info, it still might make me think of something from a different perspective or educate another reader!

Thanks for sharing.

potm

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Re: Australian Investing Thread
« Reply #766 on: April 11, 2015, 05:26:31 AM »
In regards to the withholding tax, I do not believe you can get it refunded. It is just lost tax, along with the corporate tax that the company paid. It may be possible if the offsets are below $1k, not sure on this though.
Investing in Australia is just so much more tax effective, especially if you are on a low income.


This_Is_My_Username

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« Reply #767 on: April 11, 2015, 06:02:41 AM »
Quote
Investing in Australia is just so much more tax effective, especially if you are on a low income.

thats true, but diversification...   

I am torn. 

Emjay

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Re: Australian Investing Thread
« Reply #768 on: April 11, 2015, 06:43:51 AM »
Please feel free to make some suggestions!

We have been on a huge learning curve, but obviously there is so much to learn and we are may keen to learn from those who get the possibilities of FIRE.

Emjay

dungoofed

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Re: .
« Reply #769 on: April 11, 2015, 04:24:40 PM »
Quote
Investing in Australia is just so much more tax effective, especially if you are on a low income.

thats true, but diversification...   

Also, we may very likely see in our lifetimes a change to the franking credits system. And if this pulled us more in line with the US system then it's not beyond the realm of possibility that we could see full refund/credit on US witholding tax.

frugaljo

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Re: Australian Investing Thread
« Reply #770 on: April 11, 2015, 05:34:49 PM »
on the topic of investing in Australia, does anybody else wish we could in Peer to peer lending in Australia without having to be a sophisticated investor?

 I enjoy reading about MMM journey into it and would love to loan people money in a way we both prosper...

marty998

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Re: Australian Investing Thread
« Reply #771 on: April 11, 2015, 06:04:58 PM »
Not really, I don't wish to see it normalised. We currently live in a rather benign period in terms of default rates. People have very short memories.

When interest rates start to rise and economic conditions turn you'll be glad you didn't 'invest' in these things.

Why do you think borrowers have to turn to P2P?...they get knocked back by the usual bank channels of course...

frugaljo

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Re: Australian Investing Thread
« Reply #772 on: April 11, 2015, 06:44:54 PM »
Not really, I don't wish to see it normalised. We currently live in a rather benign period in terms of default rates. People have very short memories.

When interest rates start to rise and economic conditions turn you'll be glad you didn't 'invest' in these things.

Why do you think borrowers have to turn to P2P?...they get knocked back by the usual bank channels of course...
thanks for the response Marty from what I have read they run the same credit checks as banks through veda, and the appeal is a lover interest rate for the borrower. (using http://www.societyone.com.au/ as reference.

I looked at these type of lending 10 years ago and looked alot less stable financial planners were setting up borrowers and investors through their practices no credit checks that I could see.
Companies like Society one and ratesetter  use the same credit checks as the bank veda.
 With the steady stable success in the US and England over past ten years. why can't it work in australia?

andystkilda

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Re: Australian Investing Thread
« Reply #773 on: April 13, 2015, 03:52:05 AM »
Ratesetter...

Don't need to be sophisticated to invest (lend) with them. In fact you can be a very sophisticated moron and lend all your money on there.

marty998

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Re: Australian Investing Thread
« Reply #774 on: April 13, 2015, 06:03:43 AM »
The point is that it is currently unregulated. Things blow up from time to time. Shit can and does happen.

If your money is in a term deposit with a bank you are somewhat protected by bank deposit guarantees. With P2P lenders you can lose chunks of capital and never see it again. You would hope to be substantially compensated for that risk.

Every company can cite "no defaults, no history of loss". Until it happens. Then you're left with just glossy marketing and no money.

I'm not against the concept - there is a place for it, and if it stirs up competition and innovation in the financial sector then that is a good thing. However, I'm not game to invest in it.

Wadiman

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Re: Australian Investing Thread
« Reply #775 on: April 13, 2015, 06:05:52 AM »
Anyone read the P2P article in Money magazine? It sums up the current state of play in Aus pretty well.

deborah

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Re: Australian Investing Thread
« Reply #776 on: April 13, 2015, 11:46:33 PM »
David Potts wrote an interesting article in Fairfax media today http://www.canberratimes.com.au/money/houses-take-cake-by-a-narrow-margin-20150414-1mgx5i.html about the return from stock vs property in Australia. There is a graph of how $100 invested in 1929 would have grown through the years. The returns are pretty neck and neck, with the share market being somewhat smoother. David makes an interesting point that shares have yet to reach their 2008 highs, while property has grown further.

