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Learning, Sharing, and Teaching => Investor Alley => Topic started by: LonerMatt on July 29, 2014, 02:19:17 AM

Title: Australian Investing Thread
Post by: LonerMatt on July 29, 2014, 02:19:17 AM
Things are a bit different now! Back in the day there was only 2-3 of us hanging out, now with a few dozen, I think it's worth having our own discussion thread about how we invest, changes and updates, news and critique.

It seems every week or so another Aussie comes on the forum with a few investing questions, and maybe it'd be more productive and useful to have a central discussion, rather than disparate pockets.

So, please feel free to ask questions, post ideas, offer suggestions, pose solutions, proffer allocations, exploit loopholes!
Title: Re: Australian Investing Thread
Post by: LonerMatt on July 29, 2014, 02:26:27 AM
I'll go first, my current investments are:
$17k cash
$20k stocks (1/2 AUD, 1/2 other)
$16.5k bonds
$6k Whiskey Barrell

I'll be adding about $10k of my savings into investments soon, and I was weighing up my options.

So far (6 months in), the stock market has kept relatively stable (I think total ups and downs total $200 change) - but the dividends have been nice. I've been investing in index funds (IAU and Vanguard's US/World). I'm tempted to throw a few more $$$ this way, as stocks are what I'm biased against.

Bonds have been pretty cool - I'm glad they are easily purchased now. They're a bit conservative (but then, so am I).

I'd like to buy 1 barrel a year - it seems a small risk and the returns are higher (10%) - exposing about 10% of my portfolio seems fine.

I wish my strategy was a bit more coherent and conscious - at the moment I'm choosing asset classes not-quite-arbitarily (diversifying). Ideally, I'm after average returns and growth, and hopefully build wealth without massive ups and downs (which I'm not really comfortable with).

Any thoughts on the strategies - any tips from my follow Australians?
Title: Re: Australian Investing Thread
Post by: goponcho on July 29, 2014, 11:09:18 AM
Good idea! I'm new but keen!!

Me+partner:

x2 houses value 1.3million, equity 130k. One is a PPOR
ETF 2k
200k cash

Spent the last year learning as much as could about RE and happy to sit on it to see how it pans out for a few months.
Popping all excess monies in my offset account for my PPOR while i learn as much as i can about value investing. Still minimal knowledge.
Will likely sink some more money into an ETF as i learn!

Long journey ahead, good to have a place to bounce ideas!
Title: Re: Australian Investing Thread
Post by: LonerMatt on July 29, 2014, 05:32:35 PM
Why so much in RE?

I've been interested in it for awhile, but the entry costs seem way too high. I also keep reading things about how the level of mortage debt, and the price rises in the cities are unsustainable. I don't know what credence to give these, bt RE seems uber complex.

Title: Re: Australian Investing Thread
Post by: TB_J on July 30, 2014, 10:31:53 PM
Great idea. Out of curiosity Is anyone in a non-ETF vanguard fund? You know the ones with the 5k minimum buy in?

I've got no RE yet. Hopefully soon.

I'm at approx 90k individual stocks
3k cash
20k asx 300 mutual fund (super)

Liabilities - 9.5k personal loan used for shares, tax deductible but stupid high interest rate.

Age 25.
Title: Re: Australian Investing Thread
Post by: bigchrisb on July 30, 2014, 11:22:21 PM
My data is over in the journals thread, but a quick recap, age 32:

Assets:
AU shares: $457k
AU REITS: $108k
AU LICs (closed end funds): $350k
US ETFs: $142k
International ETFs: $212k
Car: $6.5k
Cash: $160k
Cash collectible in next 2 years (payout from company sale) $306k
First home saver account: $21k
Deposit paid on house (not yet settled): $40k
Total: $1802k

Liabilities:
Margin loan: $500k (fixed at 5.35% until June)

Add in settlement of a house in October (purchase price $770k), which is why I'm so cash heavy at the moment.

Net worth approx $1.3M

Main themes for me at the moment are:
- I want to stop paying rent out of taxable income (hence the PPOR purchase - will pay this out in full in the next year)
- Desire to refinance margin loan against PPOR - lower interest rate, no margin calls
- Continue to make use of trust and company structures where it makes sense
- I'm feeling stock values are a bit stretched, so not keen to leverage into them at the moment (I'm guilty of occasionally being a naughty market timer!)
- I want to increase international weighting (currently about 15% international, if you include RE in my asset allocation), I feel I should be more like 50%
- Need to keep savings rate up and avoid lifestyle inflation.

Great to see more Aussies!
Title: Re: Australian Investing Thread
Post by: LonerMatt on July 31, 2014, 02:37:30 AM
Chris why do you say the market's overinflated right now (stocks, that is)?
Title: Re: Australian Investing Thread
Post by: Meat Popsicle on July 31, 2014, 02:49:00 AM
Excellent idea for a thread!

In all honesty I'm a pretty late starter on these financial matters. Until about three yeas ago I was completely oblivious to these FI ideas, after a year of researching, then another of procrastination, I've finally had a sensible year of spending ...at the age of 33.

Currently I'm cash & stocks, and have begun looking at bonds, my question for the Australian investor is where's a good place to buy bonds?

(Fiigs appears in various searches and ASX has a market for bonds however there seem to be little volume)
Title: Re: Australian Investing Thread
Post by: marty998 on July 31, 2014, 06:02:17 AM
Hmm...Bonds are a tough one. Have you considered hybrids? Personally I'd stay aways from any hybrids that are not issued by the banks, however many preference shares come with those glorious franking credits attached.
Title: Re: Australian Investing Thread
Post by: happy on July 31, 2014, 08:02:57 AM
Just posting to keep updated: keen to learn more.
Title: Re: Australian Investing Thread
Post by: bigchrisb on July 31, 2014, 03:25:39 PM
Chris why do you say the market's overinflated right now (stocks, that is)?

Pure speculation. I'm still fully invested in stocks and I'm not selling. However I'm more reluctant than previously to buy on margin at the moment. My reasoning in that:
A) a g20 nation just defaulted on its bonds (Argentina)
B) a European nation just annexed part of its neighbor (Russia/Ukraine)
C) most of the middle east seems to be at war (iraq, Syria, lybia, Israel, palestine)

Usually any one of those would freak the market out. All three and not a blip? Seems like investors have forgotten fear, and that scares me a little.
Title: Re: Australian Investing Thread
Post by: LonerMatt on July 31, 2014, 07:49:52 PM
Hmm...Bonds are a tough one. Have you considered hybrids? Personally I'd stay aways from any hybrids that are not issued by the banks, however many preference shares come with those glorious franking credits attached.

Marty (or anyone) - what is a hybrid? I've never heard of this term used when discussing bonds? Where do I find out about them?

Chris - thanks for the explanation. I was thinking of investing sooner rather than later because most markets have a run up over the October-Christmas period with increased spending on travel, presents, entertainment, food, transport, etc. Without market timing, sooner is often a bit better.

I might just invest more OS - since my job and many other investments are Australian-centric.

Which brings us to another question I wonder about: how important is international diversification for you guys? Australia doesn't really seem like the place that'll go caput and its market crash into nothing (though there are always some alarming things happening and worries for the future), but I've tried to balance out my investments here (stocks/bonds) with 25-50% international (US/Top100 companies, etc). My rationale is that, in general, larger companies tend to be a bit more stable (coca cola, apple, sony, etc, seem to do ok no matter what their domestic market is doing).
Title: Re: Australian Investing Thread
Post by: limeandpepper on July 31, 2014, 08:37:09 PM
I've been thinking about starting a thread, so yay for this! I'm only just dipping my toes in, in regards to serious investments, so far... most of my money is still in term deposits, etc.

I'd love to have a mix of both Australian and international investments, as well.

Just wondering if anyone has any recommendations from this list of ETFs?

http://au.ishares.com/publish/content/documents/pdfs/product_list_au.pdf

Or are there cheaper alternatives?
Title: Re: Australian Investing Thread
Post by: bigchrisb on July 31, 2014, 08:46:21 PM
The expense ratios on those aren't too bad really.  There are some cheaper alternatives if you really want to screw down the costs. some I have used include:
VAS - Vanguard Australian shares 0.15%
Also consider the listed investment companies (some pros and cons), several of which are cheaper than Vanguard (MLT at 0.125% and CIN at 0.09% last time I checked)
 
Title: Re: Australian Investing Thread
Post by: goponcho on August 01, 2014, 12:30:02 AM
Why so much in RE?


Because i have very limited investing knowledge, RE seems to have a decent return long term, have placed my money in there while i learn further. Money was sitting in the bank prior to this. Studied RE books/forums/followed local market for a bout a year prior to purchasing. Now focussing on learning how to gain a reliable return through value investing which can at least beat inflation!
Title: Re: Australian Investing Thread
Post by: The Falcon on August 02, 2014, 05:02:32 PM
G'day All, first post, yay!

I'm a 36 year old guy, married with a 2 year old daughter, based in Sydney.

LonerMatt, one of the main advantages that RE provides in Oz is leverage, obviously works both ways though...banks are happy to lend against home equity, so once you get established, that property provides access to funds for equities investment at 4.xx% with no margin calls, and your home is CGT Free....one of the few free kicks available.

I have SMSF and a Family trust and outside of our family home I am not in RE. Outside of our home, Investments as below ;

- Shares in unlisted business of which i am a director, dividends streamed to my wife via trust.
- SMSF holding 80% Oz stocks, Blue chips and the big LIC's. 20% US stocks, which is ETFs and direct stock in BRK-B

My wife and I both salary sacrifice into super, works well for her as she only earns 45k, so she salary sacrifices most of her pay so after trust distributions (fully franked divi) she gets a cheque from the ATO.

Shortly, family trust will taking out a 5 year interest only loan at sub 5% against some home equity for income focused buy and hold...VHY as primary vehicle, with Large LIC's (when cheap...ie. discount to NTA) and 25% US stocks unhedged for some diversification. This will be a DCA draw down situation whereby $XX,XXX will be drawn down and invested twice annually on specific days as set in the investment plan, and invested in predetermined weights so that no attempt at kidding myself with market timing, or getting weak kneed can occur!
Title: Re: Australian Investing Thread
Post by: terrier56 on August 02, 2014, 05:23:34 PM
Good Thread Idea,

Chris b seems to have this game locked up. about me.

20k shares 24k cash

looking to get a property in perth when I get to 90k (20%) and after all that I will start investing.

Probably a mix of Vangard, ARIETs (I like the look of GOZ) and LICs.

Does anyone know if I can do this. I am married and have joint bank account with wife. Can she purchase all the investments under her name since I earn significantly more than her?? any advice appreciated.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 02, 2014, 05:36:32 PM
Terrier56 - Yes, just set up the brokerage account in your wifes name, or if you go Vanguard unlisted funds then same thing.
Title: Re: Australian Investing Thread
Post by: terrier56 on August 02, 2014, 06:16:22 PM
Terrier56 - Yes, just set up the brokerage account in your wifes name, or if you go Vanguard unlisted funds then same thing.

Great news indeed. thanks.
Title: Re: Australian Investing Thread
Post by: marty998 on August 02, 2014, 08:52:23 PM
Hmm...Bonds are a tough one. Have you considered hybrids? Personally I'd stay aways from any hybrids that are not issued by the banks, however many preference shares come with those glorious franking credits attached.

Marty (or anyone) - what is a hybrid? I've never heard of this term used when discussing bonds? Where do I find out about them?


Usually called preference shares, listed on the ASX. Have bond like characteristics (pay a fixed return, linked to BBSW + margin). Some pay interest, some are dividends with franking credits attached.

Terms vary per issuer, some are redeemed at face value, some get converted to equity/ord shares at a discount. As always gotta DYOR.
Title: Re: Australian Investing Thread
Post by: marty998 on August 02, 2014, 08:56:19 PM
Shit. There's a little speccy stock I've been looking at for a while now - Minatour Exploration (MEP). Management have a good track record, they discovered the Oxiana Prominent Hill deposit.

Fell as low as 8c a couple of months ago and was afraid to pull the trigger. Just released some good drill results and now trading at 26c. No guts no glory, missed the easy gains on this one.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 02, 2014, 09:43:54 PM
Speculation works great in hindsight :)  A few years ago I worked out I didn't have the temperament for those sort of plays, i'd spend all day looking at the screen rather than grow my business....silly stuff indeed. To each their own though.

Re bonds, ASX:VGB might be worth a look, Vanguard Oz Govt's bonds ETF. mer is 20bps....market cap is very low so not sure of the spread. RCB & IAF (corporate and composite index) are available too. Forget the Vanguard unlisted products, the fees are killers.

Title: Re: Australian Investing Thread
Post by: LonerMatt on August 02, 2014, 09:52:13 PM
Few ideas:

1. With bank interest so high (think mine's 4-5%) keeping cash is still a great option: I've been umming and ahhing about investing most of my cash, but the liquidity and returns are easily on par with the market over the past 6 months (well, my foray into the market).

2. I really, really need to know about the ATO and salary sacrificing and all that jazz. I just found out that some states have salary deferring in my profession - taking 4 years @ 80% pay for a fifth year of 80% pay but no work. Interesting.

3. What is ''franking"?
Title: Re: Australian Investing Thread
Post by: The Falcon on August 02, 2014, 10:03:50 PM
Where are you getting 4-5% Matt? 4%+ at the moment is just a BS honeymoon rate, typically over a few months. 3.25% is more like the ongoing rate from online guys like ING Direct. Cash is just buffer, not an investment. "Beware the yield trap" as Peter Thornhill says.

Franking applies under the Australian Dividend imputation scheme whereby there is no double taxation on dividend payments from a company, a dividend received with 100% franking means that the company has paid tax at company rate (30%) on that distribution, franking credits are attached to that payment to you. So when you see dividend yield of 5% with 100% franking, we are actually talking about a grossed up equivalent of 7.10%. in other words, franking matters!

Cash franking = zero
ASX200 index franking level = approx. 70-80%
LIC's franking level = 100%

What you want is both yield, and growth of the value of the underlying asset......cash can never do that.
Title: Re: Australian Investing Thread
Post by: LonerMatt on August 02, 2014, 10:26:52 PM
Where are you getting 4-5% Matt? 4%+ at the moment is just a BS honeymoon rate, typically over a few months. 3.25% is more like the ongoing rate from online guys like ING Direct. Cash is just buffer, not an investment. "Beware the yield trap" as Peter Thornhill says.

Franking applies under the Australian Dividend imputation scheme whereby there is no double taxation on dividend payments from a company, a dividend received with 100% franking means that the company has paid tax at company rate (30%) on that distribution, franking credits are attached to that payment to you. So when you see dividend yield of 5% with 100% franking, we are actually talking about a grossed up equivalent of 7.10%. in other words, franking matters!

Cash franking = zero
ASX200 index franking level = approx. 70-80%
LIC's franking level = 100%

What you want is both yield, and growth of the value of the underlying asset......cash can never do that.

1. Thanks for the explanation of franking - does that mean that we (investors) have to claim that against ATO - or that it is automatic?

2. Ubank gave me 4.17% this month - I get a 'bonus' for depositing a consistent amount, but you're right the trend has ben interest rates going down

3. How do I get into hybrids? There seem to be quite a few attached to banks, so it might be an interesting experiment to have 10k or so in them.

At the moment, I feel like my investing is so random - I just buy different assets, but there's no coherence or strategy. I'm not OK with this, but I barely understand the most basic options.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 02, 2014, 10:39:58 PM
I'm afraid I don't do my own tax but essentially when you do you annual return you report dividends and franking then. Your accountant will take care of that.

I wouldn't get too worried about hybrids as yet. I think the starting point would be picking up something like Burton Malkiel's "A random walk down wall street" and getting your head around basic investment philosophy, products, risk, life stage planning and the like. From there you can start to build an investment framework that suits you. Then you work in Australian specific things like franking, super and tax into that plan/asset mix. Vanguard Australia actually has some pretty good educational stuff on their site as well.
Title: Re: Australian Investing Thread
Post by: LonerMatt on August 02, 2014, 11:01:09 PM
I'm not worried, I just was interested in how one buy them - not saying I will!

I've read a few books on investing (asset allocation, PP), but while I understand what I want conceptually, it's difficult to make that a reality as the ASX (as many other places) is incredibly complex in terms of options.

Basically, I just would like steady, average returns with some dividends along the way, happy to keep pace with the market, generally. I always thought if I had something like 60/40 stocks/bonds, or 70/30 that'd be fine, but I'm not adverse to a bit more risk at times.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 02, 2014, 11:07:32 PM
Its not incredibly complex. If you want a 70/30 diversified portfolio and you cant put it together and administer it yourself (ie. ETFs and direct shares), you could do far, far worse than buying this ;

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vlsgf.pdf?20140731|103700

then just work on your MMM savings side and BPAY $$$$ into Vanguard every month. Simple to transact, simple tax reporting.

Depending on your PAYG income is, and your living arrangements you'd also need to consider salary sacrifice, getting your super into a low cost fund, and what you will be doing viz. putting a roof over your head. Remember this is a very long game....ignore the market noise and just keep saving and investing...always.

It can be as simple or as complex as you make it.
Title: Re: Australian Investing Thread
Post by: SU on August 03, 2014, 01:28:14 AM
Quote
I'm afraid I don't do my own tax but essentially when you do you annual return you report dividends and franking then. Your accountant will take care of that.

I think these days the ATO is taking care of this for you (<3 the ATO). Last time I went to report dividends and franking credits my accountant told me not to bother as the securities registers (ie. CHESS etc) are now reporting directly to the ATO.
Title: Re: Australian Investing Thread
Post by: limeandpepper on August 03, 2014, 01:50:21 AM
The expense ratios on those aren't too bad really.  There are some cheaper alternatives if you really want to screw down the costs. some I have used include:
VAS - Vanguard Australian shares 0.15%
Also consider the listed investment companies (some pros and cons), several of which are cheaper than Vanguard (MLT at 0.125% and CIN at 0.09% last time I checked)

Thanks for that, bigchrisb!

Its not incredibly complex. If you want a 70/30 diversified portfolio and you cant put it together and administer it yourself (ie. ETFs and direct shares), you could do far, far worse than buying this ;

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vlsgf.pdf?20140731|103700

then just work on your MMM savings side and BPAY $$$$ into Vanguard every month. Simple to transact, simple tax reporting.

Thanks for this suggestion, The Falcon. Simple transactions and tax reporting is an enticing feature indeed...
Title: Re: Australian Investing Thread
Post by: The Falcon on August 03, 2014, 02:07:33 AM
No worries, the starting MER is a little higher than I'd like, but it's a solid product and auto rebalances. MER reduces for higher balances. You can't go wrong with Vanguard...not many unlisted funds you can say that about!
Title: Re: Australian Investing Thread
Post by: LonerMatt on August 03, 2014, 03:02:35 AM
Its not incredibly complex. If you want a 70/30 diversified portfolio and you cant put it together and administer it yourself (ie. ETFs and direct shares), you could do far, far worse than buying this ;

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vlsgf.pdf?20140731|103700

then just work on your MMM savings side and BPAY $$$$ into Vanguard every month. Simple to transact, simple tax reporting.

Depending on your PAYG income is, and your living arrangements you'd also need to consider salary sacrifice, getting your super into a low cost fund, and what you will be doing viz. putting a roof over your head. Remember this is a very long game....ignore the market noise and just keep saving and investing...always.

It can be as simple or as complex as you make it.


I think the bolded part is the most important thing to keep in mind.

I'm happy doing my own buying, etc, just as long as I'm keeping it simple.

I'll go for:
70% stocks (35% international, 35% Australian)
30% bonds (all Australian)

This thread is already mad useful.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 03, 2014, 03:10:37 AM
That's 3 ASX listed ETFs mate. Done and dusted :)
Title: Re: Australian Investing Thread
Post by: LonerMatt on August 03, 2014, 03:28:24 AM
Since I already own bonds outright it's marginally more complex than that, but basically you're right: KISS.
Title: Re: Australian Investing Thread
Post by: Ozstache on August 03, 2014, 05:37:34 AM
I receive a military pension, which effectively counts as an inflation adjusted cash source income stream. For my other investments, my AA is roughly:
- 65% super (Sunsuper balanced fund)
- 15% Aussie shares (Vanguard VAS ETF)
- 25% fixed interest (various net bank accounts ~ 3.8%)

My portfolio is less share heavy than I had planned, due to my concern that share markets are potentially due for a sizable correction soon and that I can still achieve my target WR without having to take more risk than this. As comforting as this has been, it has cost me around 3% lower portfolio performance for the year to date, which is not too bad in the grand scheme of things.

If I wasn't in receipt of a military pension, I would have far less in super as I have 14 years to go until preservation and I reckon the government may move that age to the right in the future. I am also fortunate in that I can withdraw nearly half of my super before preservation age due to the type of contribution it was (unrestricted, non-preserved), so I've effectively got an each way bet on changing superannuation laws.

Apart from owning my house outright, I have no other interest in investing in property, especially in (IMO) overpriced Australia. The only way property really stacks up with investment numbers compared to shares is using leverage. In Australia at least, property is more about capital gain than yield, which is not very useful when you are after income streams like I am. As such, for me property is just too much administrative and hands-on management effort for too little income compared to passively receiving quarterly share dividend payments paid directly into my bank account.
Title: Re: Australian Investing Thread
Post by: marty998 on August 03, 2014, 05:46:16 AM
Quote
I'm afraid I don't do my own tax but essentially when you do you annual return you report dividends and franking then. Your accountant will take care of that.

I think these days the ATO is taking care of this for you (<3 the ATO). Last time I went to report dividends and franking credits my accountant told me not to bother as the securities registers (ie. CHESS etc) are now reporting directly to the ATO.

They won't report it if your shares are held in joint names. And besides, it still up to you to include them in your tax return, especially if you are an early bird who lodges in July when not all the data may have been reported.
Title: Re: Australian Investing Thread
Post by: HappierAtHome on August 04, 2014, 09:30:26 PM
Its not incredibly complex. If you want a 70/30 diversified portfolio and you cant put it together and administer it yourself (ie. ETFs and direct shares), you could do far, far worse than buying this ;

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vlsgf.pdf?20140731|103700

then just work on your MMM savings side and BPAY $$$$ into Vanguard every month. Simple to transact, simple tax reporting.

Okay I'm super lazy and this appeals to me.

It looks like it's paid an average 4% 'distribution' annually, does this mean that as well as any capital growth (which I would need to sell units to access), it will also give me, on average, 4% a year without me needing to sell anything?

Possibly a really dumb question but I'm a beginner when it comes to investing :-)

The idea of my asset allocation being sorted out for me, so I don't have to rebalance or make those decisions, sounds enticing right now.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 04, 2014, 09:37:44 PM
Yep, that's it in a nutshell. The distribution will be a mix of dividends and interest, there would be some franking credits included from the australian shares component.
Title: Re: Australian Investing Thread
Post by: MsRichLife on August 04, 2014, 10:19:54 PM
Haven't read through the entire thread yet, but I'm new here and keen to discuss investing with other Aussies.

Assets:
RE: $1M
Cash (term deposits & ING Savings): $270k
Super: $770k

Total: $2040k

Liabilities:
$Nil

Net worth: ~$2M

Investing has been pretty 'simple' for the last few years. Our goal was to get out of debt and then save some cash. As FIRE approaches I'm finding myself starting to think more about how to best to invest for the long haul. I'm pretty conservative after being burnt really bad during the GFC. The fact that I've started to look at getting back into shares probably means that we are due for a huge downturn! :)

Anyway, I look forward to bouncing ideas around with you all.

Now off to read the thread.....
Title: Re: Australian Investing Thread
Post by: The Falcon on August 04, 2014, 10:52:39 PM
Hi MsRichLife, when you say you were burnt badly during the GFC what did you hold and what did you do?

PS. Well done, $2M net worth is not to be sneezed at :)
Title: Re: Australian Investing Thread
Post by: Majik on August 04, 2014, 11:18:35 PM
just joining ... nice to see other Oz based MMM around :)
Title: Re: Australian Investing Thread
Post by: MsRichLife on August 04, 2014, 11:25:15 PM
Hi MsRichLife, when you say you were burnt badly during the GFC what did you hold and what did you do?

PS. Well done, $2M net worth is not to be sneezed at :)

I'll try to outline our financial position at the time, but I honestly think I've blocked most of it out :) It was painful.

We had 5 IPs. We used the equity in those properties to leverage into various share market investments. We also had a margin loan. All up, we had about $500K in the share market and we were heavily leveraged. I thought I had a high tolerance for risk, but I now realise we had no idea of the real potential of a significant downturn. My whole life had been a growth bonanza, so it was not within my worldview to think otherwise.

Anyway, GFC hits. I was living in the US at the time and was trusting my finances to my financial advisor in Australia. (Hint: Big mistake. I will never outsource my investment thinking again). I was getting to see first hand how badly GFC hit Americans. By comparison, Australia got off very lightly. Anyway, I digress.

Sometime in mid 2008 I started getting margin calls. Because I was in the US, I'd often get them in the middle of the night or on weekends. They would not be for small amounts. I'm thinking $40K at a time. I was left scrambling to find money in Australia whilst I was overseas. To say it was stressful is an understatement. It fact, my pulse is rising as I type this. [ ohhh...you are in luck. I just re-discovered a blog post from back then: http://livingmyrichlife.wordpress.com/2008/11/12/so-my-financial-advisor-called/ ]

I don't recall exactly how much I lost, but I think it was in the vicinity of $250K.

After we got through the worst of it, we did the sums and worked out we were better off selling what was left of our stock portfolio and getting out of debt as quickly as possible. I'm actually surprised at how fast we managed to pay off over $1M of debt. Since then, we've just been saving.

I'm still not sure about investing in shares as I think most of the 'recovery' has been engineered by cheap free credit from the Federal Reserve et al. But I'm doing my research and pondering and I look forward to hearing what others say on the matter.
Title: Re: Australian Investing Thread
Post by: The Hamster on August 04, 2014, 11:27:21 PM
Is anyone a more active investor or do most people buy index ETFs and just hold?

I would like to save up some cash over the next 3 - 4 years then enter the share market with the idea of actively trading (not day trading) and learning about options to make some extra income off shares.  I'm also interested in investing directly into US shares.

Thanks for sharing your story MsRichLife.  Its great to see you have come out on top after what must have been an extremely stressful time.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 05, 2014, 12:04:06 AM
Thanks for that MsRichLife.

What a nightmare, I think you know the real issue here was leverage, not shares per se (lack of stop loss/poor advice a significant contributor!). If you had not leveraged with margin loans, say just taken out line of credit against your IP's you would have been able to hold on and weather the storm. The ASX200 accumulation index (growth and dividends reinvested) is at an all time high, as opposed to the ASX200 index which is nowhere near where it was. Vanguard Australia recently included this in one of their newsletters ;

Quote
What a difference five years can make. Contrast, the fortunes of the S&P/ASX200 Index (prices only) and the S&P/ASX200 Accumulation Index (share price plus dividends) over this period.

Five years ago on July 16, 2009, the S&P/ASX200 closed at 3995.6 points with further to fall in the depths of the GFC. Move forward to July 16, 2014 when this index closed at 5518.9 points - a rise of 38 per cent.

By contrast on July 16, 2009, the S&P/ASX200 Accumulation Index closed at 27,332.5. And move forward again to July 16, 2014, this index closed at 47,043.6 - a rise of 72 per cent.

In short, the accumulation index passed its pre-GFC high almost a year ago and hit an all-time high this month. Meanwhile, the S&P/ASX200 (price only) is still way below its pre-GFC high.

If you had held, you wouldn't have lost your money, and now would be significantly ahead. (say in the case you held ASX200 index ie. STW or similar, and had LOC against IP equity - no margin call).

The underlying message here is understand that shares of stock are not 1 dimensional assets, they provide income, and ideally, capital growth. In Oz due to dividend imputation, pay out ratios are higher than just about anywhere else....but here is the big secret ; the entire industry doesn't want you to buy and hold shares and take the dividend reinvestment plan that many companies offer......why? how can they make money from you if you don't keep buying, selling, paying for advice, subscribing to newsletters, attending seminars, watching CNBC etc etc.

With shares you have to take a long term (20+ years) view, and embrace volatility (essential in the capitalist system) as a chance to BUY more. Stock picking yeah you can certainly come undone there...but if you are diversified enough (ie. index or individually constructed portfolio) and you can hold on through the troughs I believe that you will be well served in the future, as in the past. Provided you don't try to time the market, (ie. dollar cost average - and force yourself to BUY) and avoid selling at all costs and reinvest dividends.

I love this bit from Peter Thornhill, from the darker days of 2011 ;

Quote
I'm not going to bother, but consider this possibility. The share market ultimately reflects the endeavours of the human race, for better or worse. If you therefore believe that human endeavour is not dead then for heaven's sake, buy with your ears pinned back; we are not going to go back to living in caves.

http://www.motivatedmoney.com/mysay.php?iid=w5awkrn9fp

Is anyone a more active investor or do most people buy index ETFs and just hold?

I would like to save up some cash over the next 3 - 4 years then enter the share market with the idea of actively trading (not day trading) and learning about options to make some extra income off shares.  I'm also interested in investing directly into US shares.

Thanks for sharing your story MsRichLife.  Its great to see you have come out on top after what must have been an extremely stressful time.


I buy and hold, but a combination of LIC, Direct shares and ETFs. There are some businesses I "like" over the long term but I do not intend to sell these shares unless I change my view on these businesses. So I have no intention to "trade". Essentially, we are talking about Investment vs. Speculation. Take into consideration tax and transactional costs of churning, oh I mean trading :) and in my view its just a punt. Despite what the industry says.
Title: Re: Australian Investing Thread
Post by: The Hamster on August 05, 2014, 05:06:27 PM
Hi Falcon,

Thanks for the extremely in depth reply.  Some very valuable information there.

By "trade" I think Im mainly talking about buying dips and holding for min 5 years then re-evaluating and adding an option buying strategy for extra income.  I definately don't mean trading in days or weeks.  I've done that in the past and no doubt would have been better off just buying and holding for the longer term.  A strategy that has worked well for me in the past is what I call boom-trading.  Basically waiting for the next irrational "boom" and jumping on board until things get too overheated and then getting out.  I have done OK with that in the past due basically to not knowing what good shares to buy and just going along with the herd until I get chicken :-)

I think you are spot on the money re the use of leverage in share trading.  Anyone who wasn't leveraged during the GFC and could afford to ride out the storm would have done OK.  I myself suffered a small margin call on some funds I was invested in and made a loss when I sold out.  It probably was a good thing as those funds ended up going broke and I would have lost a lot more had I not gotten out when I did.  I made it all back from buying CBA shares in 2008 when they were down below $25.00 though but even so, I have become very wary of margin loans since then and probably won't ever use one again. 

I also completely agree with your quote from Peter Thornhill.  Even if the share market is a huge Ponzi scheme propped up by free credit or whatever, the basic human drive to make a better life for ourselves and a more prosperous society will ensure that the share market goes up in the long term no matter what economic blips happen along the way.  We as a species simply wont devolve back to living in caves or a basic barter society.  And with superannuation funds having to put their trillions of $$$ in the share market, it certainly wont go to 0 in my lifetime, bar a huge meteor striking the planet in which case it won't matter anyway :-) 

A final question, I didn't realise there was a prices only index and an accumulation index.  Which one do ETFs such as STW invest in or try to follow?  I assume the accumulation index?
Title: Re: Australian Investing Thread
Post by: MsRichLife on August 05, 2014, 05:52:38 PM
What a nightmare, I think you know the real issue here was leverage, not shares per se (lack of stop loss/poor advice a significant contributor!). If you had not leveraged with margin loans, say just taken out line of credit against your IP's you would have been able to hold on and weather the storm.

Yep. The leverage was the killer. Maximise your return on the may up. Maximise your loss on the way down. I also had put a lot of trust in my financial advisor. He had done well for me over the years and I assumed that would continue (you know what they say about assuming). My view on investing had fundamentally changed since then. I will never use leverage again and I will not run my investments on autopilot. I am a lot more cautious now, which is why it's taken so long to even consider buying shares again.

The underlying message here is understand that shares of stock are not 1 dimensional assets, they provide income, and ideally, capital growth. In Oz due to dividend imputation, pay out ratios are higher than just about anywhere else....but here is the big secret ; the entire industry doesn't want you to buy and hold shares and take the dividend reinvestment plan that many companies offer......why? how can they make money from you if you don't keep buying, selling, paying for advice, subscribing to newsletters, attending seminars, watching CNBC etc etc.

This is the key to my investment in shares going forward. I need to think of it as an additional income stream and therefore will be looking to maximise the 'income' from the shares and worry less about the capital growth/loss along the way. This was how I started investing in shares when I was young, but at some point I felt 'rich', got a bit fancy and well...we know where that got me.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 05, 2014, 05:57:32 PM
@ Hamster ;

STW is ASX200. The big LICs tend to mark themselves against the accumulation index.  index is just ASX200 with all divis reinvested...so STW with DRP box ticked will get you the accumulation index performance less STW costs (bugger all).
Title: Re: Australian Investing Thread
Post by: MsRichLife on August 05, 2014, 05:59:57 PM
Thanks for sharing your story MsRichLife.  Its great to see you have come out on top after what must have been an extremely stressful time.

You are welcome. What doesn't kill us, makes us stronger, right?

Actually DH and I firmly believe that $250K was well worth losing spending to learn the lessons we did. I'm a reasonably positive person and choose to learn from my mistakes and move on.

We very quickly learned that we don't need to be filthy rich to retire early. We just need be very conscious of what is actually important to us (rather than the Jones's) and simplifying our lives accordingly. We cut away all the crap and realised we don't really need much to live a great life. We have gleaned so many benefits from our new philosophy on life.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on August 06, 2014, 09:21:44 AM
Just wanted to post to subscribe and say thanks for the great thread so far
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on August 06, 2014, 08:16:00 PM
Also @The Falcon, could you explain the basic difference between VAS and VHY? I've read the vanguard page but can't quite work out what the jargon and stats going to mean. Is it as simple as VHY paying out larger dividends? If so, does that mean less capital growth perhaps?

Im looking to invest in both most likely, and I guess I'm curious what made you choose VHY as the primary vehicle for your leveraged share investment.
Title: Re: Australian Investing Thread
Post by: LonerMatt on August 06, 2014, 08:20:05 PM
Just wanted to post to subscribe and say thanks for the great thread so far

It is hyper informative, isn't it?

I'm seriously considering just selling all I've got and then investing in that Vanguard diversified fund - it would simplify and re-balance (something I don't do, at all). Which would potentially be interesting, and maybe better. On the other hand, maybe it'd be a better learning habit to try and manage my own, even if it is a little messy.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 06, 2014, 08:53:40 PM
Also @The Falcon, could you explain the basic difference between VAS and VHY? I've read the vanguard page but can't quite work out what the jargon and stats going to mean. Is it as simple as VHY paying out larger dividends? If so, does that mean less capital growth perhaps?

Im looking to invest in both most likely, and I guess I'm curious what made you choose VHY as the primary vehicle for your leveraged share investment.

VAS is the ASX300 weighted by market cap, VHY is holding the High Dividend yield index based on companies with the highest forecast payout ratio for next 12 months. Reason for this over VAS is a few, I already hold lots of the big LIC's in SMSF and their weights are quite similar to VAS, VHY has different weightings not market cap based so it provides additional diversification, but the main thing is to keep this investment positively geared or neutral....the higher yielding divis cover the holding (interest costs). It also allows me to pick up stuff like BRK-B or VTS which would be negatively geared by themselves.

as for yield vs. growth, theoretically perhaps, though I think that dividend imputation tilts things in the favour of higher divi paying businesses in Australia. Lets look at the underlying index funds over ten years ;

VAS (Vanguard Oz shares fund) Growth : Growth : 3.81% / Yield : 4.83%
VHY (Vanguard Oz shares high yield fund) Growth : 4.16% / Yield : 5.69%

Title: Re: Australian Investing Thread
Post by: Primm on August 06, 2014, 09:40:06 PM
So ultimately VHY should out-perform VAS. Is there any catch? I know that VAS has a lower management fee (0.15% vs 0.25%). I guess ultimately that's not much of a difference, is it?

I think it's an indicator of my mindset that I'm watching the funds in my stock purchase account build up (slowly!) and watching the market go down and thinking awesome, I get more for my money! The me from even a few months ago would have been looking at my current holdings and panicking. Not any more. :)
Title: Re: Australian Investing Thread
Post by: The Falcon on August 06, 2014, 09:54:11 PM
I cant say that I am sure that VHY will outperform VAS from a total return standpoint in the future, but it has in the last 10 years (well the underlying fund has). What it should do however is provide higher yield, which is more important for me in the short-medium term. To give you an idea on that particular investment portfolio, will look something like this ;

Target yield grossed up                       5.00+%
Cost of funds                                     5.00%

INVESTMENTS      (75% AU / 25% US UNHEDGED)

VANGUARD HIGH YIELD ETF / 50% WEIGHT / YIELD 7%                                   
ASX LARGE LIC’S BASED ON VALUE / 25% WEIGHT / YIELD 5%                                     
VANGUARD VTS US  / 15% WEIGHT / YIELD 2%                                                 
BRK-B / 10% WEIGHT / YIELD 0%.                                                             

Portfolio grossed up yield     5.05%

As you can see this provides a revenue neutral investment with a combination of long term growth and income. LICs will only be bought at discount to NTA, and only AFI/ARG/MLT/WHF. If none of these are available at discount, will invest in VAS.

Nobody knows what will happen in a year, ten or twenty years from now, there is no such thing as a risk free investment but I am pretty happy with above.
Title: Re: Australian Investing Thread
Post by: Primm on August 06, 2014, 10:39:32 PM
Cool, thank you. I am an absolute beginner at all this, but we have to start somewhere, right? Have been reading and researching as hard as I can to make up for lost time (I'm 45), and I appreciate any help I can get.
Title: Re: Australian Investing Thread
Post by: bigchrisb on August 06, 2014, 11:27:07 PM
LICs will only be bought at discount to NTA, and only AFI/ARG/MLT/WHF.

I think we have very similar investment philosophies.

I'm curious why you includes WHF in this list?  The LICs I use are AFI/ARG/MLT/BKI/CIN.  The first three are well known.  The latter two are moderate in size (in the 700M-1000M) category), and made my cut due to very low MER (both sub 0.2%), and at the time, a steep discount to NTA (CIN was at more than a 20% discount for quite a while, albeit almost at NTA now).   

What's the appeal of WHT for you?  Seems to be fairly high cost for a LIC (0.35%) and trading at NTA (1.6% discount). 

I'm struggling to see value in the LICs at the moment, with most at NTA or a premium.  Not selling them, but not really buying either.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 06, 2014, 11:44:40 PM
You know your LIC's :)

Spot on, MER is slightly higher at 35bps, but WHF recently has been the only solid LIC trading at a good discount. Picked it up around -7% a couple of months ago. Its an all Industrials play, and adds a bit of diversification in the Portfolio. This LIC is about 30% held by the Gluskie family (Angus Gluskie is CEO) I like to align with family money rather than corporate money.

Other LIC's I currently hold are ARG/MLT/BKI. I also hold SOL and BKW, so holding off on any BKI top ups...too much Millner family exposure lol.

just on CIN, that's a very different LIC, Alan Rydges vehicle, huge overweight on Amalgamated Holdings, I would consider it at 15% discount or more but I think its crept in to 6% or so which is crappy.

Looked at the ASX NTA report today there is no value except maybe CTN.......if I had to DCA today would just buy VAS.
Title: Re: Australian Investing Thread
Post by: bigchrisb on August 07, 2014, 12:21:32 AM
Other LIC's I currently hold are ARG/MLT/BKI. I also hold SOL and BKW, so holding off on any BKI top ups...too much Millner family exposure lol.

just on CIN, that's a very different LIC, Alan Rydges vehicle, huge overweight on Amalgamated Holdings, I would consider it at 15% discount or more but I think its crept in to 6% or so which is crappy.

Agree on the Milner Family exposure - I hold SOL and BKW in there too, which in many ways are really LICs with a bit less transparency.

I'm fairly heavy in my allocation to CIN (approx $180k total), mostly bought at a discount rate that means I got the AHD exposure for free. Don't know that I would buy it at current discounts though.  It means I have a ~70k underlying holding in AHD, wich is a lot of cash to have in a single midcap!  That said, I've done very well from CIN to date, and can't bring myself to pay the CGT if I sold out.

A question I've long debated on LICs and not managed to get an answer from (either from the ATO, the ASX or the LICs themselves).  Do you know if the post tax NTA accounts for the value of the LIC capital gains credits or not?  i.e. is the CGT calculated at 30% or 15% in that stat?
Title: Re: Australian Investing Thread
Post by: The Falcon on August 07, 2014, 12:31:56 AM
BigChrisb, I don't know the answer to that but will be able to find out. Leave it with me. I know someone that is close to a couple of the Sydney LICs.
Title: Re: Australian Investing Thread
Post by: limeandpepper on August 07, 2014, 02:15:37 AM
The Falcon, you have been such an asset in this thread! I hope you don't mind if I ask another question... because I'm currently contemplating between just buying ETFs with my brokerage account, or going with Vanguard.

You mention that the Vanguard option makes for simple tax reporting - is it easier than ETFs? And how does the tax reporting work? Does it all just come in magically in E-tax using the pre-fill function?
Title: Re: Australian Investing Thread
Post by: The Falcon on August 07, 2014, 02:43:57 AM
Ok the thing about those vanguard unlisted funds, is that they are diversified portfolio in one product.
Ie each of them hold cash, bonds, unlisted property securities, australian shares, international shares etc.
So they will provide one annual tax statement and do the rebalancing for you. Personally I don't hold any of these
Funds but they are a great starting point IMHO. As you already have a brokerage account I'd be inclined to buy ETFs and construct your portfolio in the weight you want. You could do the same with ETFs and high interest online account cheaper for higher balances

As for the nuts and bolts of DIY tax returns, I'm afraid I can't assist there. Lonsec does my portfolio admin and my accountant
Gets the info from them.
Title: Re: Australian Investing Thread
Post by: limeandpepper on August 07, 2014, 02:50:12 AM
Thanks for that! :)  I will ponder further.
Title: Re: Australian Investing Thread
Post by: marty998 on August 07, 2014, 05:27:59 AM
Limeandpepper no unfortunately, etax does not prepopulate distributions from managed funds.

One of the reasons for this is capital gains. Etax cannot work out what your CGT position is unless you tell it to based on the information you enter (purchase & sale dates, 50% concessional amounts etc).

You have to use the tax statement provided by you fund and enter it in. It's actually quite simple to be fair, you normally have to fill out several boxes - distributions from trusts (including franking credits), capital gains, and foreign source income and foreign tax credits if applicable. Etax does walk you through it.
Title: Re: Australian Investing Thread
Post by: limeandpepper on August 07, 2014, 07:51:33 AM
Thanks for the reassurance, marty. That doesn't sound too scary. :)
Title: Re: Australian Investing Thread
Post by: TB_J on August 07, 2014, 08:42:50 PM
Hi all, great banter here.

Question: Who else is in VTS? Noticing that the few of you who are have relatively small weightings as opposed to VAS.

Why is this? In my opinion VTS is much more diversified, doesn't have the fickle financials vs resources sector risk inherently associated with VAS. Not to mention anyone in an industry super fund who has a weighting to an 'Australian Shares' option would have similar to VAS exposure.

Perhaps it's because the VTS index is possibly quite overvalued at the moment or it's low divi yeild? Just curious as it seems like an excellent long term low maintenance vehicle.

Title: Re: Australian Investing Thread
Post by: MsRichLife on August 07, 2014, 09:16:51 PM
Anyone investing in precious metals?

Bullion or ETF?
Title: Re: Australian Investing Thread
Post by: The Falcon on August 07, 2014, 10:17:53 PM
Hi all, great banter here.

Question: Who else is in VTS? Noticing that the few of you who are have relatively small weightings as opposed to VAS.

Why is this? In my opinion VTS is much more diversified, doesn't have the fickle financials vs resources sector risk inherently associated with VAS. Not to mention anyone in an industry super fund who has a weighting to an 'Australian Shares' option would have similar to VAS exposure.

Perhaps it's because the VTS index is possibly quite overvalued at the moment or it's low divi yeild? Just curious as it seems like an excellent long term low maintenance vehicle.

Yield and currency risk. In a leveraged investment, yield is important if you want to be cash positive or neutral. VTS is unhedged, as I intend to live in Australia, I will be spending AUD. In super, franked dividends are a massive free kick in a 15% tax environment, so that is another reason for the tilt.

Long run I will probably looking for a 70/30 AU/US mix over all. I like VTS and I like BRK-B. You dead right about the diversification the US index....it also provides more Global exposure each year. I don't think there is a right or wrong here, but a matter of preference.

Anyone investing in precious metals?

Bullion or ETF?

I've got a gold bar that I bought for my daughter her first Christmas, the idea is she will get it on her 21st. I don't expect it to be worth much if anything more in real terms though!
Precious metals are a speculative tool, I don't have any interest but a bit of bullion is a cool thing :)
Title: Re: Australian Investing Thread
Post by: MsRichLife on August 07, 2014, 10:48:56 PM
I don't expect it to be worth much if anything more in real terms though!

The beauty of gold bullion is that its value in real terms is much the same as it was 5000 years ago. 1 ounce is worth roughly the price of a well made suit or something along those lines.

My biggest concern (clearly not shared by the majority of folks in MMM land) is that tertiary wealth (paper money, derivatives et al) has exponentially outgrown the primary and secondary wealth supposedly underlying it. At some point there is likely to be a reckoning and those holding the primary and secondary wealth when the music stops will be much better off that those holding useless bits of paper. Gold therefore is a hedge against a collapse of derivatives and other paper assets.

Anyone else willing to entertain such a view?
Title: Re: Australian Investing Thread
Post by: The Falcon on August 07, 2014, 11:09:03 PM
Yes, its a store of wealth, not an investment. To me, that's not really a thing of beauty. It doesn't produce any income and in order to realise its value you have to sell it. I'll take dividend paying investments any day. The best hedge against inflation is a stake in successful businesses. I've always liked Buffett's take on gold...will have to dig it up.

If you are an extreme bear, then gold is what you want. May as well dig a bunker then as well, and stack up on guns :)  The bears might be right....who knows. You pay your money and you take your chances.
Title: Re: Australian Investing Thread
Post by: TB_J on August 07, 2014, 11:15:07 PM

Yield and currency risk. In a leveraged investment, yield is important if you want to be cash positive or neutral. VTS is unhedged, as I intend to live in Australia, I will be spending AUD. In super, franked dividends are a massive free kick in a 15% tax environment, so that is another reason for the tilt.

Long run I will probably looking for a 70/30 AU/US mix over all. I like VTS and I like BRK-B. You dead right about the diversification the US index....it also provides more Global exposure each year. I don't think there is a right or wrong here, but a matter of preference.

Thanks Mr Bird. I appreciate your view. I would see the unhedged position of VTS as beneficial in the short to medium term... pending on how a few things play out. I think perhaps in an unleveraged portfolio that isn't dependent on yield to cover holding costs the diversification may be worth it. The VAS weighting to our small selection of large caps is risky business.



I don't expect it to be worth much if anything more in real terms though!

The beauty of gold bullion is that its value in real terms is much the same as it was 5000 years ago. 1 ounce is worth roughly the price of a well made suit or something along those lines.

My biggest concern (clearly not shared by the majority of folks in MMM land) is that tertiary wealth (paper money, derivatives et al) has exponentially outgrown the primary and secondary wealth supposedly underlying it. At some point there is likely to be a reckoning and those holding the primary and secondary wealth when the music stops will be much better off that those holding useless bits of paper. Gold therefore is a hedge against a collapse of derivatives and other paper assets.

Anyone else willing to entertain such a view?

It is a view shared by more than you would think. Read the comments section on this Australian property and economics blog for a shared perspective....

http://www.whocrashedtheeconomy.com/
Title: Re: Australian Investing Thread
Post by: MsRichLife on August 07, 2014, 11:18:05 PM
If you are an extreme bear, then gold is what you want. May as well dig a bunker then as well, and stack up on guns :)

Great...Probably need ammo too right? :) I was living in the US during the GFC. It left it's mark on me in more ways than one.

Not an extreme bear here. Maybe a bear cub. Just thinking a small percentage of my portfolio could go into gold. Still pondering.....
Title: Re: Australian Investing Thread
Post by: The Falcon on August 07, 2014, 11:22:21 PM
ha. yes, you'd need ammo to keep the hordes at bay.

I remember seeing a portfolio somewhere which was targeted as the ultimate set and forget, no stress, survive Armageddon portfolio ;

25% index funds
25% government bonds
25% cash
25% gold

Title: Re: Australian Investing Thread
Post by: MsRichLife on August 07, 2014, 11:29:18 PM
ha. yes, you'd need ammo to keep the hordes at bay.

I remember seeing a portfolio somewhere which was targeted as the ultimate set and forget, no stress, survive Armageddon portfolio ;

25% index funds
25% government bonds
25% cash
25% gold

'The Ultimate Portfolio': Harry Browne via Dan Denning perhaps? (attached)

The real Armageddon portfolio is:
25% Cash
25% Gold and Silver Bullion
10% Russian Vodka
15% Dark Rum
15% Tobacco Products
10% Tinned Food
5% Batteries and bottled water
Title: Re: Australian Investing Thread
Post by: The Falcon on August 08, 2014, 12:00:43 AM
That's the one :)
Title: Re: Australian Investing Thread
Post by: LonerMatt on August 08, 2014, 12:41:33 AM
ha. yes, you'd need ammo to keep the hordes at bay.

I remember seeing a portfolio somewhere which was targeted as the ultimate set and forget, no stress, survive Armageddon portfolio ;

25% index funds
25% government bonds
25% cash
25% gold

This is the Permanent Portfolio which is supposed to offer modest (4-7%) returns annually and preserve wealth without major highs or lows.
Title: Re: Australian Investing Thread
Post by: deborah on August 08, 2014, 01:23:41 AM
The real Armageddon portfolio is:
25% Cash
25% Gold and Silver Bullion
10% Russian Vodka
15% Dark Rum
15% Tobacco Products
10% Tinned Food
5% Batteries and bottled water
Why cash? Seeds and hardware (including solar panels)!
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on August 08, 2014, 10:12:17 AM
@ TB_J - what do you mean by "the fickle financials vs resources sector risk inherently associated with VAS"?
Title: Re: Australian Investing Thread
Post by: The Falcon on August 08, 2014, 03:52:00 PM
He means the Australian index, weighted by market caps is very heavy on banks and miners....essentially the big 4 , BHP and RIO.

US Index however weighted by market cap is more diversified ; Tech, Energy, consumer staples, telecoms, banks.
Title: Re: Australian Investing Thread
Post by: TB_J on August 10, 2014, 06:50:34 AM
He means the Australian index, weighted by market caps is very heavy on banks and miners....essentially the big 4 , BHP and RIO.

US Index however weighted by market cap is more diversified ; Tech, Energy, consumer staples, telecoms, banks.

Yes AustralianMustachio, The Falcon has nailed it. The Aus 200 & 300 indexes are too heavy on the big 4 banks and large cap commodity miners due to forced weighting based on capitalization, which presents an obvious risk. The US total market index and S&P 500 are far more diversified across industries that aren't present or mature in Australia - think manufacturing, Silicon Valley tech etc. also worth remembering the global exposure gained from the US index as many of the index constituents are US based multinationals.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 10, 2014, 04:18:20 PM
Yep, from memory across the S&P 500 something like 23% of income is now foreign sourced.

As an aside, those wanting different to market cap exposure on the ASX, there are now economic weight and "equal weight" ETFs like MVW and QOZ available.
Title: Re: Australian Investing Thread
Post by: Gecko235 on August 11, 2014, 04:23:14 AM
Hey guys, loving the thread so far and will keep checking on how things are going.

Just thought I'd chip in where I'm atm.

26 yrs old.

I have a partner but she is terrible with money as she has learnt bad habits from her parents. She is getting better as she's saved up $800 which is very impressive on her behalf (she has come along way).

2 Properties worth $920k, roughly $260k equity. 1 is sub dividable and that's the retirement egg right there.
$76k in shares (to heavy in banks which I plan on changing in the future when the price come back up again)
3k in cash

Currently in the middle of refinancing to pull out some equity and buy up some more shares if I find something at a good price.

I'm fairly new to it and over paid for NAB bank shares a year ago. I have had chances to sell off a profit so I might do at the next chance as I think there are better options now that I've learnt a bit more

Also take a look at Collins food shares (CKF). I wish I had some more $ to snap them up they dropped in price today!
Title: .
Post by: This_Is_My_Username on August 12, 2014, 06:50:24 AM
great thread:

I am at:

age 30
100k pretax salary
20% equity in PPOR =$80k
100k super
$40k shares: VAS, VHY, and IOZSWG
65% savings rate
Retire at 40.

Title: Re: Australian Investing Thread
Post by: steveo on August 12, 2014, 02:58:03 PM
I'll chip in:-

41 wife 38. 3 kids.
House - say 600k net worth with 130k debt
Super - 210k
Combined earnings - 170k pre-tax

Looking to retire at 50.
Title: Re: Australian Investing Thread
Post by: TB_J on August 12, 2014, 07:56:22 PM
A number of economists predicting the AUD to slide to 80c against the greenback by end of next year. VTS may prove to be a decent medium term proposition with somewhat of a hedge against a US market correction.

Just my musings for the day.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on August 14, 2014, 02:25:09 AM
Quick question regarding purchasing ETFs - if I'm buying a Vanguard ETF (VAS in my example) and I do so through an online brokerage account (got an NABtrade account with some free trades), how do I set up my dividend reinvestment plan for that ETF? Will Vanguard send me something after the purchase, perhaps?
Title: Re: Australian Investing Thread
Post by: marty998 on August 14, 2014, 03:54:19 AM
Yes, probably. You get the option of cash dividend or reinvestment.

Else perhaps you could log into the share registry and update it online (not sure if it is computershare or link market services).

Remember to keep track of all the reinvestments for CGT purposes. Each reinvestment is a new "purchase" and you need to record the date, number of shares/units and cost for tax.

You will also need to keep track of tax deferred income, which will reduce the cost base of each unit.

TMI? Talk to your accountant about it.

Title: Re: Australian Investing Thread
Post by: AustralianMustachio on August 14, 2014, 09:15:52 AM
Thanks for the reply marty very much appreciated
Title: Re: Australian Investing Thread
Post by: potm on August 16, 2014, 11:31:01 AM
26 years old.
350k in direct shares with about 128k margin loan.

Investing is something I really enjoy and am constantly thinking and learning. To be able to value companies and make good investments I think you need a knowledge of accounting, finance, economics, human psychology, the business and markets that company operates in and a lot of luck. Otherwise achieving the average return through indexing and cost averaging is not a bad way to do things and requires no knowledge or effort. Just decide on your allocation and minimise the costs.

I invest in companies with reliable revenue, not high levels of debt, leader in their market with some good growth prospects and at a good price.
I mainly look at medium sized companies in the top 200-300 range by market cap, large enough to be reliable and liquid but small enough to go unnoticed by the majority of people and still have room to grow.
Hopefully with some growth, they can enter the top 200 and get rerated upwards as they come under the spotlight.

Just a comment on bonds, I don't think there's any need for them in Australia, especially at these low levels of interest rates. Leaving money in ubank is preferable.
If interest rates go up to like 10% then some long maturity bonds would be a good idea.

I also don't like hybrids. They are like the worse of both worlds of cash and shares. Unless you buy at a large discount there's no upside potential if the company does well but there is a downside potential if the company does poorly.

I think the prices for the popular bluechip stocks, banks, telstra and wow etc are getting to the high part of the cycle now. I hear lots of people wanting to start investing in shares which is always a sign that things are getting expensive.
That doesn't mean that the prices can't get much higher though. Who knows how long things will run for before we get cheap prices again and nobody wants to invest in shares. Even with the overall market high though, there are always individual opportunities out there.
Title: Re: Australian Investing Thread
Post by: bigchrisb on August 16, 2014, 09:23:55 PM
Anyone run the ruler over the Telstra buyback?  I've got some Telstra shares in my name that I'd like to sell, and re-purchase in my trust of SMSF's name.  I picked them up at about $3, so there is a fair capital gain on them.  I thought that the proposed buyback might be a good opportunity to do this.   However, running the numbers, on my tax  rate I'd be far better off just selling them on market.  Anyone else looked at the TLS buyback, or got it to stack up for them?
Title: Re: Australian Investing Thread
Post by: dungoofed on August 17, 2014, 08:25:29 AM
I'm finally getting back into it, with 1/6 in each of:

VAS.AX
IOO.AX
IME.AX
VGB.AX
PMGOLD-A
plus an HSBC term deposit.

Started off with the Permanent Portfolio and tweaked it into something I am more comfortable with.
Title: Re: Australian Investing Thread
Post by: dungoofed on August 17, 2014, 09:07:33 AM
Oh, and I had a question - anyone ever considered anything from the Realindex range? The fees always turned me off but I can see the benefits to the RAFI approach. I'd consider 100% 16885.AX a fair substitute for, say, 50% holdings in each of VAS.AX and VSO.AX.

Title: .
Post by: This_Is_My_Username on August 17, 2014, 08:07:49 PM
Anyone run the ruler over the Telstra buyback?  I've got some Telstra shares in my name that I'd like to sell, and re-purchase in my trust of SMSF's name.  I picked them up at about $3, so there is a fair capital gain on them. 

Is this a potential wash sale ?

http://www.asx.com.au/education/investor-update-newsletter/201305-tax-loss-selling.htm
Title: Re: Australian Investing Thread
Post by: bigchrisb on August 17, 2014, 08:18:12 PM
Hmmm, it would seem that ruling suggests that an individual and a company/trust with the same economic exposure may indeed be a wash sale.  Scrap that idea then!
Title: Re: Australian Investing Thread
Post by: superannuationfreak on August 17, 2014, 08:36:20 PM
Oh, and I had a question - anyone ever considered anything from the Realindex range? The fees always turned me off but I can see the benefits to the RAFI approach. I'd consider 100% 16885.AX a fair substitute for, say, 50% holdings in each of VAS.AX and VSO.AX.

I've considered them.  For a RAFI ASX 200 product I'd be more inclined to use the ETF QOZ from Betashares with lower fees and lower likelihood of capital gains distribution.

I'd really like to invest in their Realindex (Wholesale) Australian small companies fund but my two concerns are the potential for turnover (generating capital gains) and the fees.  The fees bother me more for the potential for capital gains lock-in: if a cheaper comparable product becomes available it may still be worth sticking with an existing fund as otherwise the capital gains tax bill may hurt.  If I were putting more into super at the moment I'd probably use that for a portion of my Australian equity allocation (maybe 10% or 20% of my Australian equities) as in Super turnover is less of an issue due to lower tax rates, and capital gains lock-in is not a problem.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on August 17, 2014, 08:40:18 PM
Is anyone here invested in IHD (iShares® S&P/ASX High Dividend Fund)?

I was leaning towards it as I like their methodology, including the caps it puts on individual holdings and sectors.

However it just had an enormous distribution of (mostly) capital gains in July, dropping its usually high franking level substantially.  Was there any explanation of this given to unit holders?  Was it just turnover or was there some corporate action (merger, etc.) which caused it?
Title: Re: Australian Investing Thread
Post by: The Falcon on August 20, 2014, 06:57:00 PM
A question I've long debated on LICs and not managed to get an answer from (either from the ATO, the ASX or the LICs themselves).  Do you know if the post tax NTA accounts for the value of the LIC capital gains credits or not?  i.e. is the CGT calculated at 30% or 15% in that stat?

Ok, here is an answer. LIC Post tax NTA is CG paid at company tax rate 30% but no LIC investor CG credit is applied.
The value of the investor CG credit will depend on investors individual tax situation, ie it is not company tax @ 30% / 2 , as LIC structure does not get 50% CGT discount but the individual shareholders get the flow through discount on the underlying holdings. Hope this makes sense.
Title: Re: Australian Investing Thread
Post by: bigchrisb on August 20, 2014, 07:56:13 PM
I think that's good news - in other words, in the hands of an individual shareholder, the difference between the pre and post tax NTA would be halved?

Thanks for coming back to me on this one.
Title: Re: Australian Investing Thread
Post by: The Falcon on August 20, 2014, 08:03:57 PM
Roughly yes for low tax bracket, but still a better outcome than you might assume for top tax bracket, given the limited portfolio turnover, there is a lot of discounted CG to be had so you would have to expect an actual of 25% effective on top bracket for CG component, so yes I would suggest that Post tax NTA figure is probably a pretty pessimistic number (as it should be) and that would be top bracket, and a pretty high turnover year for one of the traditional LICs to get there.

No worries at all mate :)
Title: Re: Australian Investing Thread
Post by: dungoofed on August 24, 2014, 06:34:36 AM
Oh, and I had a question - anyone ever considered anything from the Realindex range? The fees always turned me off but I can see the benefits to the RAFI approach. I'd consider 100% 16885.AX a fair substitute for, say, 50% holdings in each of VAS.AX and VSO.AX.

I've considered them.  For a RAFI ASX 200 product I'd be more inclined to use the ETF QOZ from Betashares with lower fees and lower likelihood of capital gains distribution.