It is interesting that Marcus Padley (who I have more time for) has also written an article comparing shares and property - http://www.canberratimes.com.au/money/investing/short-term-or-long-whichever-fits-best-20150414-1mi3fq.html
« Last Edit: April 13, 2015, 11:56:20 PM by deborah »

superannuationfreak

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Re: Australian Investing Thread
« Reply #777 on: April 14, 2015, 02:02:39 AM »
I'm starting to think about the principles of asset location for the Australian prospective early-retiree. There has been a fair amount on asset location and early retirement written from a US perspective, from SIPP and backdoor Roth IRAs to the simple bonds in 401k 'rule' but I haven't read much from an Australian perspective.  I may be coming from a different set of assumptions than many so it would be good to get other input.  I'm not a tax expert and don't know your individual situation but hope this spurs thought and discussion.

My starting points:
- I'm aware of the likelihood of tax changes over the coming decades but not paranoid about it.  "They" are not coming for my Super any more than my other assets.  The plausible worst cases are restrictions or additional taxes on lump sums, or slightly later access-age but as I am planning to live a long life and will have assets outside super these make only a marginal difference.  So for example, while my partner is still far from retirement and making a decent income, I think it is worth her salary sacrificing as much as possible to take advantage of the lower tax rate but we don't make much in after-tax contributions.
- I'm assuming a desire for diversification, both across countries (Australian and International Shares) and asset classes (including some bonds or cash).  If we keep everything 100% in Australian Shares, for example, then there aren't so many asset location decisions to make (although if some of our assets are less passive then keeping those in super can reduce tax costs).
- I'm not focused on gearing.  For those whose whose preferences and situation are such that they are willing to trade off a (hopefully small) risk of complete loss of capital for an accelerated path to financial independence only the parts on International and Australian Shares will probably be relevant.  If I was borrowing for direct property (and I'm not) then I'd be inclined to do it outside Super.  The costs and regulatory risks seem much higher in Super and the tax deductibility of lending more effective on a high marginal tax rate outside Super.
- I'm assuming we will also have assets outside Super.  An early retiree will likely need them to ensure a desired (even if frugal) lifestyle until Superannuation "preservation age".

Those caveats out of the way, what is asset location and how does it differ from asset allocation?  Asset allocation is the proportion of Australian Shares, International Shares, cash, etc. across all our accounts and is a substantial driver of risk and return in a portfolio.  Asset location is figuring out which assets to put in Super and which should be held outside Super.

Once we hit preservation age, we can more-or-less freely substitute money inside and outside super.  But even before then, as long as we have enough to meet current needs there is a degree of fungibility.  We can, for instance if we need access to cash for spending, sell shares outside super and buy similar equities in super while keeping our overall asset allocation static.

Why should asset location matter?  Largely due to different tax treatment and to a lesser extent due to the availability of online savings accounts.  Briefly on the latter, online savings accounts, while not as attractive as in the past, currently give us an expected yield higher than 10-year Australian government bonds but with much lower volatility.  Sure, if interest rates fall further bonds will experience capital gains but equally if interest rates rise bonds will fall in value in the short term.  By being relatively small we're able to access the government guarantee on deposits which large super funds cannot.  This may not continue forever but it is a good deal right now and relaxes some of the arguments below for keeping fixed interest in Super.

What are the different tax treatments?
Australian Shares: Franking Credits on Dividends, Capital Gains discount if held > 12 months.
A-REITs: A bit messy, but typically not much in the way of franking credits.
Cash and Bonds: Taxed as ordinary income.
International Shares: Withholding tax credits on Dividends, Capital Gains discount if held > 12 months.

Crudely,
Australian Shares get tax advantages inside and outside Super.
A-REITs are a pain to keep track of for tax purposes and usually get tax advantages inside Super.
Cash and Bonds get tax advantages only inside Super (while your marginal tax rate is positive).
International get tax advantages both inside and outside Super (while your marginal tax rate is positive).