I'd really like to invest in their Realindex (Wholesale) Australian small companies fund but my two concerns are the potential for turnover (generating capital gains) and the fees.  The fees bother me more for the potential for capital gains lock-in: if a cheaper comparable product becomes available it may still be worth sticking with an existing fund as otherwise the capital gains tax bill may hurt.  If I were putting more into super at the moment I'd probably use that for a portion of my Australian equity allocation (maybe 10% or 20% of my Australian equities) as in Super turnover is less of an issue due to lower tax rates, and capital gains lock-in is not a problem.

Thanks superannuationfreak for highlighting QOZ.

Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.
Title: Re: Australian Investing Thread
Post by: The Hamster on August 25, 2014, 07:50:38 PM
Is anyone here invested in IHD (iShares® S&P/ASX High Dividend Fund)?

I was leaning towards it as I like their methodology, including the caps it puts on individual holdings and sectors.

However it just had an enormous distribution of (mostly) capital gains in July, dropping its usually high franking level substantially.  Was there any explanation of this given to unit holders?  Was it just turnover or was there some corporate action (merger, etc.) which caused it?

I have been looking at this for my superfund as well so I will check it out further.

This might be a useful website for those of us who like to research shares - you do have to register though (free) http://www.australiandividends.com.au/

And finally, what P/E is considered "safe"  is it below 20?  And what's the difference between trailing and forward P/E?
Title: Re: Australian Investing Thread
Post by: TB_J on August 25, 2014, 10:42:05 PM
Quote

Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.

A whopping 2k for a 98 mitsubishi mirage - costs about $50 a month on fuel. No power steering, but that's ok. Everyday is arms day :)

It's nice knowing I have the bank balance to purchase just about any car on the road, outright, in cash... If I was a clown. But I've got nothing to prove, so the mirage does the job. My other car is a bicycle. I also like to ride my skateboard.


Back to investments - something worth raising about superannuation for anyone with an INDUSTRY SUPER FUND.

I'm with REST and have recently logged into my super account online - changed my asset control from a "Core" default strategy (bonds/stocks/cash/REIT mix), to 100% Australian Stocks. This gives a significantly higher return over the long term & costs about $10-20 bucks to change. I've also removed a number of unnecessary insurances - for example, a default life insurance policy that was only payable to my dependants in the case of my death. I have no dependants, so I've saved my self a few bucks a week.

Simple changes that I would expect to have a significant impact over the course of time.

Title: Re: Australian Investing Thread
Post by: Notch on August 25, 2014, 11:23:00 PM
Quote

Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.

A whopping 2k for a 98 mitsubishi mirage - costs about $50 a month on fuel. No power steering, but that's ok. Everyday is arms day :)

It's nice knowing I have the bank balance to purchase just about any car on the road, outright, in cash... If I was a clown. But I've got nothing to prove, so the mirage does the job. My other car is a bicycle. I also like to ride my skateboard.


Back to investments - something worth raising about superannuation for anyone with an INDUSTRY SUPER FUND.

I'm with REST and have recently logged into my super account online - changed my asset control from a "Core" default strategy (bonds/stocks/cash/REIT mix), to 100% Australian Stocks. This gives a significantly higher return over the long term & costs about $10-20 bucks to change. I've also removed a number of unnecessary insurances - for example, a default life insurance policy that was only payable to my dependants in the case of my death. I have no dependants, so I've saved my self a few bucks a week.

Simple changes that I would expect to have a significant impact over the course of time.

$5000 for a 2006 Kia Rio. Service it myself.

TB_J, you may have no need for life insurance, but check that you didn't also cancel your total permanent disability (TPD) insurance at the same time, as they are often linked.  TPD insurance is vital for protecting you against the risk of losing your most important asset of all, your earning capacity.
Title: Re: Australian Investing Thread
Post by: TB_J on August 25, 2014, 11:49:33 PM

Quote

$5000 for a 2006 Kia Rio. Service it myself.

TB_J, you may have no need for life insurance, but check that you didn't also cancel your total permanent disability (TPD) insurance at the same time, as they are often linked.  TPD insurance is vital for protecting you against the risk of losing your most important asset of all, your earning capacity.

Thanks Notch - I've kept my TPD Insurance. You are correct, this one is vital. I should have mentioned that.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on August 26, 2014, 06:32:29 AM
Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.

Buy a 5-8 year-old car for 3k-5k cash.  With good fuel efficiency.  Or a motorbike!  Seems pretty simple to me. 
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on August 26, 2014, 06:34:39 PM
A number of economists predicting the AUD to slide to 80c against the greenback by end of next year. VTS may prove to be a decent medium term proposition with somewhat of a hedge against a US market correction.

Just my musings for the day.

This seems to be what I'm seeing in the financial media more and more recently - the AUD will fall soon vs the rallying USD, and we won't have the buying international power we have had for much longer.
Title: Re: Australian Investing Thread
Post by: MsRichLife on August 27, 2014, 08:04:48 PM
Hi All,

I'm looking for recommendations for a good online high interest account to hold some cash in for a while (about to sell a property).

We've already maxed out INGDirect, so looking for something similar or better.

Thanks

MRL
Title: Re: Australian Investing Thread
Post by: superannuationfreak on August 27, 2014, 08:18:27 PM
Ubank USaver with Ultra

Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)
Title: Re: Australian Investing Thread
Post by: Sky23 on August 27, 2014, 08:20:44 PM
Hi All,

I'm looking for recommendations for a good online high interest account to hold some cash in for a while (about to sell a property).

We've already maxed out INGDirect, so looking for something similar or better.

Thanks

MRL

Ubank's Usaver account has the highest interest rate as far as I'm aware... actually just checked and Commbank's Goal Saver is at 4% at the moment which is currently higher than Usavers 3.81%

Also a couple of beginner level questions for everyone:

1. If I want to buy VAS / VHY or ARGO etc. what is the best way to do so? I have an eTrade account, should I purchase through there?
2. Also was thinking of purchasing under my wife's name as she earns less than I do, is it easy to transfer them to my own name later on? Any other potential drawbacks of purchasing under the wife's name that I should be aware of?

Thanks and any advice would be much appreciated!
Title: Re: Australian Investing Thread
Post by: Sky23 on August 27, 2014, 08:31:27 PM
Ubank USaver with Ultra

Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)

I just saw this new account as well, do you know how it works? I was a little confused with the details.

If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on August 27, 2014, 09:27:04 PM
1. If I want to buy VAS / VHY or ARGO etc. what is the best way to do so? I have an eTrade account, should I purchase through there?
2. Also was thinking of purchasing under my wife's name as she earns less than I do, is it easy to transfer them to my own name later on? Any other potential drawbacks of purchasing under the wife's name that I should be aware of?
1. simply buy them with your online brokerage account.   not sure if ARGO is available via that method(?).

2a. risks: divorce, change in annaul earnings e.g. if you become a stay at home parent, is she the type of person to make transactions without your knowledge.

2b. That is an "off-market transfer".  You just need to fill in the hard-copy form and pay the fee, which is approx $50 - 70.  Not sure if the fee is higher for larger transfers?
Title: Re: Australian Investing Thread
Post by: potm on August 27, 2014, 09:33:00 PM
Ubank USaver with Ultra

Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)

I just saw this new account as well, do you know how it works? I was a little confused with the details.

If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?

The ultra is the transaction account so you don't get any interest on amounts in there. Having one though gives you the bonus interest on your saver account.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on August 27, 2014, 09:41:22 PM
Question about currency risk in international ETFs such as VTS:

From the Vanguard website:
Quote
The Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar.

Is it simply dividends that are "exposed to the fluctuating values"? I understand that my dividend payments will come in USD, and thus whatever I receive in AUD will depend on the exchange rate at the time. Or does the price of the fund itself move in line with currency changes? E.g when the AUD is higher vs the USD the price of the ETF (listed in AUD) falls, because we can buy more with more AUD?
Title: Re: Australian Investing Thread
Post by: Notch on August 28, 2014, 12:00:14 AM
Question about currency risk in international ETFs such as VTS:

From the Vanguard website:
Quote
The Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar.

Is it simply dividends that are "exposed to the fluctuating values"? I understand that my dividend payments will come in USD, and thus whatever I receive in AUD will depend on the exchange rate at the time. Or does the price of the fund itself move in line with currency changes? E.g when the AUD is higher vs the USD the price of the ETF (listed in AUD) falls, because we can buy more with more AUD?

Both.  If it's unhedged, the price of units and dividends will be affected by currency fluctuations - which can be good or bad.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on August 28, 2014, 12:09:48 AM
Ubank USaver with Ultra

Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)

I just saw this new account as well, do you know how it works? I was a little confused with the details.

If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?

You get the 1.06% bonus interest (total currently 4.17%) on the linked USaver and 0% interest on the Ultra.
Incidentally the lower USaver bonus by itself will vanish shortly anyway.

The only costs are you have to keep at least $100 in the Ultra account (you can change the minimum but only down to $100) and you have to deposit at least $200 per month into one of the two accounts.  You can then choose to use the Ultra account as a transaction account or just ignore it.

I found it was a better-value option than the next-best (4.11% with RAMS but to keep the high interest rate you can't withdraw at all during the month).
Title: Re: Australian Investing Thread
Post by: Sky23 on August 28, 2014, 01:30:27 AM
Username, ptom and superannuationfreak,

Thanks guys for the info / advice =)

Will set up my Ultra account then and look into these index funds a little more closely (still don't know which to start off with)
Title: Re: Australian Investing Thread
Post by: KaosAD on September 02, 2014, 06:54:07 AM
Greetings to all the Australian Mustachians.

I have been following MMM for a long time now and have worked my way up from post number one.

I would humbly like to ask some advice on where to put the $25k that I have currently sitting in cash as well as a $1k per week ongoing investment.

I am interested in the Vanguard mechanisms and would like to understand more about the pros and cons of buying the ETFs (lower management costs but will incur brokerage each way) versus the Retail Managed Funds (higher management costs and spread each way).

I have previous experience in both share and forex trading and have quite a healthy risk apatite (but not crazy casino style) as I am young, have no debts and no family.

At this stage I am leaning towards the RMFs specifically a mix of:

Vanguard® Index Australian Property Securities Fund
Vanguard® Index Australian Shares Fund
Vanguard® High Yield Australian Shares Fund
Vanguard® Index International Shares Fund
Vanguard® Index Hedged International Shares Fund

The question is now what allocation should I go with?

Thanks in anticipation - NS
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on September 02, 2014, 08:04:56 PM
 How do people think the mining tax repeal will affect mining company prices, such as BHP?

http://www.reuters.com/article/2014/09/02/us-australia-mining-tax-idUSKBN0GX0LD20140902

Surely not having to pay that tax will make the companies much more profitable and drive the share prices up? BHP has been quite low for a while, too. Just some pure uneducated speculation. I don't own any BHP, apart from in VAS (BHP makes up about 9% of VAS).

That being said, politically I am against the move and think it's going to be bad for Australia
Title: Re: Australian Investing Thread
Post by: drspaceman on September 04, 2014, 07:49:19 AM
In reply to AustralianMustachio I am guessing that by now the stock price of the mining companies would already reflect this, as the price represents future growth as well as current value/assets of the business.

On a separate note I have some questions of my own.

My Situation
So I am 23 and currently have 50k sitting in cash earning 4.17%
3k of Vanguard VTS, 3k of Vanguard VAS, and a random 3k of rio (as a while ago my father thought the price was low an suggested it wouldn't be a bad time to buy).

I want to start moving out some of the 50k into index funds but as I have already found out, the etfs incur brokerage fees I was wondering what brokers people here are using e.g. commsec, nabtrade, etrade? Is there any way to avoid brokerage? Or is the only option the managed fund style but then your charged per annum( for Vanguard High growth I think it was 0.9%).

If I wanted to dollar cost average and buy parcels of say 5k this would be(for my current broker):
50/5 = 10 = 10*19 = $190
as a percentage of 50k = 190/50000*100 = 0.38percent
Which is not terrible and is a once off fee, but I will also want to keep buying in the future every time I have 5k set aside costing brokerage each time.

My other question is can anyone explain the how the taxing of the VTS(US Total) is compared to the VAS? It incurs 15% withholding tax but i'm not sure how that compares to australian franked dividends.












Title: Re: Australian Investing Thread
Post by: potm on September 04, 2014, 08:34:34 AM
CMC markets is the cheapest Australian broker at 11 dollars a trade, that should make things a bit cheaper. Depends how fast you are saving, can always buy less often and wait until you have 10k.
And like you said, it's only a one off fee so in the long run it works out cheaper than paying a higher MER per year.

15% with holding tax can be claimed as a tax offset when you do your Australian tax return. This is after the companies have paid corporate tax in the US though. You don't get an offset on the corporate tax like you do with franked dividends here.
Title: Re: Australian Investing Thread
Post by: dusty on September 05, 2014, 05:37:23 PM
Thanks for the Australian Dividends website Hamster, just registered but it looks like a fantastic resource.


Drspaceman - I have an onlinebroker account with 'Bell Direct' their brokerage fee is $15 per trade.
Title: Re: Australian Investing Thread
Post by: Wadiman on September 06, 2014, 03:11:21 AM
Hi everyone -

So happy that I found this site and some fellow Aussies to provide some regionally-tuned feedback.

Apologies if this is the wrong thread for this but would be keen to hear others' experiences/opinions re Au investment strategy for someone who is about 10 years off FI.

Here's my situation:

Age: 49
Family:  Wife and 1 son (20 months)
Assets: PPOR (valuation 1.3M); IP1 (valuation 600k); Charter hall unlisted property trust ($50k), Super ($270k), Car and scooter ($20k)  - total = $2.85M
Liabilities:  Mortgage 1 (PPOR - $230k; investments - $180k); Mortgage 2 (IP1 - $448k) - total = $858k
Net worth: say $2M
Salary: $200k (gross inc super)
Current debt repayment/saving rate: 68%

I've been thinking about the best way forward from here on to hit FI (target is around $1.4M invested in addition to retaining PPOR, plan to sell IP1). I've identified three broad options (there are minor tweaks of course to each):

Options, pros and cons:
OPTION 1 - Continue paying down PPOR mortgage aggressively with all savings allocated to same (due to clear in 3 years at current rate) then when PPOR mortgage cleared invest into ETF/LIC/direct share portfolio and maintain super contributions at $25k for next 9 years or so. 
Pros - low risk, psychologically rewarding to see the mortgage drop quickly, guaranteed return of 4.8% (current mortgage rate) 
Cons - conservative, could be better off with increasing super but concerned about legislative risk

OPTION 2 - Reduce PPOR mortgage repayments slightly to allow for max super contributions (currently $30k) and then invest as per Option 1.
Pros - low risk, tax-advantaged super contributions
Cons - conservative, concern about legislative risk on super and not being able to access at 60 (if changes)

OPTION 3 - Reduce PPOR mortgage repayments by 50% (or some other percentage), invest balance in EFT/LIC/Direct share portfolio (no leverage), continue super contributions at $25k p/a
Pros - potentially better returns (say 3-5%) than mortgage rate
Cons - increased risk, psychologically perhaps not as rewarding seeing mortgage paid out as quick (perhaps could take another 2 years to clear).

I would love to hear fellow aus mustachians thoughts on the above options or perhaps there are others that I haven't considered - would love to hear those as well!

Thanks!

Title: Re: Australian Investing Thread
Post by: dungoofed on September 06, 2014, 03:35:04 AM
Australian Online Brokers
CMC Markets - $11/trade
Bell Direct - $15/trade
HSBC Australia - $15.95/trade


Australian Term Deposits
HSBC. Min Deposit: $5000. Term: 3 months. Rate: 3.10%


Australian Saver Accounts
Ultra Ubank USaver. Min Monthly Deposit: $200. Rate: 4.17%
RAMS. Rate: 4.11%


Australian Cash ETF
AAA.AX 3.29%


World Equity ETFs
WXOZ.AX SPDR S&P World ex Australia (Australian-domiciled)
VGS.AX Vanguard MSCI Index International Shares (Australian-domiciled, dividends reinvested, 0.18% MER)
IOO.AX iShares S&P Global 100 (US-domiciled)


US Equity ETFs
VTS.AX Vanguard US All Market. 
IVV.AX iShares S&P 500


Australian Equity ETFs
VAS.AX Vanguard Index Australian Shares. (traditional market cap weight)
VHY.AX Vanguard High Yield Australian Shares.
IOZ.AX iShares MSCI Australia 200 ETF. MER 0.19
STW.AX SPDR S&P/ASX 200 Fund
16885.AX Realindex Australian Share
QOZ.AX BetaShares FTSE RAFI Australia 200 ETF (fundamental weight)
etc

Australian LICs
MLT.AX Milton Corp. MER: 0.125%
CIN.AX Carlton Investments. MER: 0.9%
AFI
ARG
BKI
CIN

Emerging Markets ETFs
VGE.AX Vanguard FTSE Emerging Markets Shrs ETF (Australia-domiciled)
IEM.AX iShares MSCI Emerging Markets Index ETF (US-domiciled)


Bond ETFs - Australian
VGB.AX Australian Government Bond Index. MER 0.20%
VAF.AX
RCB.AX Russell Australian Select Corp.
IAF.AX
etc


PMs - Physical, Onshore
Perth Mint

PMs - ETFs, Onshore
PMGOLD-A.AX
GOLD.AX
QAU.AX

PMs - Physical, Offshore
http://silverbullion.com.sg


Roboinvestment SaaS for Australians
http://www.stockspot.com.au/


Portfolio Management SaaS for Australians
http://www.sharesight.com.au/


Resources - Essential reading
A Random Walk Down Wall Street
Bogleheads Guide to Investing
http://mrmoneymustache.com
Failsafe Investing
http://crawlingroad.com


Resources - Australian Investing


Resources - Australian Superannuation
http://superannuationfreak.blogspot.com


Resources - Dividends
http://www.australiandividends.com.au/



etc

Very rough skeleton based on what's in this thread. Maybe put all this information onto Bogleheads Wiki eg http://www.bogleheads.org/wiki/Investing_in_Japan (Australian page conspicuously lacking). Just trying to think like a Boglehead, the info that we're really interested in is cost, liquidity, taxation issues, etc.

Books too - there are so many resources out there, but there are a few books and websites which are so good they keep bubbling to the top.

Apologies if this already exists somewhere in one place, and would appreciate your thoughts.
Title: Re: Australian Investing Thread
Post by: lolzmonster on September 06, 2014, 03:45:05 AM
Hi guys,

Just a curious question. Is anybody here using leverage to invest in shares? From what I've seen on my bank website (ANZ), the rate is something silly like 7%.

If you do, could you outline how that has been working for you?

Thanks
Title: Re: Australian Investing Thread
Post by: marty998 on September 06, 2014, 04:32:19 AM
How do people think the mining tax repeal will affect mining company prices, such as BHP?

http://www.reuters.com/article/2014/09/02/us-australia-mining-tax-idUSKBN0GX0LD20140902

Surely not having to pay that tax will make the companies much more profitable and drive the share prices up? BHP has been quite low for a while, too. Just some pure uneducated speculation. I don't own any BHP, apart from in VAS (BHP makes up about 9% of VAS).

That being said, politically I am against the move and think it's going to be bad for Australia

Iron Ore price is having a much bigger effect. Currently at a 5 year low of US$80 and most IO stocks are getting hammered.

BHP, RIO and FMG on the other hand are carrying on pumping out record volumes. They were never going to pay a material amount of tax anyway based on how it was designed.
Title: Re: Australian Investing Thread
Post by: dungoofed on September 06, 2014, 06:45:26 AM
I would love to hear fellow aus mustachians thoughts on the above options or perhaps there are others that I haven't considered - would love to hear those as well!

Hi Wadiman -

Quote
Assets: PPOR (valuation 1.3M); IP1 (valuation 600k); Charter hall unlisted property trust ($50k), Super ($270k), Car and scooter ($20k)  - total = $2.85M
Liabilities:  Mortgage 1 (PPOR - $230k; investments - $180k); Mortgage 2 (IP1 - $448k) - total = $858k
Net worth: say $2M

Firstly, I get Assets at $2.24m, which brings your net worth down to about $1.4m (and unless you're thinking of selling your car/scooter you might want to remove it from these calculations).

Also, what is that "investments" liability? Did you forget to include some stocks bought with the bank's money in your Assets perhaps?

Title: Re: Australian Investing Thread
Post by: Wadiman on September 06, 2014, 07:44:01 AM
Dungoofed

You're right re the assets calc - circa $2.2M is correct.

The liability is for the deposit on the IP and purchase costs and past misadventures with equities when I got cold feet and wore some losses.

Any thoughts re options?

Thanks
Title: Re: Australian Investing Thread
Post by: dungoofed on September 06, 2014, 06:12:59 PM
Hi Wadiman -


The preservation age being increased, the stock market taking a dive, and you losing your job are the three biggest risks on the horizon for which you need to plan.

The second and the third are unfortunately often linked, so at risk of sounding like a bit of a nutter I'm going to suggest you put some money outside of your super into PMs and bonds. More on that later.

Regarding the preservation age being increased, the key point to remember is, you will be able to access your money in super at some stage, it's just a matter of having enough outside of your super account from FI to survive until preservation age (assuming you fully retire at that point).

Assuming preservation age remains at 60 and you continue living on the inflation-adjusted equivalent of $64,000 a year you'll only need to cover one year's expenses ie $64,000 - the rest will be better off in your super account.

Assuming preservation age goes up to 65, you'll need about six years worth of salary or $384,000 in today's dollars. If you are saving $111,000 a year (ie after-super income) then this is three or four years' worth of savings/investments outside of super.

Just given your age and investing horizon I'd be looking to pay the minimum on your loan for the next four years and put about 100K/year into maybe 70% stocks, 20% bonds, 10% PMs.

If only preservation age goes up but the stock market doesn't crash and you keep your job then you're set.

If preservation age stays the same but the stock market crashes then you should still be fine. Sell the bonds/gold as appropriate and buy up stocks, pay off your debt, etc.

If preservation age is increased, the stock market crashes, and you lose your job then I think you could still get out of this ok, but you might need to sell your investment property if the bonds and gold don't give you enough to weather the storm.
Title: Re: Australian Investing Thread
Post by: Wadiman on September 06, 2014, 07:24:18 PM
Hi Wadiman -


The preservation age being increased, the stock market taking a dive, and you losing your job are the three biggest risks on the horizon for which you need to plan.

The second and the third are unfortunately often linked, so at risk of sounding like a bit of a nutter I'm going to suggest you put some money outside of your super into PMs and bonds. More on that later.

Regarding the preservation age being increased, the key point to remember is, you will be able to access your money in super at some stage, it's just a matter of having enough outside of your super account from FI to survive until preservation age (assuming you fully retire at that point).

Assuming preservation age remains at 60 and you continue living on the inflation-adjusted equivalent of $64,000 a year you'll only need to cover one year's expenses ie $64,000 - the rest will be better off in your super account.

Assuming preservation age goes up to 65, you'll need about six years worth of salary or $384,000 in today's dollars. If you are saving $111,000 a year (ie after-super income) then this is three or four years' worth of savings/investments outside of super.

Just given your age and investing horizon I'd be looking to pay the minimum on your loan for the next four years and put about 100K/year into maybe 70% stocks, 20% bonds, 10% PMs.

If only preservation age goes up but the stock market doesn't crash and you keep your job then you're set.

If preservation age stays the same but the stock market crashes then you should still be fine. Sell the bonds/gold as appropriate and buy up stocks, pay off your debt, etc.

If preservation age is increased, the stock market crashes, and you lose your job then I think you could still get out of this ok, but you might need to sell your investment property if the bonds and gold don't give you enough to weather the storm.

Thanks DF -  I like your ideas and will carefully think them through.
Title: Re: Australian Investing Thread
Post by: The Hamster on September 08, 2014, 05:56:31 PM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 08, 2014, 06:20:31 PM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

I used to do this through Interactive Brokers.  Was very cost effective, but the interface and tax treatment took a bit of getting used to (not bad, just very different from Aust brokers/chess sponsorship).  However, their margin lending rates were probably too low compared to the AUS financials, and a bit of lobbying got APRA involved to ban them from providing margin debt to individual accounts.  Or at least that's what the inner skeptic in me thought!

I've since just stuck with the cross listed versions, and they have been OK for me.  I'd like a lower cost option for exposure to emerging markets though.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on September 08, 2014, 07:11:12 PM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

I've recently started this with optionsxpress.  As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).

They offered me five free trades and live data if I funded my account ($500 minimum) within five days.  They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank).  However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner.  For my needs Citibank will probably suffice there.
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 08, 2014, 07:26:11 PM
The almost no-spread forex, and the (one a month) free withdrawal to any bank globally (in local currency) were one of the reasons I was keen on IB.  I was able to make use of that to transfer a reasonable sum to a friend in the UK, effectively with no transaction costs (just the spread on the GBP.AUD, which was about 0.02%)  The other was the super cheap leverage - sadly the access to leverage is now gone for individual investors.  It doesn't really make sense to me to leverage in my trust or company account, so I've shut down my IB account.
Title: Re: Australian Investing Thread
Post by: The Hamster on September 08, 2014, 08:33:53 PM
Thanks guys!  Superannuationfreak it must have been a post of yours where I saw Optionsexpress mentioned before.  I will check both of them out.  Like yourself Chris, I would like to get exposure to a few more ETFs than Vanguard offer onshore, and I would like to (eventually) invest in a US bond ETF so as to accurately replicate a typical 3 or 4 fund portfolio.  I'm not aware if Vanguard offers this as an Australian ETF or not. 
Title: Re: Australian Investing Thread
Post by: superannuationfreak on September 08, 2014, 09:14:05 PM
If you are planning to spend AUD in retirement rather than USD then US bonds seem counterproductive.  A large part of the value of bonds is their stability; if you expose them to currency fluctuations they lose that [If you're planning to retire in the US this could make sense, though].

To be honest, I don't see much value in government bonds in 'taxable' accounts in Australia right now.  uBank or RAMS online savings accounts have a higher expected yield without risk if interest rates rise.  This may not always be true, of course.  In Super, though, many industry funds provide Australian and/or AUD hedged bond funds at very low cost and, given the relative tax advantages of holding your fixed interest in Super and your equities in 'taxable' accounts, those are certainly worth exploring.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on September 08, 2014, 09:52:58 PM
Did IHD really give a 12% dividend payment in 13-14 ?

iShares S&P/ASX Dividend Opportunities ETF (IHD)

http://au.ishares.com/fund/fund-distributions-IHD-ASX.do

The price is currently $16. 

The previous four quarterly dividends were 125c, 18c, 18c, 29c = 190c = 12% return.

????

That sounds too good to be true?
Title: Re: Australian Investing Thread
Post by: superannuationfreak on September 08, 2014, 10:12:12 PM
Did IHD really give a 12% dividend payment in 13-14 ?

Yes they did.  I checked with iShares and it appears largely due to turnover, i.e. capital gains from selling shares which no longer offered as good a dividend yield.  This part of the distribution is not franked (although at least it looks like most of the capital gains were eligible for discount: http://au.ishares.com/fund/fund-distributions-IHD-ASX.do ).  You'll note the price of the ETF dropped substantially when it went ex-dividend: https://au.finance.yahoo.com/echarts?s=IHD.AX#symbol=IHD.AX;range=3m

I'm not sure how comfortable I [personally] would be now with this fund outside Super.  The tax implications are unpredictable.
Title: Re: Australian Investing Thread
Post by: potm on September 08, 2014, 10:26:12 PM
If we could somehow invest in the unlisted US Vanguard funds with a .05% MER, that would be amazing.

Was also a former IB customer until the the margin lending was removed. Luckily I was able to sell out and rebuy some shares with a different broker without any impact on my portfolio.

Just a question for those invested in the cross listed US ETFs, are the tax implications a problem?
I see state street have WXOZ which is a world ex Australia ETF made for the Australian market and they tout simpler tax as one of the advantages over the CDI cross listed funds.
The world ex Australia compisition is nice though whilst most international ETFs are US or world ex US but it is probably not worth the higher management fee over Vanguard funds.
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 08, 2014, 11:04:20 PM
Just a question for those invested in the cross listed US ETFs, are the tax implications a problem?
I see state street have WXOZ which is a world ex Australia ETF made for the Australian market and they tout simpler tax as one of the advantages over the CDI cross listed funds.
The world ex Australia compisition is nice though whilst most international ETFs are US or world ex US but it is probably not worth the higher management fee over Vanguard funds.

The implications of the cross listed funds haven't been an issue for me to be honest.  I held the US variant through my IB account, and the AUS  variant through my Etrade account at the same time, and for all intents and purposes they achieved the same outcome.

The Ex-Aus feature is nice - one of my gripes of holding VEU is that AU shares compose about 6% of the index, and because of our higher yields, about 10% of the distributions.  From what I can see, the franking credits on the Aus earnings in there are lost.  So, if VEU yields 3%, and of that 0.3% is from AU distributions, that's something in the order of of 13 basis points in lost franking credits. Add that to the cost base (15 basis points), and you are getting up 0.28% - not all that far from the fees of the  WXOZ fund.  Howeve,r two things I don't like about it are:
- Its just developed markets.  No emerging markets in there.  (see http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html for a country breakdown)
- Its not a full replication ETF - it tried to match the sector allocation of the index, rather than owning the whole index.  The index has only ~350 of the 1700 companies in the index.  Just comparing the top 10 from the index and the fund, it would seem to be missing: Nestle, Berkshire - B, Wells Fargo and Chevron.   If I'm indexing, I want the whole index, not some fund managers view on an equivalent asset allocation.
Title: Re: Australian Investing Thread
Post by: potm on September 08, 2014, 11:33:32 PM
Thanks for the detailed insights. Very interesting points about the index replication. My understanding is that any ETF is only attempting to match the underlying index instead of holding exactly what is in the index. I haven't thought about how closely ETFs match the index before. There's always a little bit of judgement required by the managers as indexes change around and they have to adjust. Looking at performance of funds compared to the index in the past might be a useful way to judge ETF managers but of course it's not a reliable indication of future performance. I think Vanguard has a very good reputation for the performance of their funds relative to the index.

Just comparing the two here, it seems like in both cases, there is slight underperformance compared to the index but the gap is narrower with Vanguard. Maybe can be considered another hidden cost of ETFs that isn't talked about much.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#performancetab
http://www.spdrs.com.au/viewall/index.html

I also like the World-Ex Aus compisition because it means we only need two ETFs to cover global exposure.
If it wasn't for franking credit complications then a total world index would be sufficient. If you have a portfolio of 5 ETFs you are buying regularly then the brokerage fees have to be considered in the overall picture as well.
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 09, 2014, 01:01:34 AM
I'd be happy to stand corrected, however I suspect the vanguard funds are full replication funds - e.g. from the US vangaurd site, VEU holds 2399 different securities, where as the index has 2317.  I don't know what the additional ~80 are - I suspect probably shares that have fallen out of the index that they are taking an orderly disposal of?