Given a desired asset allocation and a current value of our Super vs. Non-Super assets where would I start.  I assume a reasonable income gives a current marginal tax rate above 30% so that the tax benefits of Super can be substantial.

I'd start with any A-REITs in Super (and extend this to unlisted property and infrastructure as well as any tax-inefficient alternatives).
At the other end I'd start with Australian Shares outside Super (particularly passive index or buy-and-hold-forever strategies).
For fixed interest, if I hold Bonds I'd hold them second after REITs in Super, if Cash I'd consider the after-tax return of an online savings account vs. something close to the RBA cash rate after 15% tax (which is what our Super will probably earn in their Cash option).  Cash is also handy in that you can spend it when needed without any taxable sales required, so I lean towards a decent amount outside Super.

If I have space left after REITs and considering fixed interest then International Shares are interesting for early retirement.  If we are not frugal at all then either inside or outside Super is fine, as we will potentially get back withholding tax and be eligible for capital gains discounts.  It may be a hassle/may not be possible to claim back more than $1,000 in foreign tax credit so I'd lean towards holding some International Shares in Super if possible.

If we are at the Senior Mustachian end of the frugality spectrum then having more of our International Shares in Super makes even more sense to me.  The reason is that if we become financially independent with many years until we have access to Superannuation then our tax arrangements can invert if we stop working.  That is, after capital gains discounts and franking credits, we may end up with a 0% tax rate outside Super but are still paying 15% p.a. inside Super.  We cannot get back foreign withholding taxes on dividends if we don't pay any tax but our Super fund still can.

I also haven't touched on Investment, Insurance, or Imputation Bonds.  These require some more individual calculations to judge their worth, particularly for early retirees where you may be on a low or 0% individual tax rate after retirement.  There are pitfalls you should look into using these, and the fees are not as competitive as index ETFs or low-cost Super funds, but my understanding is when they are used correctly the tax paid within the structure (on dividends, say) is 30% minus any credits, but after 10 years there is no Capital Gains Tax payable.  It seems they may be suited for high-income earners' International Share allocation with a roughly 10 or more year timeframe to retirement so I'd be interested in hearing others' views.

TL;DR, we still have a muddle which depends on individual tax situations (how long until retirement, how much taxable income needed after retirement).  But for many people with early retirement planned for the next decade, say, my rule of thumb (with International Shares and Cash the main areas of doubt; maybe do a mix of both if borderline).

REITs/Alternatives first in Super
Bonds second in Super
International Shares third in Super [But some Cash or a mix may be better]
Cash in Super and/or online savings account outside Super
Australian Shares last in Super

Once in early retirement, having more of any Cash allocation outside Super may make sense, particularly if you are frugal and so have a 0% tax rate outside Super.

bigchrisb

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Re: Australian Investing Thread
« Reply #778 on: April 14, 2015, 02:21:33 AM »
Disagree 100% on the location of A-REITS.  This is because of the tax deferred and capital gains distributions received from them.  If holding for the long term, these can be some of the most tax effective investments, and as such if you have to have investments in a high tax entity (such as yourself), then these are a great candidate.

For example, my holdings of GPT have been almost tax free over the last 5 years.

In reality, the best place for these investments is in a trust - that way you can stream the tax deferred income (typically 50-80%) to yourself, and leave any ordinary income at company tax rates.

Agree  on most of the rest.

superannuationfreak

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Re: Australian Investing Thread
« Reply #779 on: April 14, 2015, 02:54:57 AM »
Disagree 100% on the location of A-REITS.  This is because of the tax deferred and capital gains distributions received from them.  If holding for the long term, these can be some of the most tax effective investments, and as such if you have to have investments in a high tax entity (such as yourself), then these are a great candidate.

For example, my holdings of GPT have been almost tax free over the last 5 years.

Thanks, perhaps I need a masterclass on the tax side!  Does this work for all REITs/REIT funds/ETFs or did you select more tax-efficient individual ones?  For passive REIT investments I thought most of the distributions were taxed as ordinary income, e.g. Vanguard: http://www.asx.com.au/asxpdf/20150402/pdf/42xpbp37szp067.pdf

bigchrisb

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Re: Australian Investing Thread
« Reply #780 on: April 14, 2015, 03:16:21 AM »
Interesting.  I don't hold any vanguard property ETFs, only direct ones.  I would have estimated the tax deferred income at about 50%.  I had a look at the SLF distribution announcements (another a-reit index etf), and that seems to drift between 40% and 60% tax deferred.