The main reason I prefer full replication vs representative allocation is for lower portfolio churn.  With replication, price movements of a share will not change the number of shares needed to be held (unless the price means it comes in / goes out) of the index.  This means that transactions are pretty much limited to the issue or cancellation of shares, to the extent that the market is not efficient.  (for example, in an efficient market a buyback would not impact an ETF, as while the number of shares reduces, the stock price increases and the market cap stays the same). 

With representative sampling, there is the potential for individual stocks to out/underperform and result in additional stock re balancing within the ETF.  This would be a realized capital gain and taxed, where as in full replication, it wouldn't occur.  To give an example that would have effected WXOZ:  WXOZ seems to represent large cap US oil producers through holding Exxon, and doesn't hold Chevron.  Over the long term, these two stocks have been highly correlated.  However, over the medium term, there have been large disparities in price growth.  For example, if you looked at the period 1970-1976, Exxon grew 40% while chevron flat lined.  That would result in the ETF being over represented in US energy, so sell off some Exxon to get that sector allocation back to the right %.  Then take the period 1976-1980.  over this time, Exxon grew 20%.  Chevron grew 120%.  Our US large cap oil exposure is now underweight compared to the average, and I end up buying more Exxon.  Sure, I've cherry-picked that particular example, but I think this effect will result in a performance drag for representative funds compared to full replication funds, unless the benefit of holding fewer stocks is represented in lower management costs.  Sadly, the MER for this ETF is higher, not lower than holding the full replication equivalents.

I see why fund manages do this, to keep the number of stocks in an ETF down.  However,  to me it destroys one of the key reasons for index investing, which is reduced portfolio churn.

Again, happy if someone can show otherwise?
Title: Re: Australian Investing Thread
Post by: potm on September 09, 2014, 01:23:44 AM
I agree with you that Vanguard attempt to replicate the entire index. I was just noting that it will always be just an attempt and never an exact replication because of indexes changing. There's a disclaimer in their documentation somewhere which says as much.
I believe the fund managers will attempt to predict future changes to the indexes to start adjusting the ETFs. It makes sense as everyone rushing to buy a sell a particular stock on the day the index change is announced would be disastrous.
Thanks on your points on partial replication negatives, I hadn't thought about it before and has put me off WXOZ.
Vanguard do have a world ex Australia unlisted fund but no ETF version which is a shame.
Title: Re: Australian Investing Thread
Post by: potm on September 09, 2014, 02:08:30 AM
I just had a chat with Vanguard to ask about VEU and VTS and the associated franking credits and I was assured that those would be passed onto investors and would be detailed in the annual statement. I even specifically enquired about the cross listed funds and was assured that it was no problem.

Have you received a statement for VEU yet and can you confirm whether this is the case?
Title: Re: Australian Investing Thread
Post by: superannuationfreak on September 09, 2014, 06:11:33 AM
I just had a chat with Vanguard to ask about VEU and VTS and the associated franking credits and I was assured that those would be passed onto investors and would be detailed in the annual statement. I even specifically enquired about the cross listed funds and was assured that it was no problem.

Have you received a statement for VEU yet and can you confirm whether this is the case?

That's not the case.  I held VEU last tax year - we get told what foreign tax has been paid (for foreign tax credit which can offset 15% US withholding tax) but there are no franking credits.  The component of VEU distributions which is franked Australian dividends will be taxed at 0% for the fund but there's no way to get that 30% (or soon 28.5%) Australian bonus.
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 09, 2014, 03:02:21 PM
I just had a chat with Vanguard to ask about VEU and VTS and the associated franking credits and I was assured that those would be passed onto investors and would be detailed in the annual statement. I even specifically enquired about the cross listed funds and was assured that it was no problem.

Have you received a statement for VEU yet and can you confirm whether this is the case?

That's not the case.  I held VEU last tax year - we get told what foreign tax has been paid (for foreign tax credit which can offset 15% US withholding tax) but there are no franking credits.  The component of VEU distributions which is franked Australian dividends will be taxed at 0% for the fund but there's no way to get that 30% (or soon 28.5%) Australian bonus.

Ditto.

I called vanguard maybe 18 months ago about it.  I'm pretty sure the person on the other end of the phone had no idea what I was talking about, but they reassured me that it was included in the annual tax statements.  As far as I can tell it isn't - my tax statements only show US tax withheld - and I can see no reason why franking would be recovered through that.

I've written it off as one of the trade-offs of VEU, and factor it in to the total cost of holding.  Even with it, its still the cheapest alternative for that kind of asset exposure that I've been able to find.

It, along with the full/partial replication issues above should remind us that headline "expense ratio" isn't the only cost we bear in fund based investments. I think Malkiel alluded to a lot of this in part of "a random walk down wall st"?
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 09, 2014, 05:19:22 PM
Speaking of the change in company tax rate, has anyone heard anything about this since the budget?  Getting Australian company tax rates to be more globally competitive is long overdue (as evidenced by the number of companies structuring to avoid them), but successive governments have promised on this and not delivered. 

There has been lots of press on the paid parental leave associated with this, but as far as I can see, nil on the company tax rate issues?
Title: Re: Australian Investing Thread
Post by: Primm on September 09, 2014, 06:33:47 PM
I haven't seen anything recently (and I just checked my usual suspects to see if there were updates - nada) but it's my understanding that this is tied in with PPL, so one without the other won't happen. It's just that the majority of everyday Australians are more invested in PPL than company tax rates, so that's the part that makes the news.
Title: Re: Australian Investing Thread
Post by: potm on September 09, 2014, 07:20:04 PM
Yeh, I think it will only come in with the PPL levy on the companies which is looking increasingly unlikely at this stage.
Good for us investors, don't want to be losing 1.5% in tax that is not included as a franking credit.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on September 12, 2014, 09:41:00 AM
I have a newbie question about dividends.

What determines the exact dividend a company will pay in the future? People talk about Company X being attractive with a 6% dividend yield.... and these amounts are listed on Google Finance etc as percentage yields... but are they simply going off the past dividend amount, divided by the current share price?

Or is there something else that can tell you what the future dividend will be?
Title: Re: Australian Investing Thread
Post by: potm on September 12, 2014, 10:58:34 AM
A lot of companies will have a certain payout ratio, ie a percentage of profits they will pay as dividends.
Of course future profits is only a guess as well and even then there's no guarantee that the payout ratio will remain the same.
Predicting a companies future dividends is the essence of valuing a company as it is worth the present value of future cash flows.

Companies with stable earnings that are growing and have a long history of dividends might have a higher chance of paying increasing dividends in the  future and the market usually prices these companies highly.
Another important thing is to look at the company's ability to keep paying dividends. How are the dividends financed, from operating earnings or from borrowings, how much debt does the company have, how much capital expenditure will it have in the future.
Title: Re: Australian Investing Thread
Post by: Jim from QLD on September 14, 2014, 12:42:10 AM
Hi guys,

Just a curious question. Is anybody here using leverage to invest in shares? From what I've seen on my bank website (ANZ), the rate is something silly like 7%.

If you do, could you outline how that has been working for you?

Thanks

10/10 name.

You are right margin loan rates are crazy, the clever thing to do IMO is use a line of credit redraw that is secured by a property, (PPOR normally) this gives access to the home loan 5~% rates.

I personally have used the 4.88% rate on my home loan to invest in shares yielding similar amounts and then relying on thefranking credits to put me firmly in the green.

Title: Re: Australian Investing Thread
Post by: LittleAussieBattler on September 14, 2014, 12:45:35 AM
potm is right about how dividend yield is calculated. In the past financial year a lot of companies have been setting target dividend payout ratios of about 80%, however quite a few of these companies are ASX300 stocks and do not currently have the revenue to sustain such ratios. In this case the best way to look for yield stocks is to look at about the past 5 years history of payments and make sure the ratio is sustained.

Title: Re: Australian Investing Thread
Post by: deborah on September 14, 2014, 05:16:10 AM
Has anyone seen the latest George Cochrane Q&A - on retiring early -

http://www.canberratimes.com.au/money/super-and-funds/can-i-retire-early-and-bring-up-the-kids-too-20140911-10f8nm.html
Title: Re: Australian Investing Thread
Post by: Primm on September 14, 2014, 05:27:31 AM
Ha! Shows how little he knows.

"It's not a good idea to put stocks into your bottom drawer and forget about them." Um, why not George?
Title: Re: Australian Investing Thread
Post by: LittleAussieBattler on September 14, 2014, 05:38:31 AM
Because the whole finance industry wouldn't be able to screw us in transaction fees if we did that :)
Title: Re: Australian Investing Thread
Post by: charms on September 16, 2014, 04:40:11 AM
Hey fellow Aussie mustachians!

Thanks for this wonderful, informative thread. I am learning a lot.

I have a question about investing. Bear in mind I am a newbie and in no way established like many of you seem to be! Which amazes and inspires me, by the way!

I have a 10k emergency fund in a high interest savings account and another 10k ready to plug into an investment fund. I have decided on Vanguard but undecided between the retail managed funds and the ETFs.

RMFs: min 5k to start, regular deposits can be made as little as $100, fees 0.70 - 0.90% p.a.
ETFs: no min to start, brokerage fees mean larger/fewer deposits, fees 0.05 - 0.30% p.a.

If I go with RMFs, I'd choose 2x 5k investments from either the property fund, the Australian shares funds or international funds. And add more to it later to have a balance of property/Aust/international. I also like the idea of being able to direct debit from my salary straight in there so I don't spend the cash on other things...

If I go with ETFs, I'd use the full 10k to create a spread across property/Aust/international funds, probably 20% property/ 50% Aust/ 30% intl... I like the idea that I can do this right away even with just a 10k investment, but I don't like that I'd have to build up elsewhere another 'stache to plug into it down the track.

What do others think? I am itching to get into it but wanted to get advice first... :)
Title: .
Post by: This_Is_My_Username on September 16, 2014, 05:14:38 AM
etf are the best in the long run.

after a while, you will have 50k, and be paying an additional 0.6% = $300pa.

when you have $200k, you will be paying an additional 0.6% = $1,200pa.
Title: Re: Australian Investing Thread
Post by: Black Dog on September 16, 2014, 08:53:39 AM
Hi everyone
Great thread!
Im new here, so thought I would drop a line. I have been reading the MMM blog for a while now, and occasionally scanning the forum - but this is a first post here. I am on a couple of other 'investment forums' trying to learn, so I may already know some of you from there?

At this point in many ways I guess I am still very anti-mustachian. But my circumstances are fairly unique. I am a high income earner, and have very few expenses. I am provided with a house, car, phone and international flights as part of my work package. Although I am an Australian citizen Im not a resident - therefore I don't pay taxes in Australia. I have started using pocketbook to track my expenses (great tool btw), and some of what I see is pretty scary. Ive calculated I spend about $60k/pa just on normal 'living' plus I have purchased a fair few one off items in the last 12months (a boat, laser eye surgery, a big legal bill etc) which pushed it up to about $100k for the last 12months (like I said - Im not very mustachian yet).

At this point my investments are all in RE - I don't have anything in the share market.
In Australia I have property worth about $3.00m and cash about $200k. I have a couple of properties in Russia worth about $400k.
Total debt is about $2mil in Aud and another $300k in Russia.

I don't have a PPOR - and no non-investment debt.

I am in the process of setting up a trading account online so I can purchase some stocks, and by the sounds of it the Vangard fund is pretty popular in these circles. So I will probably start there.

I have a payment of $500k coming due in early 2005. Im hoping to have the cash to pay for it, but may need to leverage a bit into the properties to cover it. This will be a non-deductible payment.

Anyway. Thats me - look forward to chatting with you all.

Black Dog.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on September 17, 2014, 01:58:05 AM
Australia has a tax treaty the US which allows Australians to be taxed under our country's tax laws, not the normal 30% withholding tax on outgoing US payments.

Investing in VTS means that you get paid in USD converted to AUD, which I read under Australian tax law is treated as foreign sourced income.  Does anyone know the tax rate for foreign sourced income?
Title: Re: Australian Investing Thread
Post by: Primm on September 17, 2014, 02:06:56 AM
My understanding is that it's included in your assessable income and taxed at whatever your rate is. You can claim an offset for anything that you've paid such as tax on foreign distributions.

But I haven't done it yet, so I'm happy to be corrected if I'm wrong.
Title: Re: Australian Investing Thread
Post by: johnnydoe on September 17, 2014, 02:12:06 AM
Hey all, just wanted to post some Australia specific information that might help Australian Mustachians that are starting out:

Asset returns
Report on asset returns that have occurred in the last 20 years is available at: http://www.russell.com/au/assets/pdfs/insights/R_RPT_ASX_Report_V1F_1405_WEB-1.pdf
Bonds, floating rate notes, stocks
Floating Rate Notes: http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=FLOATING_RATE_NOTE
Australian Corporate Bonds: http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=CORPORATE_BOND
Australian Government Bonds: http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND
Bond and stock Index funds available through Vanguard Australia: https://www.vanguardinvestments.com.au/retail/ret/investments/overview.jsp
Salary packaging your superannuation
www.smartsalary.com.au
Vanguard Australia Tools
https://www.vanguardinvestments.com.au/retail/ret/education/tools.jsp
Compound interest calculator
https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator
Net worth/expenses trackers
ANZ Money manager: http://www.anz.com.au/ANZ-MoneyManager/
Alternatively, Pocketbook:
https://getpocketbook.com/
Australian Economic dashboard
http://www.russell.com/au/insights/market-insights/
Australian Institutions
Reserve Bank of Australia: http://www.rba.gov.au/
Australian Prudential Regulation Authority: http://www.apra.gov.au/Pages/default.aspx
Australian Productivity Commission: http://www.pc.gov.au/
Australian Bureau of Statistics: http://www.abs.gov.au/

Interesting (free) research:
The Australia Institute: http://www.tai.org.au/
Australian Centre for Financial Studies: http://www.australiancentre.com.au/
Title: Re: Australian Investing Thread
Post by: deborah on September 17, 2014, 03:32:22 AM
Great stuff johnnydoe!
Title: Re: Australian Investing Thread
Post by: DrowsyBee on September 17, 2014, 05:49:44 AM
Johnnydoe,

Thank you.

I've been reading so much mustachian stuff from the states over the last few months and recently got back to Australia thinking...well that's all well and good, but now I need Australian resources and Australian people to talk to.

Luckily there's the Canberra meet-up this weekend.

I'll be looking through all these links in the meantime!
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 21, 2014, 09:14:00 PM
What are people seeing as best value for their Australian share exposure at the moment?  I'm usually a big fan of the LIC's, but they are trading at premiums, so bought some VAS this month.

Any other alternatives on people's radar at present?
Title: Re: Australian Investing Thread
Post by: superannuationfreak on September 21, 2014, 09:45:52 PM
What are people seeing as best value for their Australian share exposure at the moment?  I'm usually a big fan of the LIC's, but they are trading at premiums, so bought some VAS this month.

Any other alternatives on people's radar at present?

It's a tricky one.  I want diversification (ideally more value exposure) outside of financials and mining stocks but struggle to go more extreme in my international exposure (I'm at about 60% of equities which is a touch outside my comfort zone).  I really don't like the Small Ordinaries index and it has been consistently outperformed by active management (I'm 95% indexed and the evidence is in favour of indexing for large caps/international but not for Australian Small Caps).

VAS and/or old-school LICs (when not at a significant premium) would also be my primary Australian purchases as costs matter.
I purchased some FGX in the 'launch' and thought about QVE.  The fees/donations are higher than I'd usually consider so I'll only ever hold a small amount.
If I were adding substantially to (SMSF or non-SMSF) Super at the moment I'd also consider the Realindex Wholesale Australian Small Companies fund as a stand-alone.
In an SMSF I'd consider the ETFs MVW or QOZ as they are less top-heavy but I'm a bit wary of their small AUM and possibility for turnover/capital gains outside super.
Title: Re: Australian Investing Thread
Post by: potm on September 21, 2014, 10:13:00 PM
I much prefer ETFs over LICs with their often hidden tax liabilities, especially when they are trading at a premium!

Share market looks like it's going on sale. Hoping this momentum continues, looking forward to picking up some more investments.
Title: Re: Australian Investing Thread
Post by: marty998 on September 21, 2014, 10:16:09 PM
Ouch. ASX getting hammered today.

ANZ @ $30 looks enticing. If I had the balls I'd buy FMG but who knows where the iron ore price will bottom out.
Title: Re: Australian Investing Thread
Post by: Cashup on September 22, 2014, 12:37:44 PM
Great Thread
Just logging in to follow at this stage...:))
Title: Re: Australian Investing Thread
Post by: The Falcon on September 24, 2014, 04:01:44 PM
What are people seeing as best value for their Australian share exposure at the moment?  I'm usually a big fan of the LIC's, but they are trading at premiums, so bought some VAS this month.

Any other alternatives on people's radar at present?

Yep, no great value in the LICs...prob only Whitefield if you like it.

Just bought first tranche in debt recycling scheme, I have a STG portfolio loan (4.90%),
Family Trust has a sub account, the idea is I can slightly neg gear if need be as trust has quite a lot of income.

Bought this week ;

VHY / 60%
SOL / 20%
BRK-B / 20%

I'll be drawing down twice a year and DCA into the likes of VHY (will be largest holding), big OZ LICs when at discount to NTA, and 20-30% in BRK-B / VTS / MKL and a few other US direct shares over time. This is a forever portfolio.

Title: Re: Australian Investing Thread
Post by: charms on September 24, 2014, 04:55:23 PM
I was just wondering what those of you interested in ethical investing think about the Rockefeller Brothers Fund divesting from oil & gas: http://thinkprogress.org/climate/2014/09/22/3570338/rockefeller-divestment-announcement/

I'm looking at purchasing Vanguard ETFs but the mining heaviness of Aust industry concerns me, mostly for ethical reasons.

Also, are there any other good blogs that you read regularly, some that contain some similar perspectives as MMM?


Title: Re: Australian Investing Thread
Post by: bigchrisb on September 24, 2014, 06:49:03 PM
Falcon - what brokerage/means are you using to buy direct US shares?  I had an account with IB (with its own set of issues), and don't currently have a good option for US shares. 
Title: Re: Australian Investing Thread
Post by: MsRichLife on September 24, 2014, 06:50:51 PM
Also, are there any other good blogs that you read regularly, some that contain some similar perspectives as MMM?

An Australian newsletter I enjoy is The Daily Reckoning Australia. They have a variety of analysts that present interesting views on global and Australian economics and investing. Some bearish, some bullish, but always well considered.

http://www.dailyreckoning.com.au/
Title: Re: Australian Investing Thread
Post by: The Falcon on September 24, 2014, 07:12:18 PM
Falcon - what brokerage/means are you using to buy direct US shares?  I had an account with IB (with its own set of issues), and don't currently have a good option for US shares.

For US stocks I get stitched up by Lonsec at 1% Bro. Don't really care though as i'm not a trader...long game only. Lonsec takes care of Portfolio Admin/reporting  and I just need to fire off an email and its taken care of. Not cheap, but convenient. Use them for both ASX and NYSE , in SMSF and Family trust.
Title: Re: Australian Investing Thread
Post by: MsRichLife on September 24, 2014, 10:48:16 PM
Hi everyone,

I've just recently updated my Discretionary Family Trust and plan to start using it for investing. I started the following thread seeking answers to some investment related questions because I didn't want to clog up this thread.

http://forum.mrmoneymustache.com/investor-alley/using-a-discretionary-family-trust-for-investing/msg407559/#msg407559 (http://forum.mrmoneymustache.com/investor-alley/using-a-discretionary-family-trust-for-investing/msg407559/#msg407559)

Hopefully some of you are structure gurus and can help me with some of the finer points of investing with a DFT.

Thanks in advance

MsRL
Title: Re: Australian Investing Thread
Post by: The Falcon on September 25, 2014, 04:30:10 AM
Also, are there any other good blogs that you read regularly, some that contain some similar perspectives as MMM?

Not directly MMM related, but I do enjoy imbibing in Tim McAleenan Jr.s koolaid, along with Vanguard AU articles.

Other blogs I find have just too much useless noise, too much speculation and short term drama.

Rather than blogs, I'd recommend these timeless classics for your bookshelf in no particular order ;

A random walk down Wall Street, Burton Malkiel
Motivated Money, Peter Thornhill
Buffett, the making of an American Capitalist, Roger Lowenstein
Common sense on mutual funds, John Bogle



Title: Re: Australian Investing Thread
Post by: charms on September 25, 2014, 04:50:03 AM
Thanks guys!
Title: Re: Australian Investing Thread
Post by: banksie_82 on September 25, 2014, 04:42:54 PM

I just wanted to get peoples thoughts on LICs v ETFs.

For the sake of the argument, assume that the fees are roughly the same (0.10 - 0.25%)

Now assume that the ETF’s are traded in an efficient market (i.e. they always reflect the movements of the underlying index) while the LICS may trade at a discount or premium.

I see LICs as a superior investment for the following reasons. But I would like to know what others think.

Actively managed, but in a buy and hold way. So someone, probably much better informed than me, is thinking about what companies are doing well and which ones aren’t. I know some people here refuse to acknowledge that actively managed can possible be any better than passive, but the evidence would suggest otherwise on some of the old school LIC’s, even if only by a fraction of a percent pa.

Dividend is usually 100% franked with LIC’s, as opposed to ~70% with domestic ETF, so better tax outcomes.

Ease of accounting. The dividend is just like any other company, div + franking credit (sometimes a cap gain). To me the ETF’s complicate it for no real gain… you have div, franking, interest, foreign income, cap gains, etc.

In my limited experience, LIC’s tend to have a more dependable and predictable dividend. 

Share Purchase Plan (SPP) with LIC’s. Most now have a SPP every year for $15k with a set price. This is effectively a free option on the shares that can occasionally turn out to be quite profitable in the short term.

Some LIC’s have dividend reinvestment plans (DRP) with a discount to the current price.

So, assuming that you agree with the above, what is an acceptable premium to pay for all these benefits? 0.5%? 2.0%? Or do you use the spread to your advantage (which I agree is ideal, but not always practical) and only buy when there’s a discount, and only sell when there’s a premium and play with ETF’s at all other times?
Title: Re: Australian Investing Thread
Post by: terrier56 on September 25, 2014, 05:09:57 PM
Actively managed, but in a buy and hold way. So someone, probably much better informed than me, is thinking about what companies are doing well and which ones aren’t. I know some people here refuse to acknowledge that actively managed can possible be any better than passive, but the evidence would suggest otherwise on some of the old school LIC’s, even if only by a fraction of a percent pa.

Here's where I see a flaw in the LIC. Moving funds around incurs fees. These fees ultimately cut into your long term gain since it has been proven that no fund managers methods seem to have an edge against the market (debatable though but that's the theory). not sure where you have the evidence for the old school LICs? but hey if there is on can you kindly post it up here? :)
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 25, 2014, 05:51:13 PM
Actively managed, but in a buy and hold way. So someone, probably much better informed than me, is thinking about what companies are doing well and which ones aren’t. I know some people here refuse to acknowledge that actively managed can possible be any better than passive, but the evidence would suggest otherwise on some of the old school LIC’s, even if only by a fraction of a percent pa.

Here's where I see a flaw in the LIC. Moving funds around incurs fees. These fees ultimately cut into your long term gain since it has been proven that no fund managers methods seem to have an edge against the market (debatable though but that's the theory). not sure where you have the evidence for the old school LICs? but hey if there is on can you kindly post it up here? :)

Most of the old school LICs have out-performed the ASX over the medium term (10 - 15 years).  For example, see:
AFI - up to 10 years of data http://www.afi.com.au/Investment-performance.aspx
MLT - up to 15 years of data http://milton.com.au/sites/default/files/MILTON%20Annual%20Report%202014_DRAFT%20V8.pdf
ARG - up to 15 years of data http://www.argoinvestments.com.au/portfolio-performance/share-price-performance

In all cases, the longest time period has had a slight out-performance over the all ords accumulation index.  I suspect (but can't prove) that their hefty weighting to financials, and leaner weighting to resources has helped them, as they have been well aligned with the global hunt for yield.  I tried to do some regression to back out if this accounted for all the differences, but didn't get anything significant from the analysis.


Title: Re: Australian Investing Thread
Post by: terrier56 on September 25, 2014, 06:12:21 PM
Actively managed, but in a buy and hold way. So someone, probably much better informed than me, is thinking about what companies are doing well and which ones aren’t. I know some people here refuse to acknowledge that actively managed can possible be any better than passive, but the evidence would suggest otherwise on some of the old school LIC’s, even if only by a fraction of a percent pa.

Here's where I see a flaw in the LIC. Moving funds around incurs fees. These fees ultimately cut into your long term gain since it has been proven that no fund managers methods seem to have an edge against the market (debatable though but that's the theory). not sure where you have the evidence for the old school LICs? but hey if there is on can you kindly post it up here? :)

Most of the old school LICs have out-performed the ASX over the medium term (10 - 15 years).  For example, see:
AFI - up to 10 years of data http://www.afi.com.au/Investment-performance.aspx
MLT - up to 15 years of data http://milton.com.au/sites/default/files/MILTON%20Annual%20Report%202014_DRAFT%20V8.pdf
ARG - up to 15 years of data http://www.argoinvestments.com.au/portfolio-performance/share-price-performance

In all cases, the longest time period has had a slight out-performance over the all ords accumulation index.  I suspect (but can't prove) that their hefty weighting to financials, and leaner weighting to resources has helped them, as they have been well aligned with the global hunt for yield.  I tried to do some regression to back out if this accounted for all the differences, but didn't get anything significant from the analysis.

Indeed I will be interested to see if that trend continues for another 15 years. But I won't bet on it. indexes for this skeptic.
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 25, 2014, 06:39:07 PM
Indeed.  However, for the three largest to have done it consistently over a decade plus, after fees and taxes, makes me think there may be something to it.  I hedge my bets, and buy LICs when they are at a discount and ETF's when they are not.
Title: Re: Australian Investing Thread
Post by: The Falcon on September 25, 2014, 07:52:05 PM
Terrier56 , turnover is very low in the traditional LICs...they are in no way like a typical MF. The Big LICs may have slightly less frictional costs than an index ETF which is always rebalancing, particularly strategy ETFs. They are very tax aware. I've been to small presos by Argo and AFI in Sydney this year and its clear that after tax performance is their number one priority.

Big LICs when cheap, ETFs when not is a solid approach imho....potential for some out performance in theory, but wont go too far from the index.

Even the great Burton Malkiel has recommended snapping up close ended funds when they are at big discounts to NTA.
Title: Re: Australian Investing Thread
Post by: banksie_82 on September 25, 2014, 08:06:52 PM
Thanks for posting those links, bigchrisb. I concede that the outperformance by all of them could have something to do with the fact they all tend to be heavy on financials and light on mining, which has turned out well when comparing against the All Ords/ASX200. You could debate whether this is luck or good management until the cows come home.

Terrier56, I understand the argument that active management increases fees, but given that the fees of the major LIC’s are often marginally less than Australian ETF’s, surely this point is moot?

For what it’s worth, I’m willing to pay a slight premium for LICs, in the order of 1 - 2%. Since I’m investing for the very long term I believe this is a reasonable price to pay for what I see are good financial benefits. In saying that though, any more of a premium than this, and it’s ETFs all the way.
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 25, 2014, 08:47:09 PM
One other issue you should consider in the LIC/ETF debate comes from their structure.

ETFs are required to distribute all income (100% payout ratio), which will come at your own tax rate.  LIC's have the discretion to distribute income.  That puts the payout ratio in the hands of the exec of the LIC.  That has a couple of impacts:

- Do you trust the LIC to keep paying dividends?  I see more risk in the LIC's with strong family cross-shareholdings here.  Examples being CIN (Rydge) and SOL/BKW (Milner).  I don't believe this risk is too large, as evidenced by my holding of these stocks.  But it is there should one of them decide to go rogue?

- Tax consequences.  Most LICs have a payout ratio of less than 1.  That means that some of the dividends received get reinvested within the LIC.  As my tax rate is higher than the company tax rate, this works out beneficially for me (I'd be reinvesting it anyway). If I was a lower tax entity, this would be less favorable - paying the tax from a 100% payout on an ETF would result in slightly more post tax dollars to reinvest (tax rate lower than company tax rate). 

On the topic of turnover, I haven't looked at the numbers lately (last time I dug through the annual reports for the LIC's and the ETFs - I looked at VAS and STW), the turnover rate on the ETFs was actually slightly higher than the LICs.

I find that the information on MMM (and other US based forums) is very useful, but sometimes when I do my own due diligence on the Aus market and dig through to primary data, I get answers that diverge somewhat from the general forum consensus - the above being a couple of examples.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on September 26, 2014, 01:19:13 AM
Hey guys, put this in the Australian property thread first but figured it's probably more suited to this thread. I have a couple of questions about Australian REITs.

I want to invest in real estate but the high prices and my aversion to borrowing are keeping me out of the market at the moment. On MMMs blog he mentions how REITs are a passive way of accomplishing the same thing as real estate. However from what I've read Australian REITs are only invested in Australian commercial property.

1) Are there any Australian REITs that invest in residential property?
2) How correlated are Australian commerical and residential property?
3) If property prices go up, but rents don't, does the price of the REIT benefit in any way? Or are they simply tied to rental prices?
4) Are there any Australian REITs that move in line with the prices of Australian property?

Pretty much, I'm wondering if there an investment out there that gives me something similar to Australian investment property, which I don't have to pay hundreds of thousands of dollars for.
Title: Re: Australian Investing Thread
Post by: Wadiman on September 26, 2014, 05:20:00 PM
Hey guys, put this in the Australian property thread first but figured it's probably more suited to this thread. I have a couple of questions about Australian REITs.

I want to invest in real estate but the high prices and my aversion to borrowing are keeping me out of the market at the moment. On MMMs blog he mentions how REITs are a passive way of accomplishing the same thing as real estate. However from what I've read Australian REITs are only invested in Australian commercial property.

1) Are there any Australian REITs that invest in residential property?
2) How correlated are Australian commerical and residential property?
3) If property prices go up, but rents don't, does the price of the REIT benefit in any way? Or are they simply tied to rental prices?
4) Are there any Australian REITs that move in line with the prices of Australian property?[/color][/color]

Pretty much, I'm wondering if there an investment out there that gives me something similar to Australian investment property, which I don't have to pay hundreds of thousands of dollars for.