Also worth giving some thought to how much realised income different assets give, vs unrealised income.  For example, I put my high yielding stocks in my super fund, as these are going to have income to deal with each year.  Where as my low yield securities (international ETFs and low yield Aus stocks (the likes of CSL, computershare etc) in my own name, as I can choose if and then the capital gains are realised.

slothman

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Re: Australian Investing Thread
« Reply #781 on: April 14, 2015, 04:37:34 AM »
Stupid question here...I thought index ETFs e.g. VAS already contain REITs. Or is it underweight in REITs and hence the additional holdings via a-reit index etfs?




bigchrisb

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Re: Australian Investing Thread
« Reply #782 on: April 14, 2015, 05:02:30 AM »
Yep, ETFs like VAS include some REITS.  One of the downside of total market ETFs is that different asset classes have different tax consequences in different holding entities (super, company, trust etc).  I.e. the post tax return of holding asset allocations in the right bucket can be higher than holding a market ETF in each entity.

TJEH

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Re: Australian Investing Thread
« Reply #783 on: April 14, 2015, 06:28:06 PM »
A fund of $20m is not economic for a fund manager to run, index or no index.

Hey marty998, what are your thoughts on the necessary size for a fund? I'm looking for a way to diversify away from the usual suspects that make up such a huge % of the asx200. I don't have the skill\time\inclination to try and pick individual stocks, so  MVW has piqued my interest.....

superannuationfreak

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Re: Australian Investing Thread
« Reply #784 on: April 14, 2015, 10:35:59 PM »
A fund of $20m is not economic for a fund manager to run, index or no index.

Hey marty998, what are your thoughts on the necessary size for a fund? I'm looking for a way to diversify away from the usual suspects that make up such a huge % of the asx200. I don't have the skill\time\inclination to try and pick individual stocks, so  MVW has piqued my interest.....

I've given some thought to ways of diversifying within the broad Shares asset class.  The more rational part of my brain prefers using International Share ETFs, particularly Small Cap and/or Value.  But I also suffer from some home bias and can't fully embrace this idea (although I have more International than Australian Shares exposure at present so I guess I'm some of the way there).  So what to do within Australian Shares?

I originally was interested in equal or fundamentally-weighted Large Cap Index ETFs such as MVW or QOZ.  But then I though more about it (and I think read a related post on the alphaarchitect blog, for full disclosure) and realised that with the products available in Australia we're actually paying a lot for not-very-much diversification (and mediocre tax efficiency if held outside Super, I expect, when the portfolio rebalances which may realise capital gains).  If we look at the names and weights we're still heavily weighted towards the usual suspects, so having a little in these products isn't going to move the diversification dial much.

If the fees are 0.35-0.40% p.a. as with these ETFs, then adding a mix of 70-80% VAS and 20-30% in something 'more different' charging 1% p.a. or less is about the same cost and can get you greater diversification (in my opinion).  I've used FGX and QVE for this on a very small scale (as discussed here: http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg445457/#msg445457 ) (but in no way endorse these; I'm not sure FGX is transparent enough for me or will be tax-efficient within the fund even though dividends will likely be franked, so may exit my small holding) and imagine the lower-cost choices will continue to grow (that's my biggest concern, actually, being 'trapped' with a large position by capital gains if/when lower-fee alternatives come along).

steveo

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Re: Australian Investing Thread
« Reply #785 on: April 17, 2015, 06:05:09 AM »
Guys I have a question regarding your thoughts on the Vanguard International shares options. Do you like AUD denominated funds like VGS & VGAD or the USD denominated funds like VTS & VEU.

I'm starting to think I should have some foreign shares in my portfolio but I'm not sure of the best option.

DrowsyBee

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Re: Australian Investing Thread
« Reply #786 on: April 17, 2015, 06:42:56 AM »
After realising that if I bought 10 shares in Netflix in January and sold today that I would have made roughly $3,000 between capital gain and USD/AUD changes, I'm starting to think of just keeping my VGS and VGAD but buying random shares that I like from the U.S. Market.

That being said I have VTS and planning on getting VEU because I think they have a wider range of the market? That is, >200 stocks, so, >VTS.

One way I personally looked for foreign shares, actually, was to look at Malcolm Turnbull's conflict of interest register to see what he thought were good buys.

marty998

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Re: Australian Investing Thread
« Reply #787 on: April 17, 2015, 08:04:27 AM »
A fund of $20m is not economic for a fund manager to run, index or no index.

Hey marty998, what are your thoughts on the necessary size for a fund? I'm looking for a way to diversify away from the usual suspects that make up such a huge % of the asx200. I don't have the skill\time\inclination to try and pick individual stocks, so  MVW has piqued my interest.....

2 schools of thought on this. Big funds have the economies of scale necessary to reduce fees.

Small funds are nimble enough to take advantage of mispricing in the market. The ASX 200 is actually quite efficient and concentrated around the top 10 - it's very difficult for a manager to outperform over the long term. Managers generally have to go beyond the 200 in order to find opportunities. Because the market caps are so low for companies outside the 200, there's less ability for larger funds to take advantage. This is where smaller funds come into their own.

Depends what the Manager is trying to achieve... there's enough (probably too much) choice out there to meet almost any investor requirement.

If a fund carries a passive strategy, you'd want it to be as big as possible. If a fund is small, then you'd better spend some time researching the Manager's track record.

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Re: Australian Investing Thread
« Reply #788 on: April 19, 2015, 06:49:22 PM »
Hilarious Article in the Canberra Times today.

http://www.smh.com.au/business/the-economy/superannuation-alert-1-million-isnt-enough-to-retire-in-comfort-20150419-1modsc.html

Most retirees that are about to access their super should already have paid off homes, right? So I'd say the $40k you could get every year would be enough for a comfortable retirement. However, I'm frugal and don't even expect my Super balance to get that big, since I'm doing the bare minimum and keeping investments outside super. I'll hopefully be doing $40k a year retirement 20 years before I can even access my Super.




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Re: Australian Investing Thread
« Reply #789 on: April 20, 2015, 06:15:10 AM »
Hilarious Article in the Canberra Times today.

http://www.smh.com.au/business/the-economy/superannuation-alert-1-million-isnt-enough-to-retire-in-comfort-20150419-1modsc.html

Most retirees that are about to access their super should already have paid off homes, right? So I'd say the $40k you could get every year would be enough for a comfortable retirement. However, I'm frugal and don't even expect my Super balance to get that big, since I'm doing the bare minimum and keeping investments outside super. I'll hopefully be doing $40k a year retirement 20 years before I can even access my Super.

Haha, I also saw that on one of the morning shows this morning and also thought it was pretty funny, the guy basically recited the conclusions of the article, and talked about how you need income from super to be the same amount you were earning pre-retirement. I wonder how that's meant to be possible with 9.5% contributions (haven't done the maths but seems very unlikely)

EDIT: i did the maths and with 3.5% equity risk premium, 15% contribution tax, and contributing 9.5% of salary, it would take a working career of roughly 70 years to have 25 times your income in super (assuming constant salary for entire career)
« Last Edit: April 20, 2015, 06:20:24 AM by JamesSyd »

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Re: Australian Investing Thread
« Reply #790 on: April 20, 2015, 06:49:30 AM »

TJEH

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Re: Australian Investing Thread
« Reply #791 on: April 20, 2015, 06:54:58 AM »

I've given some thought to ways of diversifying within the broad Shares asset class.  The more rational part of my brain prefers using International Share ETFs, particularly Small Cap and/or Value.  But I also suffer from some home bias and can't fully embrace this idea (although I have more International than Australian Shares exposure at present so I guess I'm some of the way there).  So what to do within Australian Shares?

I originally was interested in equal or fundamentally-weighted Large Cap Index ETFs such as MVW or QOZ.  But then I though more about it (and I think read a related post on the alphaarchitect blog, for full disclosure) and realised that with the products available in Australia we're actually paying a lot for not-very-much diversification (and mediocre tax efficiency if held outside Super, I expect, when the portfolio rebalances which may realise capital gains).  If we look at the names and weights we're still heavily weighted towards the usual suspects, so having a little in these products isn't going to move the diversification dial much.