I don't have a detailed understanding of REITs but there are a number with residential or mixed property holdings.  Suggest you have a close look at the index-based REITs - State Street's SLF and Vanguard's VAP.  They both hold Stockland and Mirvac which have residential components.
Title: Re: Australian Investing Thread
Post by: terrier56 on September 26, 2014, 05:57:51 PM

1) Are there any Australian REITs that invest in residential property?
2) How correlated are Australian commerical and residential property?
3) If property prices go up, but rents don't, does the price of the REIT benefit in any way? Or are they simply tied to rental prices?
4) Are there any Australian REITs that move in line with the prices of Australian property?

Pretty much, I'm wondering if there an investment out there that gives me something similar to Australian investment property, which I don't have to pay hundreds of thousands of dollars for.

I think your biggest concern should be yield. Most yields of the comercial sector (about 7%) sit well above yields from the residential sector (4-5%).

I think what you are really looking for is a trust that speculates on property after capital gains?
Even if you could buy these speculation RIETs I would advise against them. the greater fool theory will run out eventually and you should look to only buy investments with at least 5 years of future growth. 

Make no mistake Australia have not found the "holy grail of investment". That is property can not have both 0% risk and the highest gains at the same time. It is simply a castle in the air.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on September 26, 2014, 06:52:03 PM
Thanks terrier and Wadiman.

I have my concerns with australian property as well, I'm just looking into it as a small fraction of my portfolio in the future (hence the interest in REITs rather than an investment property). I've looked into VAP, which looks like the best option at this stage. However I just want to learn more about the underlying investments, since I haven't looked into REITs as much as shares yet
Title: Re: Australian Investing Thread
Post by: terrier56 on September 26, 2014, 07:58:54 PM
My take on RIETs is just like any other asset class diversity is key. It is a high yield low risk asset with diversification. Makes up about 20% of my portfolio (5% A-RIETs and 15% international RIETs).

I guess the big downside is the low tax evasion although I wouldn't go without them. Low correlation to stocks makes them a great hedge.
Title: Re: Australian Investing Thread
Post by: bigchrisb on September 26, 2014, 09:16:03 PM
I hold about 10% of portfolio in REITS.

A couple of things that are important to me about REITS:

- Understand  that most REITS are a stapled security, which includes property and often a management company / developer business.  The risks of owning property (collecting rents) are different to the risks of playing property developer.
- REITS in Australia tend to be non residential property as a landlord (office, retail, industrial, hotels depending on the REIT).  Most of the residential exposure (e.g. SGP, MGR, ALZ) are exposed as developers.  I'm not aware of any that act as a landlord model for residential property.  Probably because the objective metrics are terrible when compared against the objective metrics in the other classes!
- Beware leverage.   Most REITS have some internal leverage.  Great in boom times, didn't work out so well in the GFC.  Particularly relevant if you are thinking of buying with leverage - leverage on leverage gets pretty scary pretty quickly.
-A REIT is a structure, rather than an asset class.  For example, there are listed companies (as opposed to REITS) that own property.  Two that come to mind are AHD (the Rydges hotels, Thredbo, and a range of cinemas here and in Europe), and UOS, with a portfolio of Malaysian property.

In theory, REITS should help with portfolio theory and smoothing volatility.  In practice, over recent years they have been pretty correlated with stocks, so less effective as hedge as property has been in the past.
Title: Re: Australian Investing Thread
Post by: travelbug on September 28, 2014, 04:28:26 PM
Hi
what a great Aussie thread!

I have a few Qs for you guys who are well-versed in long term investing. I have always invested for short term gain, but we are looking to invest some large sums of money into the share market for the long term to create a passive income stream.

The first step of our moving towards FI, I suppose.

I am looking to purchase 4-5 individual stocks (blue chip, 100% franked) and then have been wondering which index fund you would recommend?

And if I may be so rude; I would like to ask you what annual dividend % are you returning on stocks and index funds (or whatever else you invest in) please? I am calculating our investment return at 5%, but am becoming confused with the return %s on etrade...

Thanks
TB

PS: also been watching the stock market, but have decided to hold due to the drop and G12 summit etc...hoping to pick up some extra shares, fingers crossed! WDYT?
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on September 28, 2014, 07:05:59 PM
Hi travelbug, have a look through the thread as we've discussed index funds in Australia in quite a lot of detail already. Vanguard fully diversified funds, iShares, index ETFs which track the ASX200 (VAS), high yield index (VHY) and US top 500 companies (VTS), LICs vs ETFs, and now REITs (VAP) have all already been covered by knowledgeable people here.

Edit - for more info, check out the ishares and vanguard websites. You can get past performance figures, comparisons, etc.
Title: Re: Australian Investing Thread
Post by: The Falcon on September 29, 2014, 09:31:48 PM
Anyone doing any topping up at the moment with ASX200 in the 52xx range? I bought some VAS for SMSF and Family trust this morning on open.
Title: Re: Australian Investing Thread
Post by: terrier56 on September 30, 2014, 01:03:28 AM
Anyone doing any topping up at the moment with ASX200 in the 52xx range? I bought some VAS for SMSF and Family trust this morning on open.

I don't keep spare cash for these situations. I just buy each month. Do u think it has bottomed? I guess it looks like a bit of a bargain considering last months price lol.
Title: Re: Australian Investing Thread
Post by: The Falcon on September 30, 2014, 01:12:36 AM
No idea if its bottomed, that's something nobody knows...Just feels good to buy on the dips lol
Title: Re: Australian Investing Thread
Post by: Wadiman on September 30, 2014, 04:49:58 AM
Missed this morning as I didn't have funds in my cash trading account - arrgh!
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on September 30, 2014, 08:02:06 AM
Falcon I bought a little extra VAS today myself with the same thinking.

Whilst on the topic of VAS, can anyone explain why the franking level of the ETF is 77-78%, while the fund version which tracks the same ASX300 index, has dividends which are franked at 90%?

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/viasf.pdf?20140929|093000

https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20140929|093000
Title: Re: Australian Investing Thread
Post by: Notch on September 30, 2014, 06:04:08 PM
I'm not sure why.

But the average distribution for the past five years is 3.97% for the fund and 4.59% for the ETF.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on September 30, 2014, 06:31:31 PM
I suspect it's the higher expenses lowering the distribution and allowing a higher proportion (but the same dollar amount) of franking credits.
Title: Re: Australian Investing Thread
Post by: The Falcon on September 30, 2014, 09:28:24 PM
I think you might be on to something Superannuationfreak
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on October 01, 2014, 12:27:46 AM
I have my concerns with australian property as well, I'm just looking into it as a small fraction of my portfolio in the future (hence the interest in REITs rather than an investment property).

If you are a home owner, you probably have a very large percentace of your portfolio in property already - in the form of your primary place of residence (PPOR)


Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on October 01, 2014, 12:32:11 AM
(1) I am looking to purchase 4-5 individual stocks (blue chip, 100% franked) and then have been wondering which index fund you would recommend?


(2) PS: also been watching the stock market, but have decided to hold due to the drop and G12 summit etc...hoping to pick up some extra shares, fingers crossed! WDYT?

two concerns here:

(1) picking 4-5 stocks will very probably give you below-average returns. 

(2) market timing is a game that cannot be won.   This will also very probably give you below-average returns. 
Title: Re: Australian Investing Thread
Post by: bigchrisb on October 02, 2014, 06:43:10 PM
Anyone doing any topping up at the moment with ASX200 in the 52xx range? I bought some VAS for SMSF and Family trust this morning on open.

I've been dipping in with a couple of small parcels of vas. Better value than there was a month ago, but a long way to drop until there is blood in the streets.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 02, 2014, 11:11:11 PM
I've been following VAS movements quite closely over the last few days, and it seems as if sometimes there's been  bit of a gap between the ASX300 price and VAS. Is this just an anomaly?
Title: Re: Australian Investing Thread
Post by: superannuationfreak on October 02, 2014, 11:13:25 PM
There can be small differences in general.  A larger effect is likely that VAS went ex-dividend on Oct 1 so should have dropped (a bit more than the index).
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 03, 2014, 12:11:17 AM
Aaah thanks superannuationfreak.

This thread once again delivers!
Title: Re: Australian Investing Thread
Post by: Primm on October 03, 2014, 01:09:17 AM
Quick question about that, if I bought more VAS on 1st October am I entitled to distributions on those new shares this time around? It wasn't even deliberate, I have a "break even point" where buying ETF's is cheaper than putting money into an index fund so I only buy when I have that amount in my account, and I happened to tip over that when I got paid on 1st October.

Won't make any difference to my strategy, I'm just curious. :)
Title: Re: Australian Investing Thread
Post by: terrier56 on October 03, 2014, 01:16:29 AM
Quick question about that, if I bought more VAS on 1st October am I entitled to distributions on those new shares this time around? It wasn't even deliberate, I have a "break even point" where buying ETF's is cheaper than putting money into an index fund so I only buy when I have that amount in my account, and I happened to tip over that when I got paid on 1st October.

Won't make any difference to my strategy, I'm just curious. :)

I believe you must purchase before the ex-dividend date. so you would not be eligible. This shouldn't matter since you saved the equivalent amount on the discounted price.
Title: Re: Australian Investing Thread
Post by: Primm on October 03, 2014, 01:58:48 AM
Thanks for that. That's what I thought, and like you said I bought at the discounted rate so it's all good.
Title: Re: Australian Investing Thread
Post by: marty998 on October 03, 2014, 04:36:00 AM
Primm...you will get sent a holding (CHESS) statement from the ASX for every buy and sell. CHESS stands for Clearing House Electronic Sub-register System, just the system that the ASX uses to transfer shareholdings from seller to buyer.

On this statement it will indicate where the shares have been purchased "cum" dividend (meaning you are entitled to it, or "ex" dividend (meaning not) - and purchasing on the ex date means just that, as superfreak says you must be in the day before.

Title: Super Calculators - curious results
Post by: Wadiman on October 04, 2014, 03:02:16 PM
Hi -

I'm seeking to model the end results of different super contribution strategies.

There are 1001 different super calculators out there and I've used a few.

No doubt due to different assumptions etc there are wildly different results when you put in the same data.

But - what I can't work out is the result i'm getting from the moneysmart super calculator - which you would think should be the best of the lot.

For example - when I model contributions at $24k per annum after 11 years (from today) with a $227k starting base, and leaving the default settings in place, I get a result of $575k.  However, when I model contributions of $29k per annum over the same period with same settings, I only get a result of $608k which is less than the value of the contributions themselves ($33k outcome - $51k contributions).  Clearly this is wrong as there should be some serious growth over that time (even allowing for 15% incoming taxation).

So - has anyone else experienced this?  Any tried and trusted calculators out there?
Title: Re: Australian Investing Thread
Post by: deborah on October 04, 2014, 04:52:48 PM
Hi -

I'm seeking to model the end results of different super contribution strategies.

There are 1001 different super calculators out there and I've used a few.

No doubt due to different assumptions etc there are wildly different results when you put in the same data.

But - what I can't work out is the result i'm getting from the moneysmart super calculator - which you would think should be the best of the lot.

For example - when I model contributions at $24k per annum after 11 years (from today) with a $227k starting base, and leaving the default settings in place, I get a result of $575k.  However, when I model contributions of $29k per annum over the same period with same settings, I only get a result of $608k which is less than the value of the contributions themselves ($33k outcome - $51k contributions).  Clearly this is wrong as there should be some serious growth over that time (even allowing for 15% incoming taxation).

So - has anyone else experienced this?  Any tried and trusted calculators out there?

I get different figures from you. Are you using https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/superannuation-calculator ?
I put in 49 and 60 as the ages, left the current salary at $50000 and said $227000 current balance. Put in before tax $24000 per year (this is probably wrong as it doesn't include your employer super) and got a different result.


Title: Re: Australian Investing Thread
Post by: terrier56 on October 04, 2014, 05:02:58 PM
I just used that calculator LOL then cross reference against my own calculations to find that the super fund they use has a ROI of 3.2% PA hahahahahaha.

ultra conservative would be an understatement. The only reason i could think of them using this calculation is that they do exist (100 div interest only super) and that would also prevent people down the track suing them if they indeed received less in there super fund than stated. Not good reason. Anyone else have any ideas why they would use this?
Title: Re: Australian Investing Thread
Post by: deborah on October 04, 2014, 05:33:44 PM
I just used that calculator LOL then cross reference against my own calculations to find that the super fund they use has a ROI of 3.2% PA hahahahahaha.

ultra conservative would be an understatement. The only reason i could think of them using this calculation is that they do exist (100 div interest only super) and that would also prevent people down the track suing them if they indeed received less in there super fund than stated. Not good reason. Anyone else have any ideas why they would use this?
Well they allow you to change it - but it's probably the standard ROI of the most used fund.
Title: Re: Australian Investing Thread
Post by: terrier56 on October 04, 2014, 06:13:41 PM
I just used that calculator LOL then cross reference against my own calculations to find that the super fund they use has a ROI of 3.2% PA hahahahahaha.

ultra conservative would be an understatement. The only reason i could think of them using this calculation is that they do exist (100 div interest only super) and that would also prevent people down the track suing them if they indeed received less in there super fund than stated. Not good reason. Anyone else have any ideas why they would use this?
Well they allow you to change it - but it's probably the standard ROI of the most used fund.

No that can't be true. Statistically I think that given the most people work in healthcare (12.2%) would choose the industry super fund assignned (caresuper). This fund has a return of 8.01% since 1992 using the automatic allocation (balanced). http://www.caresuper.com.au/super/investing-your-super/performance
Title: Re: Australian Investing Thread
Post by: terrier56 on October 04, 2014, 06:34:41 PM
Ok I have just seen the "how it works" section. They give you money in today's value (inflation at 3.5%) which makes way more sense. Not a bad calculator in the end.
Title: Re: Australian Investing Thread
Post by: dungoofed on October 06, 2014, 11:21:43 PM
Not suggesting anyone pay for financial services, but for reference here are the ETFs which Stockspot invests in (their first and second choice):

Australian Shares - 1) VAS, 2) STW
Global Shares - 1) IOO, 2) IVV
Emerging Markets - 1) IEM, 2) VGE
Bonds - 1) IAF, 2) VAF
Gold - 1) GOLD, 2) QAU

Stockspot was mentioned in the SMH today, alongside Betterment, Wealthfront, etc. Any comments? They seem to choose more expensive non-Vanguard funds a lot.

Encouraging to see that VAS is their choice for Aussie stocks, but with up to 50% in VAS according to their portfolios plus 10% gold I'd feel this was a little over-exposed to commodities.

Also, Wadiman, if you're still reading this thread then you'll note that Stockspot recommend 10% of your portfolio in gold, which happens to be the same as I suggested for you : P Just sayin'...

Title: Re: Australian Investing Thread
Post by: Wadiman on October 07, 2014, 01:20:52 AM
Yes dungoofed - when you commented previously I noted that your thoughts were pretty similar to the Stockspot recommendations!  Good stuff.
Title: Re: Australian Investing Thread
Post by: Primm on October 07, 2014, 01:57:03 AM
Question about rebalancing super.

I currently have my super 50% each in AU stocks and international stocks. I did this when the AUD was >95c, and so far my paper win has been pretty good.

So now that the AUD has dropped relative to the USD, is now a good time to take that win and change my balance to 100% AU stocks again? Or am I missing something? We can rebalance up to once a month in my super scheme with no penalties or fees, I did this about 6 months ago and my current balance gives me $56,692 in AU stocks and $60,028 in international. They were 50/50 last time I rebalanced (only a few months ago), so as you can see the international side has done considerably better. Or should I leave them as they are and let the international side balance out the potential losses in the AU market over the next little while?

ETA: I just checked, and I rebalanced on 19/8. So this $3,400 difference is in about 6 weeks.

The other thing is, I can choose to rebalance only future investments and leave the current funds as they are. Would this be a better option?

Thoughts?
Title: Re: Australian Investing Thread
Post by: potm on October 07, 2014, 03:13:22 AM
Rebalancing usually mean you will adjust your holdings so that they are 50/50 again so they would be roughly 58k each.
If you are thinking about making it 100% Australian shares that would be more akin to trading. Whether that is a good idea or not depends on the future performance.

Be aware that there is a buy/sell spread on the different options so it's costing you a little each time you switch. By only changing the allocations for future investments minimises this.
Title: Re: Australian Investing Thread
Post by: dungoofed on October 07, 2014, 05:39:24 AM
Primm - you need to do two things:

1) Decide on a ratio of asset classes with which you are comfortable, and
2) Rebalance when a "rebalance event" is triggered.

So before we even start you need to decide how you want your portfolio to look. 50% Australian stocks and 50% international stocks is quite an aggressive ratio but assuming your age is around 30-35 then this might be fine for now.

Regarding rebalancing, there is a plethora of information as to how this should best be done. The idea is you want to periodically sell off the overperformers and buy more of the underperformers. The main two triggers are a) elapsed time period, and b) percentage drift from your ideal in 1) above. Other complexities include minimising trading costs and tax considerations (though it sounds like neither of these apply to you, provided you limit rebalancing to a max of once a month).

To keep it simple, in your case you might want to rebalance when one of the two asset classes reaches 62.5% of your portfolio, or once every nine months if you haven't rebalanced for the last nine months (either trust the math on these values, or feel free to educate yourself on rebalancing and come up with your own values). Using this, if your international stocks were 73k and Aussie stocks 43k then you'd want to consider rebalancing.

The only other thing I'd mention is that while you may be eligible for one free rebalance per month, depending on the plan there is a chance that you are still losing on each transaction.

Title: Re: Australian Investing Thread
Post by: Primm on October 07, 2014, 06:24:58 PM
So make it technical and not emotional, and then follow my guidelines and not my instincts. Got it!

I need to do some research on the buy/sell spread of my fund, and find out just how much it is actually costing to switch stuff around. And then just fricking do it.
Title: .
Post by: This_Is_My_Username on October 08, 2014, 04:17:22 AM
Primm, are you rebalancing to a pre-agreed formula, or are you trading/timing/speculating/emotional ?

I hope not the latter.

Also, you need to be fully cognisant of the fees.
Title: Re: Australian Investing Thread
Post by: slothman on October 09, 2014, 06:33:35 AM
Excellent thread!

Situation at the moment: Dual income no kids

Just started getting serious with investing in the past couple of years and looking forward to being able to retire within the next 10 years.

PPOR - 840K
Debt - 200K

Investment Properties - $2.5M
Debt - $2.0M

Shares outside of super - $100K in LICs: ARG/AUI/MLT. Looking to add some BKI and potentially some international shares at a later stage via ETFs. US market seems a little frothy at the moment so worried to buy in at current valuations. Also, I have a strong domestic bias mostly due to my obsession with franking credits.

Savings/Investing Rate ~55% consisting of paying down PPOR debt, servicing the (negatively geared) investment property portfolio and quarterly purchases of LICs (DCA strategy).

Although I am currently heavily weighted to residential property to quickly grow my asset base, I've started to do more research on ideal asset allocation and how to diversify the portfolio.

In a few years time, hopefully after some strong capital growth, I'd looking to sell down part of the property portfolio to clear debt and move capital into sharemarket/bonds/REITs for diversification and for a stable income stream to replace my wages.
Title: Re: Australian Investing Thread
Post by: deborah on October 09, 2014, 06:42:43 AM
Slothman, you have way more risk tolerance than I do. I am not as concerned about the prospects of a housing bubble collapse as I am about your leverage. Current interest rates are really low - what happens when we start to get inflation, and housing loan interest rates start to rise? Admittedly, I remember the days of 17% interest rates (and many people going under), and it probably won't get that high again.
Title: Re: Australian Investing Thread
Post by: marty998 on October 09, 2014, 03:10:59 PM
Wall Street down 2% overnight. NAB has come out with a profit downgrade and a capital raising to boot. I've always said there is something fundamentally wrong with that bank. Should shut it down, break it up and start again.

Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.

Title: Re: Australian Investing Thread
Post by: slothman on October 09, 2014, 03:32:41 PM
Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.

Does this mean the ASX200 is undervalued? What was the P/E ratio at previous peak?
Title: Re: Australian Investing Thread
Post by: Notch on October 09, 2014, 07:56:10 PM
Have a look at the trends in margin loan use in Australia, available from the RBA website, and you'll see why we're still below that 2007 peak.
Title: Re: Australian Investing Thread
Post by: dungoofed on October 09, 2014, 08:10:58 PM
I just rebalanced.

Took some money from a term deposit that vested this week, combined it with the sale of a little each of WXOZ and VAF. Bought VAS.
Title: Re: Australian Investing Thread
Post by: The Falcon on October 09, 2014, 08:14:21 PM
Pulling the trigger on AMH today....cant resist.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 09, 2014, 10:27:49 PM
Trying to resist further "market timing" and buying a little more VAS today too.

One thing that puts me off is that 8.31% of VAS is BHP, which I don't have a great amount of faith in for the future. Oh well I guess that's priced in at the moment by the market
Title: Re: Australian Investing Thread
Post by: potm on October 09, 2014, 10:30:10 PM
Wall Street down 2% overnight. NAB has come out with a profit downgrade and a capital raising to boot. I've always said there is something fundamentally wrong with that bank. Should shut it down, break it up and start again.

Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.

New CEO so he is more than happy to recognise the impairments in 'Cash Earnings'. Makes a mokery of what Cash earnings is, whatever they want it to be I guess. Now he can show a wonderful increase in Cash earnings next year in his first full year as CEO. Dividend is getting increased along with a captial raising at a discount, direct destruction of shareholder value right there. It makes more sense to cut dividends for a year but then the market would have punished it severly so maybe this is the smartest thing to do afterall.
Title: Re: Australian Investing Thread
Post by: The Falcon on October 09, 2014, 11:02:56 PM
CCL around $8.40 is starting to be of interest...
Title: Re: Australian Investing Thread
Post by: deborah on October 10, 2014, 12:29:52 AM
How different do people think the Australian market is to the US market, and what does that mean in terms of investing advice?

For instance, the US does not have franking credits, so that makes shares less attractive there. The US has very cheap property, which makes it significantly easier to get into the property market, as well as higher rents, which give higher yearly returns per dollar invested. This should also make it more reasonable for someone in the US to buy rather than rent.

As the forum is predominantly US advice, what should we (as Australians) follow, and what doesn't make much sense for us?
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 10, 2014, 12:33:05 AM
I'm not sure if a lack of franking credits necessarily makes US shares less attractive. Yes, they tend to pay less dividends, but that isn't necessarily a bad thing as retaining profits allows businesses to grow. Look at the capital growth of the S&P500 vs the ASX200 over the last ten years.
Title: Re: Australian Investing Thread
Post by: marty998 on October 10, 2014, 12:52:02 AM
CCL around $8.40 is starting to be of interest...

I'm bearish on CCL long term. One day we are going to wake up, look in the mirror and see what fat fucks we are and that 43 grams of refined sugar in each can of coke, sprite or solo is the culprit.

That and we may also wake up and realise the scam that bottled water is.

I'm not sure if a lack of franking credits necessarily makes US shares less attractive. Yes, they tend to pay less dividends, but that isn't necessarily a bad thing as retaining profits allows businesses to grow. Look at the capital growth of the S&P500 vs the ASX200 over the last ten years.

Preference for franked dividends in Australia is becoming a drag on the economy according to RBA top dog Glenn Stevens. Investors are blinded by the tax benefits from franking in Super, which is leading to Managers not retaining enough earnings to grow and invest.

Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.

Does this mean the ASX200 is undervalued? What was the P/E ratio at previous peak?

P/E ratio is irrelevant (IMHO at this point in time DYOR). As I said, BHP was holding up the entire market in 07.
Title: Re: Australian Investing Thread
Post by: marty998 on October 10, 2014, 01:09:10 AM
Wall Street down 2% overnight. NAB has come out with a profit downgrade and a capital raising to boot. I've always said there is something fundamentally wrong with that bank. Should shut it down, break it up and start again.

Market has the jitters at the moment. And its October LOL. Can you believe 7 years since the ASX peaked at 6800 and we're still below there. Admittedly that was all due to BHP being up around $50 but still, 7 years is longer than any other stretch in history below a peak.

New CEO so he is more than happy to recognise the impairments in 'Cash Earnings'. Makes a mokery of what Cash earnings is, whatever they want it to be I guess. Now he can show a wonderful increase in Cash earnings next year in his first full year as CEO. Dividend is getting increased along with a captial raising at a discount, direct destruction of shareholder value right there. It makes more sense to cut dividends for a year but then the market would have punished it severly so maybe this is the smartest thing to do afterall.

Yes, agree 100% with all of that potm.
Title: Re: Australian Investing Thread
Post by: potm on October 10, 2014, 05:58:10 AM
For a company that is struggling with falling profits and revenues I think CCL is still pretty expensive. People attach a lot of value to the coke brand but I think the american company are the ones that own the rights to everything. CCL has to pay to use the coke surup. I think, do your own research, haven't been interested enough in it to have a closer look.
Title: Re: Australian Investing Thread
Post by: The Falcon on October 10, 2014, 03:22:00 PM
CCL is 30% held by Coke USA.....when the human race moves on from sugar they are in trouble...bear in mind CCL has the Indo bottling operation, 200m people + majority non drinkers, with Jokowi coming in to power, I am bullish on ID in coming decade.. I'm a long term bull on CCL but I'm only playing around the edges of the portfolio as a matter of interest :)

Looking to pick up some QOZ and small cap in coming weeks if this trend continues.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 10, 2014, 10:51:22 PM
From what I could see on the website, QOZ is pretty much the same as VAS except it's the ASX200 instead of the ASX300. Why are you purchasing this when you already hold VAS? To add a bit of variety / diversification? I'm curious as I'd find it harder to keep my head around a whole bunch of similar ETFs in varying quantities
Title: Re: Australian Investing Thread
Post by: The Falcon on October 10, 2014, 11:34:23 PM
QOZ is fundamental weight, VAS is market cap.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 11, 2014, 12:25:35 AM
Ah. Cheers for that
Title: Re: Australian Investing Thread
Post by: superannuationfreak on October 11, 2014, 05:03:15 AM
I've been inspired by Scott Adams' (creator of Dilbert) one-page summary on everything you need to know about money, and by William Bernstein's free booklet If You Can to write a few pages for people who don't want to know all the nitty-gritty details of investing.  While most people posting here probably are interested in the nitty-gritty, let me know if there is anything that's unclear, poorly worded, incorrect, etc.  I'm open to incorporating feedback so any other thoughts would be appreciated.  Is this something that could be helpful?

http://superannuationfreak.blogspot.com.au/2014/10/everything-you-need-to-know-about.html

Note that I'm not a personal finance guru so don't think I can add a lot of (extra) value in that part.  The suggested savings rate of 15-20% is due to it not being specifically targeted at Mustachians.  I suspect most who've made their way to this forum have probably already conquered personal finance or are in the process of doing so.

For reference:
The Dilbert guide to personal finance: https://retirementplans.vanguard.com/VGApp/pe/PubVgiNews?ArticleName=DilbertGuidetoPersonalFinance
If You Can: https://dl.dropboxusercontent.com/u/29031758/If%20You%20Can.pdf
Title: Re: Australian Investing Thread
Post by: MsRichLife on October 11, 2014, 10:11:24 PM
Thanks superannuationfreak. I'm going to read over it a few times to more fully digest it. Cheers.
Title: Re: Australian Investing Thread
Post by: potm on October 12, 2014, 04:36:16 PM
CCL is 30% held by Coke USA.....when the human race moves on from sugar they are in trouble...bear in mind CCL has the Indo bottling operation, 200m people + majority non drinkers, with Jokowi coming in to power, I am bullish on ID in coming decade.. I'm a long term bull on CCL but I'm only playing around the edges of the portfolio as a matter of interest :)

Looking to pick up some QOZ and small cap in coming weeks if this trend continues.

A couple of articles in the AFR today on CCL that touches on the relationship between the 2 coke companies. 30% ownership does not mean their interests are totally aligned. 
Title: Re: Australian Investing Thread
Post by: The Falcon on October 12, 2014, 07:53:17 PM
 ^ For sure, read the article. I am hedging here as I already own BRKB and intend to keep buying for the foreseeable future.
Title: Re: Australian Investing Thread
Post by: Andy_in_Aus on October 12, 2014, 10:04:40 PM
Gday all,

First time poster, but I've been madly going through the forum trying to get smart.  I was introduced to MMM ~6 months ago by someone, and it has quite literally changed my whole perspective on life.

This thread is solid gold, and I've learnt a ton already, superannuationfreak's guide - genius!

Aaaanyway back to money matters... a couple of months ago there was some discussion about LICs, enough to get me interested and investigate further.

Now to introduce my stupid (the reason I haven't posted yet).

- Does a LIC trade at a discount (or premium) until announced otherwise (i.e. is Septembers ASX report still valid for October purchases)?

I'm currently building my knowledge base so I can be best informed when I do jump in.

Thanks for all your wisdom.

Andy

Title: Re: Australian Investing Thread
Post by: The Falcon on October 12, 2014, 10:43:46 PM
Hi Andy, no, the share price relative to NTA will move around each day depending on share price movement of the LIC and price movement of the underlying securities. Some brokers maintain spreadsheets that will give them a pretty good idea of current day NTA to assist clients. Personally not seeing a lot of value with the LICs now, AFI and ARG are holding up well compared to the market.
Title: Re: Australian Investing Thread
Post by: Andy_in_Aus on October 12, 2014, 11:10:45 PM

Thanks Falcon,

Now I've overcome the first post jitters... right now I'm reading the prospectus for Perpetual Equity Investment Company (LIC), which is floating on the 21st of Oct.  Anyone have any thoughts?

Title: Re: Australian Investing Thread
Post by: The Falcon on October 12, 2014, 11:27:34 PM
had a quick look, this is Perpetuals grab at SMSF dollars flowing in to the traditional LICs. At 1% MER they are going to need to significantly outperform....I worry about portfolio churn with these guys chasing headline numbers, not after tax return for investors. There are many better offerings than this new LIC imho. 
Title: Re: Australian Investing Thread
Post by: deborah on October 12, 2014, 11:54:07 PM

Thanks Falcon,

Now I've overcome the first post jitters... right now I'm reading the prospectus for Perpetual Equity Investment Company (LIC), which is floating on the 21st of Oct.  Anyone have any thoughts?
Why???
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 13, 2014, 12:17:54 AM
Yeah "why?" is pretty much my reaction too
Title: Re: Australian Investing Thread
Post by: Andy_in_Aus on October 13, 2014, 12:27:05 AM

Because I'm new to this game, and it popped up on a google search.  I find documents like these have lots of information that I don't know (procedures and language etc), which I then spear off and research.

It's how I learn things, it's not my primary means of gaining knowledge, but puts an Australian contrext to the (often) U.S. investment books.

I'll get back in my box now...

Title: Re: Australian Investing Thread
Post by: The Falcon on October 13, 2014, 12:42:54 AM

Because I'm new to this game, and it popped up on a google search.  I find documents like these have lots of information that I don't know (procedures and language etc), which I then spear off and research.

It's how I learn things, it's not my primary means of gaining knowledge, but puts an Australian contrext to the (often) U.S. investment books.

I'll get back in my box now...

No need to get back in your box Andy, we have all been in your position :)

In short, that Perpetual LIC's fees are expensive and its unproven. Have a look at the material on AFIC and ARGO's sites for cheaper alternatives proven over decades of solid after tax performance. For International exposure (Active Management) I'd be inclined to look at the likes of Platinum or Magellan, both LICs are available on the ASX, or you could buy the "mother ships" (the traded operating companies). For Indexes, you have the likes of VTS and VEU on the ASX. At the other end, you can buy NYSE and NASDAQ listed stocks through most Australian brokerages should you wish to do that.

I think as a starting point though, as a buy an hold investment you would be well served by AFI/ARG/MLT (or VAS/VHY) and International ETFs as core and then you can add to that later on should you have convictions about particular stocks.

(Disclosure ; I hold ARG/MLT/VAS/VHY/VEU/VTS among many others)
Title: Re: Australian Investing Thread
Post by: abyss on October 13, 2014, 01:02:42 AM
Does anyone have experience buying and holding NZX shares from Australia?

I'm particularly interested in discount broker options and the potential tax implications.

Generally I'm an indexing kind of guy, but there's 1-2 NZ companies that I think would be a small holding in my high growth allocation.
Title: Re: Australian Investing Thread
Post by: deborah on October 13, 2014, 01:13:30 AM

Because I'm new to this game, and it popped up on a google search.  I find documents like these have lots of information that I don't know (procedures and language etc), which I then spear off and research.

It's how I learn things, it's not my primary means of gaining knowledge, but puts an Australian contrext to the (often) U.S. investment books.

I'll get back in my box now...
Sorry, I didn't want to put you in a box - we are all learning together. I wanted to know why because that is the first question I ask myself if I am thinking of buying something. For instance I am trying to work out the why of Investment Bonds (aka Insurance Bonds) - they seem to  be recommended for buying for children because they are tax free after 10 years (including everything you put in after the first year). So they sound like something that someone going for early retirement might want. Of course, the next question is always "why not".
Title: Re: Australian Investing Thread
Post by: The Falcon on October 13, 2014, 01:31:02 AM
The why not on Insurance bonds ;

- 30% Tax rate after 10 years (no good if your personal rate is lower than this)
- Manager risk, will they still be around ? (APRA regulated product so should be ok)
- Fully taxed pre 10 years
- High MERs , usually 2% or so in typical "churney" MF products

That said, they aren't a bad product for the right use, and there are quite a few. I actually have one for my 2 year old daughter.

 
Title: Re: Australian Investing Thread
Post by: slothman on October 13, 2014, 04:37:24 AM
Some brokers maintain spreadsheets that will give them a pretty good idea of current day NTA to assist clients. Personally not seeing a lot of value with the LICs now, AFI and ARG are holding up well compared to the market.

Hi Falcon, do you know if I can get a hold of the spreadsheet or how I might create one for myself? What I've been doing up till now is getting last month's NTA and then using the performance of the XJO to adjust NTA. Pretty coarse way of doing it, but enough for me to make a decision.

I was looking to purchase some more shares given the recent dip in the market, but all the old school LICs are currently trading at a premium to NTA. I've since put in a buy order for Vanguards ETF: VAS.


Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 13, 2014, 05:42:06 AM
MMMers, whats your opinion on the current ASX fall? Do people think the market will continue to fall, or are we simply in a dip that will soon rebound?

I'm not trying to time the market or anything, more than buying in a little extra a week ago. Just musing out of interest more than anything, and keen for the musings of others
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on October 13, 2014, 05:57:49 AM
Some brokers maintain spreadsheets that will give them a pretty good idea of current day NTA to assist clients. Personally not seeing a lot of value with the LICs now, AFI and ARG are holding up well compared to the market.

Hi Falcon, do you know if I can get a hold of the spreadsheet or how I might create one for myself? What I've been doing up till now is getting last month's NTA and then using the performance of the XJO to adjust NTA. Pretty coarse way of doing it, but enough for me to make a decision.

I was looking to purchase some more shares given the recent dip in the market, but all the old school LICs are currently trading at a premium to NTA. I've since put in a buy order for Vanguards ETF: VAS.

i'm looking for the same thing: How can I know which LICs are trading at a premium or a discount to their net tangible assets (NTA) ?

I guess, with yesterday's prices?   Or even intra-day ?

Title: Re: Australian Investing Thread
Post by: The Falcon on October 13, 2014, 02:44:52 PM
Some brokers maintain spreadsheets that will give them a pretty good idea of current day NTA to assist clients. Personally not seeing a lot of value with the LICs now, AFI and ARG are holding up well compared to the market.

Hi Falcon, do you know if I can get a hold of the spreadsheet or how I might create one for myself? What I've been doing up till now is getting last month's NTA and then using the performance of the XJO to adjust NTA. Pretty coarse way of doing it, but enough for me to make a decision.

You are on the right track, but instead of XJO, look at the LICs top 20 holdings.....yeah a bit of a PITA really !
Title: Re: Australian Investing Thread
Post by: bigchrisb on October 13, 2014, 04:21:48 PM
MMMers, whats your opinion on the current ASX fall? Do people think the market will continue to fall, or are we simply in a dip that will soon rebound?

I'm not trying to time the market or anything, more than buying in a little extra a week ago. Just musing out of interest more than anything, and keen for the musings of others

Who knows!

What I do know is that I'd been accumulating cash for most of this year and avoiding buying much of the index (just a few speculative individual shares).  In the last month I've started buying back in to the broader market using VAS.  Each purchase has only been about 1% of net worth (approx $15k a trade), so not exactly a big market timing attempt.  My viewpoint at the moment is that it may fall further.  However, as at yesterdays close, the grossed up yield of VAS is just over 6%, and I'm OK if over the next 10 years I get that 6% with nil capital growth.

Given that dividends have typically at least grown with inflation, and that my tax rate investing through the trust is 30%, that gets a 4% real return right.  Any capital gain will just be gravy.

Its pretty crude, but I'm intending on dollar cost averaging all savings into the market at the moment, and converting a bit more cash to shares each time the market drops a bit more (crude re-balance).  In some ways I'm a bit frustrated that I just used up $200k of cash in a deposit and transaction costs on a house, so have a lot less free cash allocation that I did three months ago.

Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 13, 2014, 07:47:46 PM
Thanks for the reply bigchrisb.

I'm sure you've considered this, but if yield is your primary concern, why not go for VHY over VAS? The net yield has been a percent or so higher than VAS, and the franking level on the last distribution was much higher (96% ish for VHY vs 56% ish for VAS)

Is it because it's a much less diversified index? I've seen that it's top 10 holdings constitute 70-80% of the fund
Title: Re: Australian Investing Thread
Post by: bigchrisb on October 13, 2014, 08:30:28 PM
I don't like stock selection etf's like VHY because they typically have higher portfolio churn than the market cap indices. From what I understand, ETFs have to distribute any capital gains from churn - hence you get the double whammy of the transaction costs, and of being taxed on the distributed proceeds.  Then there is the additional 10 basis points of fees for VAS vs VHY.   Between the two of these guaranteed performance drags, a dividend approach would have to significantly outperform the broad index.  (I confess that it has done so handsomely over the last couple of years!)

Re the franking levels, if you look at the fact sheets on the vanguard Australia site, its about the same for both funds (77-78% for VAS between 2011-2014 and 69%-80% for VHY over the same periods) 


To each their own though!

 
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 13, 2014, 09:13:07 PM
Ah I see. Cheers for explaining your reasoning on that. I own a small amount of both at the moment. Re the franking levels, I was just going off the last two distributions they've declared - i guess the franking levels must have been an anomaly.

Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 13, 2014, 09:17:24 PM
And thanks Falcon for your tip off in regards to QOZ and betashares. I have researched them a bit now, and there are some really interesting funds in there! Very new and different to what has been available in Australia before, it seems. I’ll post what i’ve gleaned here for people to read, critique my understanding, comment.

QOZ - the one Falcon already mentioned, an ASX200 index ETF based on fundamental weightings vs market cap weightings. Check out the beta shares website for a more detailed explanations of this. Lots of good info on the specific funds available on the website at http://www.betashares.com.au

YMAX - this one’s interesting - an actively managed yield maximiser fund. It seeks to generate a higher yield than the underlying securities, whilst protecting from downside risks by selling calls options against the securities it holds. On the website it says the fund should outperform the ASX during a falling, stagnant or slowly rising market, but under perform in a rising market. The yield has been 9-10% per annum so far, which seems very high. However it’s capital growth has been much less and hence it has under performed vs the ASX200 accumulation index. Since this has been a rising market, this is to be expected. Interesting product if you were more bearish and required consistent income, however.

(Note - What I find confusing with this fund is that it stipulates its not an ETF. Even though it’s listed and traded on the ASX. I thought any fund that was traded on the exchange would be... an exchange traded fund. Am I missing something here?)

Foreign currency funds such as USD. Pretty much tracks the performance of the USD relative to the AUD, in the form of a fund traded on the ASX

Bear fund - this is the most interesting one of them all! A fund that seeks to closely track the complete opposite of the ASX200 index! It provides investors with a way of making money during a falling market. But more importantly I guess it can be used as a hedge.

I suppose if you were worried about a short term crash and you thought you were overexposed to stocks at that point, instead of selling you could buy some bear fund ETF and sell them after the crash materialised. Seems too dicy for me, but very interesting concept!
Title: Re: Australian Investing Thread
Post by: dungoofed on October 14, 2014, 03:22:18 AM
Guys how do I buy one of these things:

http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND

Specifically something with 10+ years remaining. There was one trade today across all products, with the market maker giving outrageous prices. Is there no other option but to suck it up and accept the spread?

Title: Re: Australian Investing Thread
Post by: dungoofed on October 14, 2014, 03:28:36 AM
AustralianMustachio - just be careful of BEAR. BEAR and its ilk (as well as leveraged version of these) often don't do a very good job of tracking the inverse - see https://www.tradeking.com/education/etfs/leveraged-and-inverse-etfs for a quick overview.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 14, 2014, 03:58:02 AM
Thanks for the link dungoofed i'll check it out later once I have some more time. I had a quick look at the yearly price range of BEAR with the ASX200 as a comparison, and it seems to have tracked it pretty much exactly. It says on the website, price will match the inverse by 90-110%.

I'm not planning on buying it myself. Just found it an interesting development in the ETF range!
Title: Re: Australian Investing Thread
Post by: johnnydoe on October 14, 2014, 04:15:11 AM
Guys how do I buy one of these things:

http://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND

Specifically something with 10+ years remaining. There was one trade today across all products, with the market maker giving outrageous prices. Is there no other option but to suck it up and accept the spread?

@dungoofed I'm not sure of any other way except through a broker... there is more information on the bonds here: http://australiangovernmentbonds.gov.au/

Another option is to go for the Vanguard Index VGB (https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVAGBIE.jsp)
Title: Re: Australian Investing Thread
Post by: urbanista on October 14, 2014, 06:54:41 PM
What I do know is that I'd been accumulating cash for most of this year and avoiding buying much of the index (just a few speculative individual shares).  In the last month I've started buying back in to the broader market using VAS.  Each purchase has only been about 1% of net worth (approx $15k a trade), so not exactly a big market timing attempt.  My viewpoint at the moment is that it may fall further.  However, as at yesterdays close, the grossed up yield of VAS is just over 6%, and I'm OK if over the next 10 years I get that 6% with nil capital growth.

Given that dividends have typically at least grown with inflation, and that my tax rate investing through the trust is 30%, that gets a 4% real return right.  Any capital gain will just be gravy.

Its pretty crude, but I'm intending on dollar cost averaging all savings into the market at the moment, and converting a bit more cash to shares each time the market drops a bit more (crude re-balance).  In some ways I'm a bit frustrated that I just used up $200k of cash in a deposit and transaction costs on a house, so have a lot less free cash allocation that I did three months ago.

My strategy is very similar to yours. However, there is one thing that I am unsure about: do you have any data on dividends growing with the inflation? I was under impression that in times of market dips, companies cut their dividends. Simply because the general economic situation is not favourable at times of market dips. For example, NAB has recently announced a large profit downgrade. I bet they will cut their future dividends.
Title: Re: Australian Investing Thread
Post by: bigchrisb on October 14, 2014, 07:41:43 PM
Not raw data alas.  What I have done as a crude proxy based upon data back to 1981:

- Monthly close of ASX200 (XJO).  This data is pretty much everywhere and easy to get.
- Monthly data for the ASX200 accumulation index (XJOAI).  This is harder to come by, but is available from the reserve bank stats page and a couple of other places
- For each month, work out the difference in percentage change between the two indices (this is the reinvested dividends, expressed as a monthly yield)
- Determine the payout by applying the yield to the XJO.

Using this approach, over this time period Australian dividends have grown significantly faster than inflation.  However it is really volatile, and there are periods where dividends do fall in both real and nominal terms.

The other quick test is to look at the total data over the last 34.75 years (data from the RBA, table F7 http://www.rba.gov.au/statistics/tables/pdf/f07.pdf):

Total return
31 Dec 1979 XJOAI: = 1000
30 Sept 2014 XJOAI = 45717
Compound growth rate = 11.6%

Capital growth:
31 Dec 1979 XJO = 500
30 Sept 2014 XJO = 5293
Compound growth rate = 7%

i.e. over this period dividends averaged 4.6% = about the same yield as today!  Dividend yield in 1980 was a touch under 5% (all these ignore franking credits, and the numbers are even better if we include them).  If the yield is about the same, then dividends have been growing at about the same rate as the underlying securities, or about 7%.

Using CPI for inflation over the same period (we can argue about the relevance of CPI elsewhere) gets inflation of 425% over the same period, or if compounding over 34.75 years, about 4.25%.  So, over this time period, dividends have grown in real terms (but not very smoothly).

This is why I'm reasonably comfortable with dividends increasing with inflation being a reasonably conservative assumption over the 60 years I'm investing for.

Keen to see alternate rationales for a different conclusion though.
 
Title: Re: Australian Investing Thread
Post by: urbanista on October 14, 2014, 11:02:29 PM
Thanks a lot, that's rough what I have been thinking too. Here is the monthly data on ASX200 Accumulation index (XJOAI) up to 2007.

http://www.economagic.com/em-cgi/data.exe/rba/FSMSPASX2AI

Title: Re: Australian Investing Thread
Post by: potm on October 14, 2014, 11:47:09 PM
It would be interesting to see some data on payout ratios of the index. I think in recent years it has been the fashion for ASX listed companies to increase their payout ratios. This will affect any increase in dividend measurement and obviously increasing payout ratios is not sustainable long term.
I agree that assuming dividend increases at inflation is pretty conservative.
Title: Re: Australian Investing Thread
Post by: The Falcon on October 15, 2014, 12:13:36 AM
Added my last direct US stock to the Portfolio today, NYSE : Y. Currently holding BRKB, MKL, GLRE, Y. Will hold these for the long term. Now I'll just keep DCA and buying dips with ASX : VTS / IJR / IXI
Title: Re: Australian Investing Thread
Post by: bigchrisb on October 15, 2014, 12:31:11 AM
It would be interesting to see some data on payout ratios of the index. I think in recent years it has been the fashion for ASX listed companies to increase their payout ratios. This will affect any increase in dividend measurement and obviously increasing payout ratios is not sustainable long term.
I agree that assuming dividend increases at inflation is pretty conservative.
http://www.shawstock.com.au/files/LATEST_RESEARCH.pdf has a chart of this through to 2011.  With it currently around 70%, its sitting appox 1  standard deviation above the mean, so on the high side, but not all that different from much of the period 1990-2005?
Title: Re: Australian Investing Thread
Post by: banksie_82 on October 16, 2014, 06:43:07 PM
We often hear on global forums, such as this one, about the ‘4% Rule’. I just wanted to get people’s opinion on how applicable that is to Australians, and to throw out an idea that has been bouncing around in my head.

Referring to your research, bigchrisb, regarding historical dividend growth, which had conclusions close to my own, albeit more narrowly focused, analysis (I just looked at what the LIC’s paid out over the last 10-15yrs).

I also found that during the depths of the GFC, the LIC’s dividend absolute payment went down by no more than about 20%. I assume that the ETF’s were about the same but I’m happy to be corrected.

Based on this, what do people think of the following strategy?

Have enough dividend income to be able to live off 80% (coincidently, this is about 4% withdrawal rate assuming a yield of 5%), 75% to be conservative.

Have a bit of a cash buffer, the size is subject to discussion as well as what you actually do with it (bonds, high interest, term deposits – after tax none of these are going to yield much above inflation). But otherwise reinvest the other 20%.

If dividends go up (as they should on average at 7%), increase what you live off so you still spend 80% of the dividends.

If dividends flat line, or go down, only increase your spending by inflation if you must, or preferably not at all. This may involve dipping into the cash buffer mentioned above. Importantly, don’t sell shares to fund spending… this is likely the worst time to sell as it will be the bottom of the market.

Keep spending subdued until such time that it is only 80% of dividend income again.

In theory, over the long term, your spending money should increase by 7% + the yield from what you reinvest. That is far more than not only inflation, but also wage growth. So this differs from the 4% Rule in that your spending money increases much faster once it’s all in place.

What do people think of this? I'm sure there are pitfalls that I haven't thought of that I'd be happy for someone to point out. Or, on the other hand, is it too conservative?
Title: Re: Australian Investing Thread
Post by: deborah on October 16, 2014, 07:50:38 PM
Wade Pfau has done some SWR studies for other countries. It's 3.6% for Australia, and worse in other places. The US is abnormally high - I seem to remember it is 0.6% for Japan, and Germany is pretty poor too (from memory because of the hyper-inflation period they had).

Because of this, I think the forum concentrates too much on 4% - there will always be times when dividends don't yield much, or when inflation or deflation strikes. And it doesn't matter which country you belong to, its economy changes over time - certainly the 40+ years we are talking about with ER.

I think is is better to work out what the risks might be, and develop strategies to deal with them when they arise. I would be very interested if we could develop some of this together.
Title: Re: Australian Investing Thread
Post by: potm on October 16, 2014, 08:38:03 PM
I think the problem with the 4% rule is it's entirely focused on the market value of the portfolio at the time and not on the earnings or dividends.
The market could be vastly overvalued or undervalued at that point in time. Aiming for an arbitary 4% of assets does not make sense to me. Applying the 4% rule at the end of 2007 and at the start of 2009 will have vastly different results.

A better way to compare is with the earnings or dividend yield. If dividends cover your expenses and you assume they go up by inflation then you are covered. Add in a margin of safety like banksie has mentioned of expenses only being 80 or 75% of dividends and combined with the fact that assuming only inflation level growth in dividends will protect you against any falls in the dividend levels, which banksie has also pointed out is a lot less volatile than prices.

I also like to look at earnings yields as well or PEs as companies will have different payout ratios. If your dividends meet your expenses with a portfolio of companies with conservative payout ratios, you are in a better position than if they have high payout ratios.

Then you also have to consider the quality of the earnings reported and prospects for growth as well but that's a whole other issue which is not as relevant at the index level.
Title: Re: Australian Investing Thread
Post by: The Falcon on October 16, 2014, 09:06:38 PM
POTM, just on the ETF dividend cut, this was more significant than the traditional LICs who hold cash reserves to smooth out dividend fluctuations to investors. ETFs divis were cut by approx 40% from memory.
Title: Re: Australian Investing Thread
Post by: urbanista on October 16, 2014, 09:42:18 PM
http://www.perennial.net.au/investor_insights/long_term_investing

another source: in 2009 during the GFC, dividends were cut
across the market by approximately 29% from their 2008
levels.
Title: Re: Australian Investing Thread
Post by: dungoofed on October 17, 2014, 01:02:52 AM
Just to make sure we're all on the same page, could someone please define the 4% Rule? My understanding was that 4% was the amount of your portfolio you could sell year after year and capital growth (assuming reinvested dividends) would outpace inflation and any market downturn. So even if you retired in 2008 and sold your first 4% at the bottom, you'd still be ok long-term.
Title: Re: Australian Investing Thread
Post by: BattlaP on October 17, 2014, 02:34:42 AM
Anyone here hold VAP? Why was the distribution so pathetic this month? Went from like 139 cents last time to 9. wth?
Title: Re: Australian Investing Thread
Post by: Sleeping Lions on October 17, 2014, 04:50:32 AM
I have recently bought a house (outright) which has stretched me to my limits. It will be worth it in the end, but my bank account balance is looking pretty dismal at the moment! I can't see myself having enough spare funds to start investing in shares until the beginning of next year, however I'm wanting to spend the next few months getting my head around the stock market. It's all pretty new to me still, but I thought I would jump in this thread and have a bit of a read.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 17, 2014, 05:53:58 PM
Simple question regarding dividend dates - do you simply get paid on the number of securities you were holding up until the ex dividend date, or do you have to be holding those securities up until the pay date as well? I.e can you sell after the ex dividend and still get paid the dividend despite not holding the shares at that precise moment?

Years ago my parents bought me a tiny parcel of TLS and I was thinking of selling it at some stage and rolling it into my index funds.
Title: Re: Australian Investing Thread
Post by: potm on October 17, 2014, 07:18:48 PM
You get paid based on what you own just prior to the ex-dividend date. It's technically based on who is on the register at the record date but shares trade on a T+3 basis.
Title: Re: Australian Investing Thread
Post by: deborah on October 17, 2014, 11:02:19 PM
Simple question regarding dividend dates - do you simply get paid on the number of securities you were holding up until the ex dividend date, or do you have to be holding those securities up until the pay date as well? I.e can you sell after the ex dividend and still get paid the dividend despite not holding the shares at that precise moment?

Years ago my parents bought me a tiny parcel of TLS and I was thinking of selling it at some stage and rolling it into my index funds.
It's a bit convoluted as you can buy some shares pre-dividend after you have sold shares ex-dividend - on the same day, for the same amount of money (+/- the dividend). This allows you to get twice the franking credits on exactly the same value of shares (obviously there are capital gains/losses involved too). It is one of the lurks that the last budget closed particularly for SMSFs (as SMSFs pay no capital gains tax - so the net result was that they could get twice the franking credits for no extra money) called dividend churning.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 18, 2014, 03:43:01 AM
Thanks for the replies. Deborah I don't think I really understand your post, but that's fine since I'm not trying any specific dividend strategy like that.

But just to clarify - can I sell my shares a few days after the ex-dividend date, and still get paid the dividends a month or so later, even though I'm not holding the shares anymore on the pay date?
Title: Re: Australian Investing Thread
Post by: potm on October 18, 2014, 03:58:49 AM
But just to clarify - can I sell my shares a few days after the ex-dividend date, and still get paid the dividends a month or so later, even though I'm not holding the shares anymore on the pay date?

Yes, you can sell on ex dividend date or after and get the dividend.
Title: Re: Australian Investing Thread
Post by: deborah on October 18, 2014, 04:46:24 AM
But just to clarify - can I sell my shares a few days after the ex-dividend date, and still get paid the dividends a month or so later, even though I'm not holding the shares anymore on the pay date?

Yes, you can sell on ex dividend date or after and get the dividend.
You just need to make sure you are getting the shares you want - companies will have two different prices on the stock exchange during the period when both are available - one with the dividend and one without. These are usually actually the same price if you subtract the dividend itself.
Title: Re: Australian Investing Thread
Post by: potm on October 18, 2014, 07:00:49 AM
You're talking about dividend washing, which isn't relevant for AustralianMustachio and has been disallowed by the ATO.

Title: Re: Australian Investing Thread
Post by: deborah on October 18, 2014, 01:13:41 PM
You're talking about dividend washing, which isn't relevant for AustralianMustachio and has been disallowed by the ATO.
Yes - that's it's name - but I was saying it only works because shares are available both dividend and exdividend at the same time, and he was asking about the availability of dividends.
Title: Re: Australian Investing Thread
Post by: potm on October 18, 2014, 10:46:28 PM
He was just asking whether he could sell his shares on the ex dividend date and still get the dividend. No need to confuse him with a strategy that no longer works.
Title: Re: Australian Investing Thread
Post by: slothman on October 19, 2014, 07:32:29 PM
http://superannuationfreak.blogspot.com.au/2014/10/everything-you-need-to-know-about.html

hi superannuationfreak, amazing blog post. I've been reading some of your other posts aswell on asset allocation and keen to get my house in order. At the moment I've only got Australian stocks and looking to invest in overseas shares aswell.

Stockspot recommend IOO for global shares exposure, how do you think it compares to WXOZ? What do you think of the respective indexes? (S&P Global 100 vs S&P Developed ex Australia LargeMidCap) (100 holdings vs 352 holdings)

See link here for Stockspot's recommend ETFs:
https://www.stockspot.com.au/how-it-works/our-chosen-etfs/

Keen to have a simple all-in-one global shares ETF rather than having to keep both VTS and VEU. Even if it means paying a little extra in fees.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on October 20, 2014, 12:51:57 AM

Stockspot recommend IOO for global shares exposure, how do you think it compares to WXOZ? What do you think of the respective indexes? (S&P Global 100 vs S&P Developed ex Australia LargeMidCap) (100 holdings vs 352 holdings)

Keen to have a simple all-in-one global shares ETF rather than having to keep both VTS and VEU. Even if it means paying a little extra in fees.

Both have their fans, they are both probably fine but I'm not sure either are perfect.  I prefer WXOZ for an Australian resident for two main reasons.  Firstly, 100 stocks isn't as diversified as I'd like (nor is 350 but they've tracked their larger index pretty well with that).  Secondly WXOZ will likely be more tax-efficient.  I'm not an expert but here is my understanding:

IOO is actually a US fund cross-listed as a "CHESS Depositary Interests".  So the US fund holds the shares and we hold an interest in the US fund.  The problem there is that some countries (in addition to the US) withhold tax on dividends.  And we aren't able to claim that withholding as foreign tax credits, only the withholding that the US then applies to the distributions of the fund.  WXOZ is Australian domiciled so each country will withhold dividends and then, depending on our individual situation, we may be able to use the withheld amount as a foreign tax credit on our Australian tax return.

In most cases I expect that tax advantage plus random tracking error will have a bigger difference than the 0.02% difference in expense ratio.  IOO is very slightly more 'tradeable' in terms of historical bid-ask spreads, volume and liquidity but they're still pretty similar on that basis too.
Title: Re: Australian Investing Thread
Post by: potm on October 20, 2014, 05:06:46 AM
Interesting points there superannuationfreak, does the same apply to VTS and VEU in terms of withheld tax as there are CDI as well?
Title: Re: Australian Investing Thread
Post by: dungoofed on October 20, 2014, 07:28:41 AM
Was considering the exact same question not long ago (IOO vs WXOZ). Interesting about the tax thing - thanks Superannuationfreak. I ended up going with IOO for the liquidity (both suffer from pathetic liquidity on the ASX).

Regarding geographic diversity, the companies in IOO are diverse enough to give you the global exposure you want in my opinion. As the wealth of consumers around the globe fluctuates, so does their purchasing of the products sold by the companies in IOO. And even if Apple disappeared today off the face of the planet you'd still only lose 6.24% of your investment in IOO.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on October 20, 2014, 01:40:16 PM
Interesting points there superannuationfreak, does the same apply to VTS and VEU in terms of withheld tax as there are CDI as well?

VTS is all US stocks so shouldn't be an issue, I just claimed the foreign tax credit on US withholding. VEU does have this issue though, we're only able to claim the US withholding not any earlier-stage withholding by other nations. We also can't get franking credits on the Australian companies in veu (4%-ish).
Title: Re: Australian Investing Thread
Post by: marty998 on October 20, 2014, 06:39:46 PM
So I sucked it up, swallowed my pride and after 9 years of losing a bucket of cash on individual stocks I bought 100 VHY a couple of minutes ago.

As soon my 1000 WBC shares go ex dividend in November I'm going to transfer them to VHY too. An inordinate amount of capital losses carried forward will ensure I won't be paying CGT on the disposal either :)
Title: Re: Australian Investing Thread
Post by: Primm on October 20, 2014, 06:51:27 PM
I have a question, and I'm wondering if anyone can poke holes in my plan.

I have an old credit card that I don't use much, it has a $10k limit and I keep it because at some point in the past when I was struggling with debt I rang up to cancel it because I was going to pay it down, but they changed the interest rate to 3.99% on purchases instead, on the condition I didn't close the card! Now it's close to zero, but I've been only making minimum payments while I have been focusing on investments, because 3.99%. Anyway, my hazy recollection of the conversation was that it was for 12 months and then "we'd see", but 5 years later the interest rate hasn't gone up.

So my question is, if I buy ETFs and settle them with this card via Bpay, can I still claim the interest? If I pay it off completely first and then use this card for only share transactions, it will be easy to separate out for the ATO, right? And if I settle with Bpay before my T+3 date then the money won't come out of my settlement account.

I guess it's a form of margin lending, which I am a bit hesitant about, but because it's not connected I will just pay off the credit card separately and won't have to worry about things like margin calls and share market fluctuations.

Thoughts? Good/bad idea?
Title: Re: Australian Investing Thread
Post by: marty998 on October 20, 2014, 08:46:21 PM
Yes you most certainly could claim the interest - if you do pay it off initially and can show all interest is from share purchases.

Sounds like you're on to a winner!
Title: Re: Australian Investing Thread
Post by: potm on October 20, 2014, 08:54:52 PM
So I sucked it up, swallowed my pride and after 9 years of losing a bucket of cash on individual stocks I bought 100 VHY a couple of minutes ago.

As soon my 1000 WBC shares go ex dividend in November I'm going to transfer them to VHY too. An inordinate amount of capital losses carried forward will ensure I won't be paying CGT on the disposal either :)

If you have capital losses to use then you may be better off selling before the ex-dividend date to utilise them more. Of course it'll depend on how much the share price moves on that date which we can't know beforehand.
Title: Re: Australian Investing Thread
Post by: Primm on October 20, 2014, 08:58:47 PM
Yes you most certainly could claim the interest - if you do pay it off initially and can show all interest is from share purchases.

Sounds like you're on to a winner!

Awesome, thanks! That was my gut, and I couldn't find a reason why it wouldn't work.
Title: Re: Australian Investing Thread
Post by: The Falcon on October 20, 2014, 09:27:42 PM
provided the CC is not used for anything else that would mix non-deductible and deductible debt, then you wont have an issue.
Title: Re: Australian Investing Thread
Post by: Primm on October 20, 2014, 09:28:51 PM
That's the plan. :) I have another CC I use for everyday purchases, so this one would be totally separate.
Title: Re: Australian Investing Thread
Post by: The Falcon on October 20, 2014, 09:30:35 PM
Do it :)
Title: Re: Australian Investing Thread
Post by: dungoofed on October 20, 2014, 09:55:40 PM
LOL classic! You've got me thinking about going into debt for a while, just so I can get a credit card company to offer me 3.99% on my balance!!