If the fees are 0.35-0.40% p.a. as with these ETFs, then adding a mix of 70-80% VAS and 20-30% in something 'more different' charging 1% p.a. or less is about the same cost and can get you greater diversification (in my opinion).  I've used FGX and QVE for this on a very small scale (as discussed here: http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg445457/#msg445457 ) (but in no way endorse these; I'm not sure FGX is transparent enough for me or will be tax-efficient within the fund even though dividends will likely be franked, so may exit my small holding) and imagine the lower-cost choices will continue to grow (that's my biggest concern, actually, being 'trapped' with a large position by capital gains if/when lower-fee alternatives come along).

superannuationfreak, completely agree with exposure to International ETF's. Regarding the Australian market, I have to say I'm not finding it easy to convince myself to go for an ASX200\300 index ETF. I like the notion of index investing, but all I see is impact of the top 10-20 companies and I get cold feet! Maybe I should be looking at it by thinking if those companies go downhill big time, then we are screwed anyway :)

I remember reading about equal weight S&P500 index ETF's some time ago, which is perhaps why MVW is on my radar. I thought that the equal weighting in MVW would go some way towards taking the tilt away from the usual suspects, but Interestingly enough there still seems to be ~32.7% exposure to financials and ~17.7% to materials though (VAS has 39.9% and 15.4%). Wasn't really expecting that, though I suppose it's not an equal weight ASX200\300 index (MVW is ~60 companies). Wonder how the sector breakdown would look with an equal weight ASX 200\300 index.

FGX is an interesting alternative, but much more complex than I am used to. I agree re the transparency issue, though must admit I haven't got a good handle on how my super is invested (only know that it's in growth and fi.....what's happening under the covers is unclear). Note to self! I had a peek at QVE, but need to read up a bit more.

Who know's what options are around the corner re low cost alternatives - would like to think there are more on the way but you never know how long we would be waiting.

Thanks for sharing your thoughts. Be interested to know if anyone else has my ASX200\300 index aversion!




FFA

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Re: Australian Investing Thread
« Reply #792 on: April 20, 2015, 06:56:01 AM »
I'm starting to think about the principles of asset location for the Australian prospective early-retiree
.....
Hi superannuationfreak, interesting topic i never really cleared my thoughts on this and how important it is versus other areas to optimise. A few thoughts :
1. Adds most value at the beginning. For people with large portfolios you might be stuck with large shifting costs, eg stamp duty, cgt etc
2. Worth adding company vs joint vs individual name for location of non super assets?
3. I focus alot on practical issues too, like holding my international shares (hedged) allocation in super since its easiest and lower cost to add regularly in small chunks.
4. Best not to skew too far as you still want adequate diversification in each bucket especially for FIRE you cant access the super til much later.
5. IMHO asset allocation is more important to get right than location.

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Re: Australian Investing Thread
« Reply #793 on: April 20, 2015, 07:06:54 AM »
A fund of $20m is not economic for a fund manager to run, index or no index.

Hey marty998, what are your thoughts on the necessary size for a fund? I'm looking for a way to diversify away from the usual suspects that make up such a huge % of the asx200. I don't have the skill\time\inclination to try and pick individual stocks, so  MVW has piqued my interest.....

2 schools of thought on this. Big funds have the economies of scale necessary to reduce fees.

Small funds are nimble enough to take advantage of mispricing in the market. The ASX 200 is actually quite efficient and concentrated around the top 10 - it's very difficult for a manager to outperform over the long term. Managers generally have to go beyond the 200 in order to find opportunities. Because the market caps are so low for companies outside the 200, there's less ability for larger funds to take advantage. This is where smaller funds come into their own.

Depends what the Manager is trying to achieve... there's enough (probably too much) choice out there to meet almost any investor requirement.

If a fund carries a passive strategy, you'd want it to be as big as possible. If a fund is small, then you'd better spend some time researching the Manager's track record.

Thanks marty998, appreciate your thoughts. I'm currently sifting through some ETF's and LIC's for some more exposure outside the top 10. Will post an update if I ever get around to making a choice!

FFA

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Re: Australian Investing Thread
« Reply #794 on: April 20, 2015, 07:11:50 AM »

I've given some thought to ways of diversifying within the broad Shares asset class.  The more rational part of my brain prefers using International Share ETFs, particularly Small Cap and/or Value.  But I also suffer from some home bias and can't fully embrace this idea (although I have more International than Australian Shares exposure at present so I guess I'm some of the way there).  So what to do within Australian Shares?

I originally was interested in equal or fundamentally-weighted Large Cap Index ETFs such as MVW or QOZ.  But then I though more about it (and I think read a related post on the alphaarchitect blog, for full disclosure) and realised that with the products available in Australia we're actually paying a lot for not-very-much diversification (and mediocre tax efficiency if held outside Super, I expect, when the portfolio rebalances which may realise capital gains).  If we look at the names and weights we're still heavily weighted towards the usual suspects, so having a little in these products isn't going to move the diversification dial much.

If the fees are 0.35-0.40% p.a. as with these ETFs, then adding a mix of 70-80% VAS and 20-30% in something 'more different' charging 1% p.a. or less is about the same cost and can get you greater diversification (in my opinion).  I've used FGX and QVE for this on a very small scale (as discussed here: http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/msg445457/#msg445457 ) (but in no way endorse these; I'm not sure FGX is transparent enough for me or will be tax-efficient within the fund even though dividends will likely be franked, so may exit my small holding) and imagine the lower-cost choices will continue to grow (that's my biggest concern, actually, being 'trapped' with a large position by capital gains if/when lower-fee alternatives come along).

superannuationfreak, completely agree with exposure to International ETF's. Regarding the Australian market, I have to say I'm not finding it easy to convince myself to go for an ASX200\300 index ETF. I like the notion of index investing, but all I see is impact of the top 10-20 companies and I get cold feet! Maybe I should be looking at it by thinking if those companies go downhill big time, then we are screwed anyway :)

I remember reading about equal weight S&P500 index ETF's some time ago, which is perhaps why MVW is on my radar. I thought that the equal weighting in MVW would go some way towards taking the tilt away from the usual suspects, but Interestingly enough there still seems to be ~32.7% exposure to financials and ~17.7% to materials though (VAS has 39.9% and 15.4%). Wasn't really expecting that, though I suppose it's not an equal weight ASX200\300 index (MVW is ~60 companies). Wonder how the sector breakdown would look with an equal weight ASX 200\300 index.

FGX is an interesting alternative, but much more complex than I am used to. I agree re the transparency issue, though must admit I haven't got a good handle on how my super is invested (only know that it's in growth and fi.....what's happening under the covers is unclear). Note to self! I had a peek at QVE, but need to read up a bit more.

Who know's what options are around the corner re low cost alternatives - would like to think there are more on the way but you never know how long we would be waiting.

Thanks for sharing your thoughts. Be interested to know if anyone else has my ASX200\300 index aversion!
I prefer the basic low cost etfs eg vas and ioz. Limited diversity in the asx leads me to hold more international shares.
My aversion to these etfs is more about cost actually, so i do hold many of the asx20 directly simply because i intend to hold forever (40+ yrs hopefully) and dont want to pay 0.15% p.a.
« Last Edit: April 20, 2015, 07:14:03 AM by FFA »

TJEH

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Re: Australian Investing Thread
« Reply #795 on: April 20, 2015, 07:44:33 AM »

superannuationfreak, completely agree with exposure to International ETF's. Regarding the Australian market, I have to say I'm not finding it easy to convince myself to go for an ASX200\300 index ETF. I like the notion of index investing, but all I see is impact of the top 10-20 companies and I get cold feet! Maybe I should be looking at it by thinking if those companies go downhill big time, then we are screwed anyway :)

I remember reading about equal weight S&P500 index ETF's some time ago, which is perhaps why MVW is on my radar. I thought that the equal weighting in MVW would go some way towards taking the tilt away from the usual suspects, but Interestingly enough there still seems to be ~32.7% exposure to financials and ~17.7% to materials though (VAS has 39.9% and 15.4%). Wasn't really expecting that, though I suppose it's not an equal weight ASX200\300 index (MVW is ~60 companies). Wonder how the sector breakdown would look with an equal weight ASX 200\300 index.

FGX is an interesting alternative, but much more complex than I am used to. I agree re the transparency issue, though must admit I haven't got a good handle on how my super is invested (only know that it's in growth and fi.....what's happening under the covers is unclear). Note to self! I had a peek at QVE, but need to read up a bit more.