(just kidding)

I like this particularly as it feels like you are hacking the system.

Marty - sorry to hear about your losses but at least the path forward is a lot clearer.
Title: Re: Australian Investing Thread
Post by: Primm on October 20, 2014, 10:05:54 PM
LOL classic! You've got me thinking about going into debt for a while, just so I can get a credit card company to offer me 3.99% on my balance!!

(just kidding)

I like this particularly as it feels like you are hacking the system.

Marty - sorry to hear about your losses but at least the path forward is a lot clearer.

I know, right? That's why I had to check.
Title: Re: Australian Investing Thread
Post by: potm on October 20, 2014, 11:34:34 PM
Why settle for 3.99% when there's so many out there offering 0%!

Also by mindful that you might not be able to do a BPAY from your credit card to all billers.
Also that it might be counted as a cash advance so make sure your cash advance rate is also at 3.99%
Title: Re: Australian Investing Thread
Post by: Primm on October 20, 2014, 11:40:09 PM
I'll check with a small transaction first, but Bpay for me has always been at the purchase rate.

I have yet to find a CC with a 0% rate on purchases, they all seem to offer no interest on balance transfers for a very short (~12 months) time. 

My plan firstly is to wait until I have the cash ready to buy another parcel, try and pay for it with my CC, let it cycle through a month of not paying the full CC amount and see 1/ whether the initial transaction works, and 2/ how much they charge me in interest. After that it's game on. Will keep you posted. :)
Title: Re: Australian Investing Thread
Post by: potm on October 20, 2014, 11:56:47 PM
For example using BPAY from a credit card to pay off another credit card bill will usually not be allowed or treated as a cash advance.
I imagine the same thing will apply if you BPAY into your broker account.
Let me know if you get it to work though.

3.99% rate forever is certainly a very good deal.
Title: Re: Australian Investing Thread
Post by: nonsequitur on October 21, 2014, 12:03:06 AM
Certainly an interesting strategy.  What about BPAYing from CC account to broker, then doing a balance transfer to a new card?  Seems like that way you could get a 12-18 month 0% loan, and maybe some CC signup bonuses to go along with it.
Title: Re: Australian Investing Thread
Post by: slothman on October 21, 2014, 12:15:31 AM
Secondly WXOZ will likely be more tax-efficient.

Sorry I'm still not getting through my thick skull this withholding business and US vs AUS domiciled. It's the first time for me buying ETFs and international shares. Is there somewhere I can do more reading?
Title: Re: Australian Investing Thread
Post by: marty998 on October 21, 2014, 02:14:49 AM
So I sucked it up, swallowed my pride and after 9 years of losing a bucket of cash on individual stocks I bought 100 VHY a couple of minutes ago.

As soon my 1000 WBC shares go ex dividend in November I'm going to transfer them to VHY too. An inordinate amount of capital losses carried forward will ensure I won't be paying CGT on the disposal either :)

If you have capital losses to use then you may be better off selling before the ex-dividend date to utilise them more. Of course it'll depend on how much the share price moves on that date which we can't know beforehand.

Yes that's true, thankyou. Given my tax bracket I would also rather not have to declare the dividend. We'll see how it goes on the day.
Title: .
Post by: This_Is_My_Username on October 22, 2014, 04:42:02 AM
Primm, is using Bpay from a credit card account classified as a "cash advance" ?

(someone else already mentioned this)

let us know how you go. 
Title: Re: Australian Investing Thread
Post by: Primm on October 22, 2014, 07:24:26 AM
Not generally. It depends if they classify it as a monetary transaction (cash advance) or a purchase. I guess you could argue either way. Haven't done it yet, the CC isn't quite paid off so as soon as it is I'll give it a go and let you all know. :)
Title: Re: Australian Investing Thread
Post by: superannuationfreak on October 22, 2014, 06:49:36 PM
Secondly WXOZ will likely be more tax-efficient.

Sorry I'm still not getting through my thick skull this withholding business and US vs AUS domiciled. It's the first time for me buying ETFs and international shares. Is there somewhere I can do more reading?

This is my non-expert understanding:

IOO is a US domiciled fund which holds (for example) German companies.
When the German company pays dividends to the fund it withholds 15% in German taxes.
When IOO goes to pay a distribution of all the accumulated dividends half-yearly the US government withholds 15% of the distribution (if you fill in the W-8BEN)
That second 15% we can potentially get as a foreign income tax offset on our Australian taxes.  The German withholding tax is just lost.

WXOZ is an Australian domiciled fund which holds German companies.
When the German company pays dividends to the fund it withholds 15% in German taxes.
We can potentially get this back as a foreign income tax offset on our Australian taxes. 

If you ignore references to RRSP and TFSA the Canadian situation is similar: http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/
Title: Re: Australian Investing Thread
Post by: potm on October 22, 2014, 07:43:42 PM
Thanks for your research and insights into it superannuationfreak.

I'd also like to note that in both examples that you gave, the original company tax paid by the companies is always lost.
What we are talking about is just the withholding tax on dividends.

Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.

Just a quick example, all numbers and rates are hypothitical for illustrative purposes only.
A German company makes $100 dollars profit per share and you have 1 share.
Tax of 30% means $30 of tax and leaves $70 of profit per share.
Assuming that company pays out 100% of the profit as dividend of $70 dollars of which 15% is withheld, so $11.5 in tax and $59.5 in dividend.
Then IOO pays a dividend of which any withheld amounts can be claimed as an offset so don't need to be included.
End result you will receive a $59.5 dividend of which you will have to pay your marginal tax rate on, assumimg 39% means $23.2 of tax and $36.3 leftover.

So from the original $100 of profits the company makes, you only receive $36.3. Of course companies don't pay out 100% of profits, with capital gains being much better tax wise where there is no franking and withhelding taxes lost.
Title: Re: Australian Investing Thread
Post by: The Falcon on October 22, 2014, 08:35:50 PM
This is why I like BRKB/MKL/Y in addition to VTS....no distributions...ever. Just CG.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 22, 2014, 10:59:42 PM
INteresting idea with BRK.B Falcon. Just to confirm, is its performance exactly the same as the BRK.A except on a smaller scale?

Also how do you purchase it in Australia? I went back through the thread and couldn't find mention of that
Title: Re: Australian Investing Thread
Post by: The Falcon on October 23, 2014, 01:42:52 AM
Yep, performance mirrors the A shares. Can buy through any broker, just a bit more expensive than ASX stocks. I hold BRKB, MKL, GLRE and Y as well as VTS. Going forward ill probably hold 50% VTS and 50% direct stocks with the lions share of that to MKL and BRKB. I just like holding these stocks and following their investments.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on October 23, 2014, 04:20:59 AM
Cheers Falcon! Yeah I felt silly a bit after asking that - just compared the two companies using google finance and saw the lines matched up exactly. Oh well at least I'm learning, and I owe much of it to this thread and having my questions answered here, so thanks again.

(I'm using an online broker at the moment, nabtrade, as I am banking with them and my accounts are already on their system. I haven't yet been able to find out if buying US stocks is possible via nabtrade, but I will no doubt find an answer soon and report back)
Title: Re: Australian Investing Thread
Post by: dungoofed on October 23, 2014, 08:05:34 AM
Regarding WXOZ and IOO comparison, are there any cases you can think of where it would actually be better to hold IOO?

The liquidity is slightly better for IOO than WXOZ, but considering none of us should be panic-selling it shouldn't matter. Anything else?

Title: Re: Australian Investing Thread
Post by: dungoofed on October 23, 2014, 08:57:31 AM
Actually http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/ gives another answer, namely that theoretically there are savings when using US-based funds, specifically "Replicating these indexes with individual stocks would be costly, and there is an argument to be made for using highly liquid US-listed ETFs to get the same exposure"
Title: Re: Australian Investing Thread
Post by: superannuationfreak on October 23, 2014, 06:31:45 PM
Actually http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/ gives another answer, namely that theoretically there are savings when using US-based funds, specifically "Replicating these indexes with individual stocks would be costly, and there is an argument to be made for using highly liquid US-listed ETFs to get the same exposure"

I think of that as a reason to use VTS and VEU instead, not IOO.  Neither IOO nor WXOZ are super-liquid.

However, if you want an all-in-one that tries to match the overall Developed-World (ex-Australia) market return WXOZ is where I lean (although personally I hold my Large Cap World ex-Australia allocation in Super).

If you have a strong view that the top 100 world companies will outperform their broader market on a risk-adjusted basis I guess that could be a reason.  Historically it has tended to be the opposite, though, and you still have plenty of those top 100 companies in WXOZ (I estimate 40-50% of WXOZ).
Title: Re: Australian Investing Thread
Post by: dungoofed on October 23, 2014, 08:50:39 PM
Awesome - thanks. Now I just need to think whether over the long term I'll be better off selling the IOO I already have in exchange for WXOZ or just start accumulating WXOZ and leave the IOO as-is. Leaning towards ripping the proverbial bandaid off.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on October 23, 2014, 09:11:53 PM
Awesome - thanks. Now I just need to think whether over the long term I'll be better off selling the IOO I already have in exchange for WXOZ or just start accumulating WXOZ and leave the IOO as-is. Leaning towards ripping the proverbial bandaid off.

If you've had IOO a while then capital gains tax could bite so check your cost basis (~buy price) vs current price.  I'm not convinced there's so much between them that it's worth a substantial premature tax hit, particularly if you are targeting early retirement where your tax rate may be lower than as while worker.  There are also costs in the round-trip.
Title: Re: Australian Investing Thread
Post by: dungoofed on October 24, 2014, 02:39:45 AM
Actually, I decided to keep IOO and instead invest in WXOZ going forward. The CGT is one issue but not the main determinant. Basically I'm trying to build something to track these things, and I think this would be a fair example of "one asset class, multiple tickers."
Title: .
Post by: This_Is_My_Username on October 27, 2014, 07:38:17 PM
any thoughts on the medibank IPO ?

I'm a strong proponent of indexing, but govt sales are usually good deals.  But I don't want to pay CGT while still a salaryman at 39% tax rate. 

I'm conflicted. 

edit: never mind: http://forum.mrmoneymustache.com/investor-alley/(australia)-medibank-private-ipo/
Title: Re: Australian Investing Thread
Post by: slothman on October 27, 2014, 08:25:48 PM
I'd also like to note that in both examples that you gave, the original company tax paid by the companies is always lost.
What we are talking about is just the withholding tax on dividends.

Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.

Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?
Title: Re: Australian Investing Thread
Post by: potm on October 27, 2014, 08:39:16 PM
Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?

No, according to superannuation freak, the AUS fund you'll get the foreign tax offset for dividends paid by the underlying companies while the US fund will only get a foreign tax offset for the witholding tax from the dividend paid by the fund. The AUS fund won't have any withholding tax on the dividend.
Title: Re: Australian Investing Thread
Post by: slothman on October 27, 2014, 08:56:05 PM
Makes Australian shares and fully franked dividends seem so much better and why I maintain a strong home bias in my investing.

I look forward to being able to retire from full time work and live off a fully franked dividend stream. For the tax free threshold I'll be able to get the full 5-6% grossed up yields from my aussie LIC portfolio without paying any tax on it.

International ETFs would be for diversification purposes and I can't see myself being able to sustain a lifestyle off its dividends. 

Keen to get others thoughts on:
a) Whether the 5-6% grossed up yields will be sustainable going forward
b) What the purpose of international ETFs are for when considering early retirement
Title: Re: Australian Investing Thread
Post by: potm on October 27, 2014, 09:45:33 PM
Buying at today's prices will easily give you grossed up yields of 5-6% so unless company earnings drop significantly, you'll always be able to collect that yield on your purchase price.
If shares prices were to go up significantly, then it may be hard to keep achieving that level of yield on your purchases. Precisely why for anyone who is still in the accumulation phase, you want share prices to go down.

International shares are for diversification purposes and if you want to invest in industries that aren't available in Australia. Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.

Dividends make it convenient to produce an income stream for expenditure in retirement but that doesn't mean companies that pay low or no dividends should not be considered for investment. This is especially the case for overseas companies where the tax treatment is much better for capital gains than dividends.
Title: Re: Australian Investing Thread
Post by: bigchrisb on October 27, 2014, 09:51:24 PM
Does this mean there's no difference whether the fund is US domiciled or AUS domiciled? Either way we get foreign income tax offset for the same amount?

No, according to superannuation freak, the AUS fund you'll get the foreign tax offset for dividends paid by the underlying companies while the US fund will only get a foreign tax offset for the witholding tax from the dividend paid by the fund. The AUS fund won't have any withholding tax on the dividend.

I still struggle to get my head around the cost/benefit of this, and if it makes sense to pay the higher MER of this fund or not!

The way I see it:
WXOZ = 57% US stocks.  I think there will be no difference holding these through an Australian domiciled fund, or a US cross listed fund.  Lets represent the US exposure with VTS, which can be bought for 0.05% MER.  So, on that portion, we are behind (0.42-0.05)*.57 = 21.1 basis points. For the rest of world part, lets use VEU at .15% MER - so another (0.42-0.15)*.43 = 11.6 basis points.  i.e. on costs, we are 0.327% higher than an equivalent mix.

Yield on the non-US stocks is higher (2.5% for the blend, and about 1.83% for the US stocks, so working back off the ratio, the yield on the non-us stocks is about 3.34%). So, of our 2.5%, approx 1.4% comes from the non US stocks. Our fee difference was 0.327%.  So, we would need the "tax drag" from the non-US stocks to be greater than 23% 

I don't know what the actual number is, but I'm expecting it to be in a similar ballpark.  I think its worth watching the fee ratio or yields on the relevant funds over time to see if this becomes more compelling one way or the other, but in the meantime I struggle to split them?
Title: Re: Australian Investing Thread
Post by: potm on October 27, 2014, 10:32:14 PM
Thanks for doing the maths.
Found this article for withholding rates from a US perspective.
I would imagine the same rate would apply to Australia for most cases.
http://seekingalpha.com/article/248039-withholding-tax-rates-by-country-for-foreign-stock-dividends
Some of the bigger countries:

UK: 0%
Germany 26.4%
Japan: 10%
Canada: 15%
France: 25%

I guess it would be possible to get an approximately figure if you look more closely at the allocation of stocks. Another thing to consider is if any reduced withholding is available to the funds like how we can get the withholding for US stocks reduced to 15% by filling out a form.

Also your point about full vs partial replication earlier needs to be taken into consideration as well as the lost franking credits on VEU.
WXOZ being World ex-Aus also gives it a plus over having to buy both VEU and VTS, simplfying the portfolio and reducing brokerage cost.
Title: Re: Australian Investing Thread
Post by: bigchrisb on October 27, 2014, 11:10:59 PM
Thanks, that's useful data!  Based on a weighted average, that comes out at about 16% for the constituents of VEU. That's already accounting for franking credits with 30% of Australian tax lost, but does not account for any tax treaty discounts done within the fund (i.e. its probably a worst case assessment).

Based on that, there isn't much in it, but owning a combination of cross listed funds is marginally cheaper.  That said, the difference is so small that if you already own one, its certainly not worth paying capital gains to change!!
Title: Re: Australian Investing Thread
Post by: potm on October 27, 2014, 11:42:31 PM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

I've recently started this with optionsxpress.  As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).

They offered me five free trades and live data if I funded my account ($500 minimum) within five days.  They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank).  However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner.  For my needs Citibank will probably suffice there.

Digging back through the thread I found this. Can you please tell us why you are buying US listed ETFs. Is it for exposure you can't gain on the ASX or is there another reason?
Also just FYI interactive brokers provides some very good foreign exchange rates, basically the wholesale market rates and you can withdraw cash into your Australian bank account free of charge.

Thanks, that's useful data!  Based on a weighted average, that comes out at about 16% for the constituents of VEU. That's already accounting for franking credits with 30% of Australian tax lost, but does not account for any tax treaty discounts done within the fund (i.e. its probably a worst case assessment).

Based on that, there isn't much in it, but owning a combination of cross listed funds is marginally cheaper.  That said, the difference is so small that if you already own one, its certainly not worth paying capital gains to change!!

So did you account for the franking credit separately? If there is a 30% withholding tax lost from Australian dividends by VEU  then that is off the dividend amount paid, not including the franking credit. If I understand things correctly Australian shares in VEU will pay a dividend to the fund and have 30% withheld so for a 70 dollar dividend, you will only receive 49 dollars (actually less with US withholding as well but u can claim that back). If you held the Australian shares in an Australian fund then you would receive the full 70 dollar dividend along with 30 dollars franking credit so 100 all up.

I think we did the calculation for the benefit of the franking credit lost but that was in some other thread.
Title: Re: Australian Investing Thread
Post by: bigchrisb on October 28, 2014, 12:08:38 AM

So did you account for the franking credit separately? If there is a 30% withholding tax lost from Australian dividends by VEU  then that is off the dividend amount paid, not including the franking credit. If I understand things correctly Australian shares in VEU will pay a dividend to the fund and have 30% withheld so for a 70 dollar dividend, you will only receive 49 dollars (actually less with US withholding as well but u can claim that back). If you held the Australian shares in an Australian fund then you would receive the full 70 dollar dividend along with 30 dollars franking credit so 100 all up.

I think we did the calculation for the benefit of the franking credit lost but that was in some other thread.

That 30% is the 30% company tax rate.  If you are an Australian investor, you get it back.  If you are not, you don't.  Unfranked dividends are withed at 15% for treaty countries, and nothing is withed for conduit foreign income.  See https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-in-Australia/Receiving-interest,-unfranked-dividends-and-royalties/

Title: Re: Australian Investing Thread
Post by: slothman on October 28, 2014, 12:34:57 AM
Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.
I intend to retire early overseas in a low cost country whilst my portfolio continues to compound, then move back to OZ. If I buy an ETF like WXOZ, wouldn't the dividends get deposited to an Australian bank account which I'll need to convert to foreign currency? Or are you suggesting to open an offshore trading account?
Title: Re: Australian Investing Thread
Post by: potm on October 28, 2014, 12:41:35 AM

That 30% is the 30% company tax rate.  If you are an Australian investor, you get it back.  If you are not, you don't.  Unfranked dividends are withed at 15% for treaty countries, and nothing is withed for conduit foreign income.  See https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-in-Australia/Receiving-interest,-unfranked-dividends-and-royalties/


My mistake, forgot that there is no withholding on fully franked dividends. So it's only the unfranked dividends from Australian companies which will incur a withholding tax loss that can't be reclaimed while the fully franked dividends we'll be losing the franking credit offsets from Australian holdings within VEU.

Diversification is especially important if you intend to live overseas in retirement spending non-Australian currency.
I intend to retire early overseas in a low cost country whilst my portfolio continues to compound, then move back to OZ. If I buy an ETF like WXOZ, wouldn't the dividends get deposited to an Australian bank account which I'll need to convert to foreign currency? Or are you suggesting to open an offshore trading account?

I mean diversification is important because if you are living off overseas currency and only hold Australian assets and AUD income then you are exposed to fluctuations in the exchange rate.
Exchanging money can be done quite easily with a citibank plus account, no guarantees such an account will always exist though but I'm sure they'll always be some way to exchange your money without too much cost. There's really no way to avoid exchanging money unless you totally match your income and expenditure currencies.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on October 29, 2014, 04:44:10 AM
Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

I've recently started this with optionsxpress.  As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).

They offered me five free trades and live data if I funded my account ($500 minimum) within five days.  They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank).  However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner.  For my needs Citibank will probably suffice there.

Digging back through the thread I found this. Can you please tell us why you are buying US listed ETFs. Is it for exposure you can't gain on the ASX or is there another reason?
Also just FYI interactive brokers provides some very good foreign exchange rates, basically the wholesale market rates and you can withdraw cash into your Australian bank account free of charge.

The main reason is that I had a meaningful lump sum to invest and there is a reasonable probability I'll live in the US in the future.  I wanted to reduce the amount of funds that I'd need to sell off if that eventuates (as the IRS will often treat Australian domiciled funds as Passive Foreign Investment Companies).  It is likely I could have used the cross-listed funds but I'd rather not take the risk.  It was also an excuse to tilt my allocation towards US Small-Value and World ex-US Small Cap so I also gained exposure I can't really gain on the ASX.

Interactive Brokers would probably have been fine too.  However I only expect to buy once or twice per year and didn't want to pay minimum monthly fees.  Once the question mark over country of residence is resolved in a few years I'll likely either move to Schwab or Vanguard (if in the US) or focus more on Superannuation and just more-or-less leave the US brokerage account to accumulate (if in Australia).

I seem to recall I also did a back-of-the-envelope calculation on withholding taxes and found at current distribution rates that VTS/VEU is probably a bit cheaper than WXOZ even with taxation implications.  But there's not a huge amount in it.
Title: Re: Australian Investing Thread
Post by: perthdude on November 05, 2014, 06:59:30 PM
On a slightly different (than ETF's) thread, has anyone looked at FGX? It's a recently listed LIC that invests in a 14-15 Australian small and mid-cap managed funds. All of the underlying fund managers have waived their management fees and performance fees, and the LIC donates 1% of its assets each year to charity (so basically has a management fee of 1% p/a). Geoff Wilson set it up and is on the Board.

For me, the main benefit was to get exposure to a number of different fund managers for 1% p/a, and don't need to invest the normal $50k minimum to invest in the funds, along with a management fee less than what you'd get if you invested in the underlying funds.

I put some funds in soon after listing, and will keep an eye on it to see if it trades under NTA.
Title: .
Post by: This_Is_My_Username on November 05, 2014, 07:08:38 PM
a fund of funds?
Title: Re: Australian Investing Thread
Post by: perthdude on November 05, 2014, 08:23:52 PM
Yep, exactly
Title: Re: Australian Investing Thread
Post by: superannuationfreak on November 06, 2014, 04:27:00 AM
On a slightly different (than ETF's) thread, has anyone looked at FGX? It's a recently listed LIC that invests in a 14-15 Australian small and mid-cap managed funds. All of the underlying fund managers have waived their management fees and performance fees, and the LIC donates 1% of its assets each year to charity (so basically has a management fee of 1% p/a). Geoff Wilson set it up and is on the Board.

For me, the main benefit was to get exposure to a number of different fund managers for 1% p/a, and don't need to invest the normal $50k minimum to invest in the funds, along with a management fee less than what you'd get if you invested in the underlying funds.

I put some funds in soon after listing, and will keep an eye on it to see if it trades under NTA.

I think it is credible but primarily because there are no cheap small or mid-cap index products that I trust.  The Small Ordinaries Index seems to have been outperformed reliably by a large proportion of funds and the Realindex Wholesale small cap fund costs 0.86-0.89%, not far from 1%.  This fund includes some apparently successful funds and managers that are otherwise closed to new purchases.

There are a few things to keep an eye on
-If buying after listing note that there are about as many outstanding options at $1.10 as there are shares.  So if the LIC performs well there will be potentially material dilution of equity in just under two years (you can buy the options at around 5c each to be in the same position as those who bought during listing).
-I'm hopeful the underlying funds and the allocation to them will stay 'on style' but the LIC management are permitted to follow any strategy they wish.  It is possible the allocation towards large caps will creep up (there is a little already) and so diversification benefits will be reduced.
-There isn't that much information available on some of the underlying funds so it is unclear how tax efficient they are.  Some of the strategies such as long-short portfolios may have a fair amount of turnover.  While the dividends will likely be franked, the LIC itself still pays corporate taxes on distributions and capital gains distributed so turnover in the underlying funds may be a drag on returns.
-As competition increases in the small and mid-cap sectors cheaper options should arrive.  We could be 'stuck' with this fund when a RAFI small cap ETF or ASX ex-20 ETF (excluding the top 20 shares) comes out, for instance, due to capital gains tax implications.  In this 'worst' case we're donating 1% p.a. to children's charities in lieu of fees so if the fund is performing adequately it would be hard for me to feel particularly bad about it.

This is one of the recent LICs that I have some interest in.  The other is QVE, an ex-20 focused LIC from value-oriented manager with current fees around 0.85%+/-.  Most of the concerns are the same except that my instinct is that QVE will do more buying-and-holding than the underlying funds held by FGX, so my best guess is that it will suffer less drag from taxes.  With QVE it is a fee, though, not a charitable donation (which actually also improves the tax efficiency, sadly, as the donation reduces the taxes paid by FGX and so reduces the franking credits they distribute).

I actually prefer both of these to, for example, the Betashares fundamental ASX ETF QOZ which charges 0.40% p.a. including expenses and does experience a reasonable amount of turnover.  The reason is that for 0.40% I can get around 30% FGX or QVE plus 70% VAS and seems likely to be a more substantial 'tilt' to small and mid-caps or value while isolating fund turnover to the smaller component.  There goes my indexing cred!
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 11, 2014, 06:14:44 AM
When people talk about turnover being high in a fund, and this being a bad thing, what is the direct upshot - capital gains tax having to be paid on the funds distribution amounts? So instead of franking credits, you get a sort of reverse situation? I'm struggling to see how else the capital gains would have to be paid if we just buy and hold index funds (i.e. don't sell so no capital gains). Maybe I'm totally misunderstanding it.

In response to superannuationfreak's much earlier post - the Market Vectors website states that the turnover for MVW, the equal weighted ASX index fund, is around 25% and also claims this is a normal amount. As I described above, I'm not sure what the direct implications of this are.

Lastly, what do people think of QUAL - another Market Vectors ETF product based on a deliberately created "value index" of large companies on the ASX. The hypothetical performance of such an index over the last 30 odd years is very impressive. I'm a bit skeptical of course.

Also, it claims to be an ETF, but I can't seem to get a price performance chart of it on nabtrade or google finance. Maybe it's because it's just listed
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 11, 2014, 06:21:45 AM
I'm mostly interested in these funds such as MVW to try to address the concentration risk in the ASX200 of banks and miners. Iron ore price changes recently have showed what can happen to mining companies, even large ones like BHP and RIO. And falling AUD has had a similar effects on banks (though that's mostly reversed now). Then there's the Murray Enquiry and it's effects on the larger banks vs the regionals - with all this, the top 10 companies in the ASX, which make up more than 50% of the index, don't seem so bright and unbreakable. Considering the incredible run the banks have had over the last few years, it's hardly surprising.
Title: Re: Australian Investing Thread
Post by: perthdude on November 11, 2014, 09:12:11 PM
I agree AM; I for one like the sound of MVW, the thing that has turned me against VHY / VAS etc is the 40%+ exposure to 5 or 6 companies. I don't hold either, but have some IVV and IEU for international diversification.

And in terms of high turnover in a LIC, the negative is obviously that the funds assets are chewed up by trading costs and tax. But yes, if you pay tax you get franking credits, so guess that is an upshot. For an international fund with high turnover you won't get the benefit of the franking credits though. And with a normal fund (i.e. unlisted) then you get amounts of capital gains that you need to declare in your tax return at the end of the year.
Title: Re: Australian Investing Thread
Post by: The Falcon on November 16, 2014, 03:04:02 PM
Guys the issue with churn is constant tax events, high turnover means CGT 12 month holding discount is not applied. This can absolutely hammer after tax performance.
Title: Re: Australian Investing Thread
Post by: potm on November 20, 2014, 03:13:58 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp

Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.
Title: Re: Australian Investing Thread
Post by: bigchrisb on November 20, 2014, 04:18:00 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp

Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.

Yep, a step in the right direction, for sure.  Bit annoying that it is developed markets only, and there isn't a low cost way to get emerging markets exposure at the moment (about 0.5%), or wear the cross listing issues with the emerging component in VEU.
Title: Re: Australian Investing Thread
Post by: potm on November 20, 2014, 04:38:24 PM
Yeh, just had a look and it's 98% NA, Europe and Japan.
The net dividend reinvestment is interesting, I wonder how that is treated from a Tax perspective.
Title: Re: Australian Investing Thread
Post by: dungoofed on November 20, 2014, 06:41:37 PM
Hi potm - thanks for the heads up. Just to be clear, this is a potential alternative to WXOZ or IOO? And the reason is because it is domiciled in Australia AND has significantly lower fees. Sorry, still learning here.
Title: Re: Australian Investing Thread
Post by: potm on November 20, 2014, 07:40:11 PM
Yes, it is similar to WXOZ but by Vanguard so it has lower fees. Also provides full replication to the index unlike WXOZ.
Title: Re: Australian Investing Thread
Post by: dungoofed on November 20, 2014, 08:16:37 PM
Awesome, thanks.
Title: Re: Australian Investing Thread
Post by: slothman on November 20, 2014, 09:44:18 PM
thanks potm! finally an all-in-one low-cost international index ETF.

what are some markers to determine a good time to get in? i feel that the US market is overvalued at present, and the AUD dollar has already dropped so much
Title: Re: Australian Investing Thread
Post by: superannuationfreak on November 20, 2014, 09:50:17 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp

Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.

This is a great product, with cost the same as Vanguard's underlying (wholesale) index fund.  For most individuals who just want some additional diversification at low cost, this lowers the cost and hassle of international investing to much the same cost as investing in Australian Shares.
Title: Re: Australian Investing Thread
Post by: DrowsyBee on November 21, 2014, 01:35:38 AM
Since I'm only just getting into investing, can I just hold everyone up and ask the most amateur question ever (since we're on the subject of Vanguard funds)?

If I want to start investing, and contribute money each month, do I need to just either invest straight with Vanguard, or do I need to do it all through a broker?

Sorry, I just don't know where to start and don't want to make my first move a wrong one.

Edit - I probably should have been more clear on this. but what are some of the good brokers to go through, fee wise?
Title: Re: Australian Investing Thread
Post by: dungoofed on November 21, 2014, 03:33:35 AM
Hi DrowsyBee -

If it's Vanguard you want, you have the choice of investing direct with Vanguard's retail funds, or by purchasing ETFs on the ASX via a broker.

Discount online brokers are best - the cheaper the better. I think there have been a few suggestions in this thread already.

Personally I use HSBC who use the broker "Third Party Platform" which isn't the cheapest but HSBC's personal banking has served me well and their share trading integrates to an extent with my bank account. Otherwise I don't have any particular loyalty and would move if someone built a better mousetrap.
Title: Re: Australian Investing Thread
Post by: DrowsyBee on November 21, 2014, 05:11:07 AM
Thanks dungoofed, I really appreciate it.

I'll be looking in to all of this very soon as I've just built up my emergency fund recently and am keen to start investing in the new year.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 22, 2014, 01:37:31 AM
Thanks potm for the Vanguard update. Super interested in the new Vanguard fund - it means diversification without having to buy multiple ETFs and incur excess brokerage, which makes it much more efficient to implement a dollar cost averaging approach.