Who know's what options are around the corner re low cost alternatives - would like to think there are more on the way but you never know how long we would be waiting.

Thanks for sharing your thoughts. Be interested to know if anyone else has my ASX200\300 index aversion!
I prefer the basic low cost etfs eg vas and ioz. Limited diversity in the asx leads me to hold more international shares.
My aversion to these etfs is more about cost actually, so i do hold many of the asx20 directly simply because i intend to hold forever (40+ yrs hopefully) and dont want to pay 0.15% p.a.

Thanks FFA. Your comments have made me think I might be focusing too much on how to get diversification within the ASX, rather than looking at the bigger picture. Perhaps I should just accept the ASX 200/300 indexes for what they are and (and invest accordingly), but up my allocations to international shares.

FFA

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Re: Australian Investing Thread
« Reply #796 on: April 20, 2015, 06:30:04 PM »
Spot on TJEH, that's precisely what i was trying to point out but much better articulated!

I view index investing as consistency over accuracy. Less important how you define the index, but more important to keep method the same forever. Therefore I gravitate to the lowest cost generic index etf and not so keen on smarter etfs or style based. I would rather just directly invest a small portion of my funds myself!

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Re: Australian Investing Thread
« Reply #797 on: April 22, 2015, 06:43:07 AM »
Spot on TJEH, that's precisely what i was trying to point out but much better articulated!

I view index investing as consistency over accuracy. Less important how you define the index, but more important to keep method the same forever. Therefore I gravitate to the lowest cost generic index etf and not so keen on smarter etfs or style based. I would rather just directly invest a small portion of my funds myself!

I agree with this however I couldn't really be bothered to try and directly invest any funds myself.

I'm still struggling though over what to be outside of the ASX and how much. Does anyone have any thoughts on this - I know that you recommended I think 50/50 but do you think the hedge Vanguard Fund options are better than the unhedged funds. Do you invest solely in the US or the world ?

Is 50/50 too much an Australia allocation. If you go 50/50 or less though are you missing out on the benefits of franked dividends.

FFA

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Re: Australian Investing Thread
« Reply #798 on: April 22, 2015, 07:48:59 AM »
hi steveo, i still prefer 50-50 personally.

For the aus part i take a low cost index etf. Eg vas or ioz. Easy.

The global is trickier. So far i have veu/vts split 55/45. I did this before vanguard introduced vgs and vgad. For my future global contributions, im inclined to go for vgs. If you want to tweak some fx hedging and emerging mkts, maybe split it vgs/vgad/ vge : 70/20/10. This could be over optimising.

In short, a simple approach vas/vgs : 50/50 is IMHO a good starting point for any hands off (lets not say lazy) investor. if you accumulate an investable size say every 3 months just alternate between these etfs. Reinvest dividends if youre still accumulating and dont need them yet as income.

steveo

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Re: Australian Investing Thread
« Reply #799 on: April 22, 2015, 03:25:08 PM »
hi steveo, i still prefer 50-50 personally.

For the aus part i take a low cost index etf. Eg vas or ioz. Easy.

The global is trickier. So far i have veu/vts split 55/45. I did this before vanguard introduced vgs and vgad. For my future global contributions, im inclined to go for vgs. If you want to tweak some fx hedging and emerging mkts, maybe split it vgs/vgad/ vge : 70/20/10. This could be over optimising.

In short, a simple approach vas/vgs : 50/50 is IMHO a good starting point for any hands off (lets not say lazy) investor. if you accumulate an investable size say every 3 months just alternate between these etfs. Reinvest dividends if youre still accumulating and dont need them yet as income.

Good points. I also think ASX allocation is easy - I'd just go VAS. I'm not a fan of over optimising and I prefer a simple approach so the 2 fund idea sounds pretty good. The only thing I don't like is the advantage of franked dividends that you get with VAS and the more overseas allocation that you have the less you get of this advantage.

I'm still thinking this all through. I'm not even ready to start making a call on this just yet as the mortgage is still being paid off but I do want a fairly clear plan by the end of this year.

My Super is a 70/30 allocation and I'm thinking of changing that to a 90/10. It splits the Australian market and the os markets about 50/50.