I thought some Australians might find this website useful for ideas for constructing their own portfolio using ETFs

https://www.stockspot.com.au/how-it-works/portfolios/
https://www.stockspot.com.au/how-it-works/our-chosen-etfs/
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 22, 2014, 01:39:45 AM
I particularly like this list of various ASX ETFs, though I think it's not complete. If anyone has found a more comprehensive list please let me know

https://www.stockspot.com.au/insights/etfs-compared/
Title: Re: Australian Investing Thread
Post by: deborah on November 22, 2014, 02:40:38 AM
I particularly liked the pinwheel - https://www.stockspot.com.au/australian-etfs/#18
Title: Re: Australian Investing Thread
Post by: slothman on November 22, 2014, 03:21:05 AM
how is the liquidity and slippage of VGS or is it too early to tell given it's a brand new listing?
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on November 22, 2014, 04:28:28 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp

Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.

This is a great product, with cost the same as Vanguard's underlying (wholesale) index fund.  For most individuals who just want some additional diversification at low cost, this lowers the cost and hassle of international investing to much the same cost as investing in Australian Shares.

With VGS, would we expect to receive approx ~2.4% annual cash dividends (or DRP), similar to WXOZ http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html (http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html) ?

?
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on November 22, 2014, 04:33:05 PM
I particularly like this list of various ASX ETFs, though I think it's not complete. If anyone has found a more comprehensive list please let me know

this is a convenient and easy site, but the list ist not 100% complete.
http://en.wikipedia.org/wiki/List_of_Australian_exchange-traded_funds

this has the full list, but is slightly more difficult to navigate
http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm
Title: Re: Australian Investing Thread
Post by: deborah on November 22, 2014, 05:07:03 PM
I particularly like this list of various ASX ETFs, though I think it's not complete. If anyone has found a more comprehensive list please let me know

this is a convenient and easy site, but the list ist not 100% complete.
http://en.wikipedia.org/wiki/List_of_Australian_exchange-traded_funds

this has the full list, but is slightly more difficult to navigate
http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm
Not 100% complete!!! It only has 55 of them. The full list appears to be 74 - and the pinwheel is supposed to have 75. So maybe the pinwheel is complete?
Title: Re: Australian Investing Thread
Post by: superannuationfreak on November 22, 2014, 06:42:18 PM
Good news people!
Vanguard have some new ETFs. Solves the tax problem we were talking about earlier.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVISIFE.jsp

Also a hedged version available. World ex Aus, not a CDI, everything we asked for. The MER is a little high compared to the US ones but this is Australia and .18 isn't too bad. Now all we need is the dow at 10000 and the AUD at 1.05 again haha.

This is a great product, with cost the same as Vanguard's underlying (wholesale) index fund.  For most individuals who just want some additional diversification at low cost, this lowers the cost and hassle of international investing to much the same cost as investing in Australian Shares.

With VGS, would we expect to receive approx ~2.4% annual cash dividends (or DRP), similar to WXOZ http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html (http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html) ?

This is the factsheet for the underlying fund: https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/visif.pdf?20141119|125200
Looks like we can expect distributions around the 2.5-3.5% range under current conditions.

Re: liquidity, I saw spreads of 14c by the market-maker per roughly $50 share.  So we're looking at around 0.25-0.3%, which is about the same as the buy-sell spread on an index fund and about the same as WXOZ.  Since spreads on most of the international ETFs remain wide (see the last few pages here: http://www.asx.com.au/documents/products/ASX_Funds_Monthly_Update_-_October_14.pdf ) it may be some time before we see much improvement.  Still, not too bad, similar order of magnitude to moderately-sized brokerage costs ($11-20 for $3000-5000 worth of shares).
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 23, 2014, 01:48:42 AM
What do people think is the better long term option - the hedged or unhedged version of Vanguards new World Ex-Australia ETF?

Clearly in the short to medium term the unhedged one looks more appealing, with the falling dollar predicted to continue. But for the long term, if one was to contribute regularly over the next decade and more, is it better to go hedged?

At least in the short term, my unhedged holding of VTS has balanced out VAS nicely. As the AUD fell, the "carry trade" appeared less attractive for the international investors, and the banks sold off. This dropped the value of VAS and VHY, but the falling dollar vs the USD also lifted the value of VTS.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on November 23, 2014, 02:17:07 AM
What do people think is the better long term option - the hedged or unhedged version of Vanguards new World Ex-Australia ETF?

For the long term I prefer unhedged.
- Hedging is imperfect and does create some drag in returns
- In expectation over the long term a costless perfect hedge should be neither positive nor negative
- Historically for those with a long horizon and less than about 50% international equities results have been stronger without hedging for Australians, providing better diversification (See page 5: https://careers.jpmorganchase.com/jpmpdf/1158630198939.pdf ).
- The currency hedging throws off income so isn't tax efficient

In the past I've split 50:50 hedged to unhedged (which I think will also be fine) but now more than 90% of my international equities are unhedged.

Later note: there's a Vanguard paper discussing the issues of hedging here: https://www.vanguardcanada.ca/documents/to-hedge-or-not-hedge-tlrv.pdf
I haven't read it in detail yet, the overall conclusion suggests there isn't a one-size-fits-all approach for equities (but hedge global bonds, as most funds do).
Title: Re: Australian Investing Thread
Post by: dungoofed on November 23, 2014, 04:31:24 AM
I have trouble coming up with any scenarios where getting a hedged version of a product would be worth the premium on the currency conversion/drag compared to non-hedged. Assuming, of course, one cannot predict the future.

Watch Japanese stocks - every time an announcement is made that drives down the value of the yen, stocks immediately respond by shooting through the roof. The value of the underlying business doesn't change.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 23, 2014, 05:09:11 AM
Thanks for the responses, that's pretty much the conclusion I'd come to
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 24, 2014, 06:58:56 PM
Yeh, just had a look and it's 98% NA, Europe and Japan.
The net dividend reinvestment is interesting, I wonder how that is treated from a Tax perspective.

The fund has 1.9% allocation to "Asia Pacific ex-Australia, Japan." I'm guessing that would have to be South Korea, considering it's a developed markets fund?

I noticed, when comparing our options for emerging market ETFs, that Ishares Emerging Market ETF (IEM) contains a 15% allocation to South Korea, whereas Vanguard's (VGE) doesn't have any South Korea. So I for one am happy it makes it into the VGS allocation, if that's what it is.

VGE came out this year, unlike IEM which has been around since 2003. Perhaps by the time VGE came out South Korea wasn't considered "emerging" anymore
Title: Re: Australian Investing Thread
Post by: superannuationfreak on November 24, 2014, 07:28:53 PM
Yeh, just had a look and it's 98% NA, Europe and Japan.
The net dividend reinvestment is interesting, I wonder how that is treated from a Tax perspective.

The fund has 1.9% allocation to "Asia Pacific ex-Australia, Japan." I'm guessing that would have to be South Korea, considering it's a developed markets fund?

I noticed, when comparing our options for emerging market ETFs, that Ishares Emerging Market ETF (IEM) contains a 15% allocation to South Korea, whereas Vanguard's (VGE) doesn't have any South Korea. So I for one am happy it makes it into the VGS allocation, if that's what it is.

VGE came out this year, unlike IEM which has been around since 2003. Perhaps by the time VGE came out South Korea wasn't considered "emerging" anymore

I checked the holdings of the underlying fund for VGS:
https://static.vgcontent.info/crp/intl/auw/docs/funds/holdings/visif_holdings.xls?20141124|095500
No Samsung but it does have Singapore Telecommunications so I think it is just Singapore and Hong Kong, not South Korea.

A tiny little (%-wise) bothersome gap.  Vanguard (US) moved to indices allocating South Korea as developed a while back.  There is wide variation though (e.g. the various iShares ETFs allocate South Korea to Emerging, while different Schwab ETFs go each way).
Title: Re: Australian Investing Thread
Post by: potm on November 24, 2014, 07:52:23 PM
It should just be based on the http://en.wikipedia.org/wiki/MSCI_World index minus the Aus companies.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 29, 2014, 07:20:17 AM
That pinwheel is great. Tho I'm not sure if it's 100% accurate. It has the dividend yield of MVW at 0.56%, but I've seen a video where the ETF developer stated the dividend yield is 3.7% or something, which seems much more likely
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on November 29, 2014, 07:23:33 AM
Also, what's with the Stockspot model portfolios all having 10% in Gold? I didn't think gold was considered such a mainstream investment, more of a specialty which appeals to some people.

I also find it strange the Stockspot idea - they simply buy ETFs for you, and charge you for it. Unless they automatically perform things like tax loss harvesting and rebalancing (ala Betterment in the US) then I can't see the point of paying them fees to do something as easy as buy you a list of ETFs.
Title: Re: Australian Investing Thread
Post by: dungoofed on November 29, 2014, 11:03:08 PM
Stockspot is trying to position itself as Better-front for the Australian market, and have come to market with just  their MVP to at this stage. Unfortunately fancy pinwheels and graphs and a slick interface only take you so far if the underlying product is lacking.

Someone mentioned elsewhere that they rebalance at 15% drift from the targeted holding (so they would rebalance a 10% targeted holding when it was outside 8.5%/11.5% of your portfolio), which seems quite frequent to me, especially seeing as you still pay brokerage. For comparison, Permanent Portfolio suggests rebalance at 25% (so that would be a 7.5%/12.5% band for a 10% target allocation) or once a year, whichever comes sooner.

Regarding 10% gold, I am also a little baffled by it. On the one hand their portfolios have a massive home bias, which I'd say reflects the average Australian investor quite well. But then there's odd 10% gold allocation. All I can think is that they're trying to include something that is not correlated with the other holdings, to give more rebalance opportunities perhaps?
Title: Re: Australian Investing Thread
Post by: dungoofed on November 30, 2014, 05:05:07 PM
....although looking at the open this morning you'd have to wonder how uncorrelated gold is. Gold down almost 3% since the open, VAS down almost 1%.
Title: Re: Australian Investing Thread
Post by: Primm on November 30, 2014, 05:44:40 PM
Speaking as one of the Completely Unknowledgable, could this not be a quirk of the Australian stockmarket though, where a largish proportion of the companies held by an index ETF like VAS are miners? I could just be talking out of my arse...
Title: Re: Australian Investing Thread
Post by: dungoofed on November 30, 2014, 06:00:24 PM
You're right, VAS and gold are coupled more than, say, VTS and gold.

Gold is down a lot because of the result of the Swiss referendum over the weekend. VAS is lower because of lower commodity prices across the board (starting with oil).
Title: Re: Australian Investing Thread
Post by: bigchrisb on November 30, 2014, 08:40:32 PM
I've been pleasantly surprised at how un-correlated my international ETFs have been with the Aus market over the last couple of months.  While this is largely an exchange rate story, it has certainly softened the blow from the ASX.

Over the last 12 months:
VAS - price approx 0% income approx 5%, total = 5%
VEU - price approx 6% income approx 3% total = 9%
VTS - price approx 23% income approx 2% total = 25%

Over 2 years, the story is even stronger, with VTS up close to 80% plus some dividends.

Means my current purchases have been focused on Australian shares - basically a re balance without capital gains tax
Title: Re: Australian Investing Thread
Post by: sirdeets on November 30, 2014, 08:57:31 PM
Black friday sales across the ASX...
A bunch of companies I'm interested in in argiculture, health care and resources down 5-10%.
Anyone stocking up?
Title: Re: Australian Investing Thread
Post by: potm on November 30, 2014, 09:08:27 PM
I think Cyber Monday sales might be more apt :P

While I'm not surprised with the overall market movements, I am surprised at how well my main holding is doing.
I've taken the chance to sell down and buy other companies to diversify my holdings a bit. It still makes up about 45% of my portfolio.
TGA for those interested.

In the process I've increased my dividend income as the other companies I'm buying are higher yielding now. Quite happy about that!
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on December 01, 2014, 05:37:22 AM
It's days like this that make me wish I'd invested in MVW over VAS! :p

That being said, I've bought a little bit today
Title: Re: Australian Investing Thread
Post by: The Falcon on December 01, 2014, 08:24:31 PM
I've got WOW and BHP on the watch list at the moment.
Title: Re: Australian Investing Thread
Post by: bigchrisb on December 03, 2014, 07:49:09 PM
Yep, I'm casually shopping at the moment too.  Had intended to pick up some BHP but missed it when it was below $30.  Snapped up some STO today while it was in the low 8's.  I figure that the energy stocks are going to have a tough couple of years, but as long as they survive, the underlying energy consumption story will keep on.
Title: Re: Australian Investing Thread
Post by: The Falcon on December 03, 2014, 11:28:48 PM
For sure Chris. I am with you on that. I've just printed out a bunch of research on BHP/STO/WPL/ORG/OSH to take with me for some light reading on an overseas trip next week. Oil and Gas will be depressed for some time, so no need to jump immediately, but want to know what I want!
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on December 04, 2014, 04:40:19 AM
"Perhaps the point of this is that in the equity market we have, with its high concentration of large banks and large miners, investing in “the index” may not make as much sense as it does elsewhere. If your local index happens to be well diversified and stocked with a wide range of world-class enterprises, then by all means invest in it. In Australia, perhaps a more thoughtful approach is warranted."

From Roger Montgomery's website - http://rogermontgomery.com/a-good-year-for-active-fund-managers-2/

In this article the writer is obviously hinting at using a managed fund, i.e. Montgomery Fund, but that website has had some quite educational material on it in the past for me and I found the article compelling.

The risk of the huge skewing of our index towards the top ten stocks has been shown recently with BHP going downhill along with WOW and a few others. However the higher dividends of Australian shares and attached franking credits are an obvious positive. If it wasn't for those, I'd consider having a "reverse-home bias" and investing a much greater amount in the Vanguard World Ex-Australia ETFs, probably choosing the hedged version if I had very little Australian share exposure.

MVW seems to address this problem nicely, and my interest in it is still very much there, however the lack of liquidity troubles me a little.

What do people think about investing in the ASX as an index, considering it's pretty much gone nowhere this year?
Title: .
Post by: This_Is_My_Username on December 04, 2014, 04:50:29 AM
>What do people think about investing in the ASX as an index, considering it's pretty much gone nowhere this year?

meh..   it goes up, it goes down. 

4% dividend yield is fairly easy to find, and that will fund FIRE.

so., I don't really care. 
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on December 04, 2014, 05:09:06 AM
Fair enough!

However for me the reality is that higher returns will bring about FIRE much quicker. For instance, if one had invested more in VTS over VAS for instance over the last few years:

https://www.google.com/finance?q=asx%3Avts&ei=IEeAVJGsNcTskAWo4YHYDQ
Title: Re: Australian Investing Thread
Post by: potm on December 04, 2014, 05:56:12 AM
Be careful at looking a specific timeframe and thinking that's what will keep happening in the future. If anything I think it decreases the chances.
Look here for a longer timeframe of performance for various asset classes:
https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-retail.jsp#grossperformancetab
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on December 04, 2014, 06:47:30 AM
Thanks potm I've seen that before but it's a very good point. I don't think I made my last post very well - I'm not concerned at all that the asx hasn't gone up. My concern regarding the asx is the concentration risk of the biggest companies making up such a high proportion. This has been illustrated recently with the falls I mentioned in bhp, Sto wow etc leading to the market being flat. And this is not the case with VTS, which is a much more diversified index. That's my main issue, the diversification ,  not the performance.

Personally I love that the market is flat because as you say things are cyclical, and part of me thinks it has further up to go! I personally keep looking at the small cap vanguard fund VSO for that very reason - it has gone down over the last three four years, and I wonder now and then if it's time for a rebound! Haha though I'm only partly serious on that - the small caps have probably gone nowhere due to a small cap resource players that either fail or are looking to get squeezed out of the market by the big guys with the falling commodity prices
Title: Re: Australian Investing Thread
Post by: cakie on December 04, 2014, 06:02:22 PM
I have a basic question about tax. If I have a higher income than my partner, should we put all our savings and investment accounts in his name? Then the tax on the interest/dividends will be less, yeah?

Does it matter if the money comes straight from my pay into his accounts?

Typos fixed! That looked very painful to read before...
Title: Re: Australian Investing Thread
Post by: HappierAtHome on December 04, 2014, 06:13:42 PM
I havea basic questipn about tax. If I have a higher income than my partner, shoukd we put all our savings and investment accoumts in his name? Then the tax on the interest/dividenda wi be leas, yeah?

Diea it matter if the money comes straight from my paycheck into hus accoumts?

SOREY FOR THE TYPOS my phone is bwing weird...

I asked this question at an MMM Meetup (where we had some mustachian accountants present) and their answer was that the ATO would view this as tax fraud (or some other kind of illegal tax avoidance... can't remember whether the word fraud was used or not).

My understanding is that the legal way to do this is via a family trust, but I don't know much about those. 
Title: Re: Australian Investing Thread
Post by: deborah on December 04, 2014, 06:23:51 PM
I havea basic questipn about tax. If I have a higher income than my partner, shoukd we put all our savings and investment accoumts in his name? Then the tax on the interest/dividenda wi be leas, yeah?

Diea it matter if the money comes straight from my paycheck into hus accoumts?

SOREY FOR THE TYPOS my phone is bwing weird...

I asked this question at an MMM Meetup (where we had some mustachian accountants present) and their answer was that the ATO would view this as tax fraud (or some other kind of illegal tax avoidance... can't remember whether the word fraud was used or not).

My understanding is that the legal way to do this is via a family trust, but I don't know much about those. 
Anything that is in joint names can be claimed by either person - either as a deduction or income. Secondly, some investments (for instance fully franked dividends) can give you tax benefits, so you need to think this through.
Title: Re: Australian Investing Thread
Post by: potm on December 04, 2014, 07:19:29 PM
I havea basic questipn about tax. If I have a higher income than my partner, shoukd we put all our savings and investment accoumts in his name? Then the tax on the interest/dividenda wi be leas, yeah?

Diea it matter if the money comes straight from my paycheck into hus accoumts?

SOREY FOR THE TYPOS my phone is bwing weird...

I asked this question at an MMM Meetup (where we had some mustachian accountants present) and their answer was that the ATO would view this as tax fraud (or some other kind of illegal tax avoidance... can't remember whether the word fraud was used or not).

My understanding is that the legal way to do this is via a family trust, but I don't know much about those.

It's definitely legal, some very basic tax planning. Money you earn at your job is attributable to you and taxed under your name. What bank account it goes into doesn't matter. What you do with the money after that is completely up to you. If you buy investments or keep money under your partner's name then income earned on it will be attributable to him and taxed under his name.
Title: Re: Australian Investing Thread
Post by: cakie on December 04, 2014, 07:22:13 PM

I asked this question at an MMM Meetup (where we had some mustachian accountants present) and their answer was that the ATO would view this as tax fraud (or some other kind of illegal tax avoidance... can't remember whether the word fraud was used or not).

My understanding is that the legal way to do this is via a family trust, but I don't know much about those. 

This was my first assumption, but I couldn't find anything on the ATO website (which is usually helpful for these things). Then I thought about it - in Victoria, lots of people put their assets in their spouse's names (namely real estate), so that if they are sued, they can't lose these assets...if you can do it with real estate, why not other stuff?

Though it sounds like I should be depositing the whole salary in our joint expenses account and then dividing it up from there.

Secondly, some investments (for instance fully franked dividends) can give you tax benefits, so you need to think this through.

Good point, thanks :) To be honest, I still don't understand this well. I know that it means the company has paid tax on the dividends already, but I will go read up some more about the tax side of it now.
Title: Re: Australian Investing Thread
Post by: cakie on December 04, 2014, 07:53:35 PM
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/

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

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

Though it's weird that they used male pronouns for that one, while the other lower-income investors (1, 2 and 3) were neutral... :P

My top tax bracket will be 32.5%, but my SO will probably be 19%, unless he magically gets a well paying job...which means for every $100 of interest/dividends, he would keep $79, while I would keep $65.50 and have to pay more towards my HECS.

Well, that answers both my questions then! Thanks everyone :)
Title: Re: Australian Investing Thread
Post by: The Falcon on December 05, 2014, 01:59:02 PM
All of the above is on the money, quite hilarious the extremely poor advice you where given at a MMM meet up. So this works both ways too, should you ever wish to acquire an asset that is negatively geared, and will be for a long time then it makes sense to hold that asset in the higher earners name. Of course a trust structure is optimal, but for most people the ongoing costs involved probably aren't worthwhile.
Title: Re: Australian Investing Thread
Post by: marty998 on December 05, 2014, 02:53:58 PM
It's not only applicable for investments.

Any charity donations should be made in your name cakie, if you are the higher income earner.

If you have a tax accountant, s/he should bill you only for both returns, not you and your partner.
Title: Re: Australian Investing Thread
Post by: HappierAtHome on December 05, 2014, 04:44:56 PM
All of the above is on the money, quite hilarious the extremely poor advice you where given at a MMM meet up.

Ouch! Those people post here too y'know :-) and were answering my question to the very best of their knowledge.
Title: Re: Australian Investing Thread
Post by: The Falcon on December 05, 2014, 04:56:58 PM
Which is why one should not offer advice on things they know nothing about. This is simple tax planning 101.
Title: Re: Australian Investing Thread
Post by: dungoofed on December 05, 2014, 06:31:51 PM
Getting a bit off topic here but does it make any different whose name an investment is under when a divorce is initiated?

edit: just asking, not actually divorcing.
Title: Re: Australian Investing Thread
Post by: slothman on December 05, 2014, 06:51:48 PM
Hi guys,

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

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

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

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

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

Any tips would be greatly appreciated.

edit: If it helps I plan to purchase large low-cost LICs, and Vanguard ETFs such as VAS and VGS.
Title: Re: Australian Investing Thread
Post by: The Falcon on December 05, 2014, 10:18:39 PM
Getting a bit off topic here but does it make any different whose name an investment is under when a divorce is initiated?

edit: just asking, not actually divorcing.

Simple answer, all things being equal, from an asset protection stand point, doesn't matter. Assets will be pooled and then apportioned.
Title: Re: Australian Investing Thread
Post by: The Falcon on December 05, 2014, 10:24:41 PM
Ah Slothman, that's a bugger. Instead of drawing on your offset, you could have taken a line of credit against your PPOR equity and made that debt deductable. Simple answer is make it as clean as possible. Create LOC or sub account, transfer to cmt linked to brokerage account, have divis paid back to cmt, transfer to LOc as required. Keep all records...please note I don't do my own tax!
Title: Re: Australian Investing Thread
Post by: slothman on December 05, 2014, 11:23:45 PM
Ah Slothman, that's a bugger. Instead of drawing on your offset, you could have taken a line of credit against your PPOR equity and made that debt deductable. Simple answer is make it as clean as possible. Create LOC or sub account, transfer to cmt linked to brokerage account, have divis paid back to cmt, transfer to LOc as required. Keep all records...please note I don't do my own tax!

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

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

Couple of questions:

1) Can I subscribe to have my divs re-invested? Pros/Cons when using borrowed funds?
2) If I choose to receive divs instead of div re-investment, can I transfer from cmt to my PPOR offset account to reduce my non-deductible debt? I currently do this with my rental income(s).
3) When submitting tax return is it as simple as tallying up all the investment income and then subtracting the interest expense?
4) What happens if I purchase additional units using borrowed funds into an existing investment purchased using own funds? Does it matter?
Title: Re: Australian Investing Thread
Post by: Avabs on December 06, 2014, 12:31:02 AM
I've been hooked on this thread since discovering it last week and have finally caught up on everything that has been posted here (thanks to everyone for sharing your thoughts). I'd love a critique of my current investments.

Background:

Concerns:


Thanks for any help.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on December 06, 2014, 04:22:26 AM
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/

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

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

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

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

https://www.ato.gov.au/Business/Imputation/In-detail/Dividends---imputation/Company-tax--franking-credit-trading-rules/Company-tax-franking-credits--overview/
Title: .
Post by: This_Is_My_Username on December 06, 2014, 04:38:22 AM
Avabs, good of you to join in, the more the merrier.  I'm in a similar situation to you. 

some ideas:

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

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

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

4.  consider borrowing to invest for higher risk and higher expected returns.  borrowing at 6% seems about the break-even point between too expensive and worthwhile taking the loan. 
Title: Re: Australian Investing Thread
Post by: marty998 on December 06, 2014, 05:20:51 AM
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/

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

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

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

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

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

Hard to find an explanation (I tried) but my uninformed view is that this may relate to people who have hedged their capital exposure, for example by buying a put option. The rule appears to be aimed at preventing people picking up risk free franking credits.
Title: Re: Australian Investing Thread
Post by: potm on December 06, 2014, 05:35:42 AM
http://www.investors.asn.au/education/shares/understanding-shares/franking-credits/

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

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

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

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

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

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

Yep, that's it. Otherwise it would be easy to buy a share before a dividend and short using a CFD to perfectly hedge. Even after transaction costs and any spread the franking credit gives you profit.
Title: Re: Australian Investing Thread
Post by: marty998 on December 06, 2014, 05:41:51 AM
yes the franking credit is the profit.

Because when you short you have to pay the value of the dividend when it goes ex-div. It offsets the dividend you receive on your long exposure, and therefore in theory puts you in a nil profit position, but you have the franking credit as the cream you lick off the top.
Title: Re: Australian Investing Thread
Post by: deborah on December 06, 2014, 07:59:38 AM
There are several government organisations to help with finances. We all know about MoneySmart - which is getting better all the time. However, there are two other organisations - NICRI and the Financial Information Service (FIS).

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

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

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

Anyway, these services are set up to provide financial information relevant to a particular person, and are currently FREE. So they might be worth talking to. Both sets of people obviously spend all day every day discussing people's finances, so they do have experience.
Title: Re: Australian Investing Thread
Post by: deborah on December 06, 2014, 05:22:58 PM
I found this  http://www.asx.com.au/documents/resources/russell_asx_long_term_investing_report_2011.pdf (an ASX report on  the long term returns on various investments in Australia) today. It is based upon returns in the 25 and 10 years prior to 2011.

As well as looking at investments it profiles investors - giving the returns if the investments are held in super, top marginal tax rate and bottom tax rate. Even more interestingly, it also looks at the returns with/without 50% gearing. I was surprised to see how little difference gearing made over 25 years.
Title: Re: Australian Investing Thread
Post by: potm on December 06, 2014, 05:32:31 PM
Interesting to note that the two asset classes that have performed the worse in the last 10 years to the date of that report have performed excellently since then.
Title: Re: Australian Investing Thread
Post by: deborah on December 06, 2014, 08:40:24 PM
Has anyone else looked at the Murray report?
Title: Re: .
Post by: Avabs on December 06, 2014, 09:25:28 PM
Avabs, good of you to join in, the more the merrier.  I'm in a similar situation to you. 

some ideas:

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

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

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

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

Thanks for the responses.

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

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

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

4. I think I'm way to rise averse to consider borrowing to invest, but thanks for the suggestion.
Title: Re: Australian Investing Thread
Post by: Primm on December 07, 2014, 03:06:58 AM
Has anyone else looked at the Murray report?

Not yet, just the sound bites I've heard on the news. Have you?
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on December 07, 2014, 04:03:13 AM
Even more interestingly, it also looks at the returns with/without 50% gearing. I was surprised to see how little difference gearing made over 25 years.

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

so the benefit is quite small ?
Title: Re: Australian Investing Thread
Post by: marty998 on December 07, 2014, 04:29:11 AM
Has anyone else looked at the Murray report?

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

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

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

Until then, super will remain a gravy train and we'll continue to pay higher interest rates than necessary.
Title: Re: Australian Investing Thread
Post by: idjces on December 07, 2014, 01:18:56 PM
Ah Slothman, that's a bugger. Instead of drawing on your offset, you could have taken a line of credit against your PPOR equity and made that debt deductable. Simple answer is make it as clean as possible. Create LOC or sub account, transfer to cmt linked to brokerage account, have divis paid back to cmt, transfer to LOc as required. Keep all records...please note I don't do my own tax!

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

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

Couple of questions:

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

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

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

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

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

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

I enquired into LOC's, every bank i spoke to said splits would achieve the same purpose
Title: Re: Australian Investing Thread
Post by: deborah on December 07, 2014, 01:42:16 PM
Has anyone else looked at the Murray report?

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

Loaded down the 350 pages yesterday, and read the fact sheets, which were interesting - the report can be found here http://fsi.gov.au/publications/
Title: Re: Australian Investing Thread
Post by: terrier56 on December 07, 2014, 03:04:58 PM
http://www.reddit.com/r/personalfinance/comments/2ohq90/people_are_in_general_terrible_with_money/

I found this and decided to post it here instead of opening something in the anti-mustashian. It's referencing australians so i think this is a good home for it.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on December 09, 2014, 05:52:28 AM
Thanks for that report you posted deborah, interesting read.

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

At the moment with the rising USD unhedged seems a lot more appealing
Title: Re: Australian Investing Thread
Post by: bigchrisb on December 09, 2014, 02:38:52 PM
I found this  http://www.asx.com.au/documents/resources/russell_asx_long_term_investing_report_2011.pdf (an ASX report on  the long term returns on various investments in Australia) today. It is based upon returns in the 25 and 10 years prior to 2011.

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

The 2014 version is available at http://www.russell.com/au/assets/pdfs/insights/R_RPT_ASX_Report_V1F_1405_WEB-1.pdf
This is one of the documents I try to have a look at each year.
Title: Re: Australian Investing Thread
Post by: deborah on December 09, 2014, 02:59:03 PM
Thanks Chris - I thought there should be a later one - you are wonderful (or at least a mine of information). This brings up an interesting point - what things do people read regularly to keep abreast of investing, and why?

And why did it change from 25 years to 20 years?
Title: Re: Australian Investing Thread
Post by: dungoofed on December 09, 2014, 03:24:09 PM
Thanks for that report you posted deborah, interesting read.

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

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

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

Note that I don't believe the reverse is true (ie that one should be investing in hedged products now). Of course it depends on one's strategy but for periodic investments I believe unhedged will win out over the long term.
Title: Portfolio structure in super vs outside of super
Post by: Wadiman on December 11, 2014, 01:37:24 AM
Folks -

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

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

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

In my approach I use the super for mainly direct shares across a wide range of sectors including a few longer term plays and want to keep the outside of super investments strictly focused on a limited number of etfs.
Title: Re: Australian Investing Thread
Post by: lolzmonster on December 11, 2014, 05:06:24 AM
Hi Wadi,

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

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

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

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

Hope this helps? I dont know if i quite answered your question
Title: Re: Australian Investing Thread
Post by: Wadiman on December 11, 2014, 01:51:57 PM
LolzM -

Thanks for your thoughts.

I should have made the post a little clearer.

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

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

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

Title: Re: Australian Investing Thread
Post by: deborah on December 11, 2014, 03:00:40 PM
To take advantage of the tax advantages of super you would tend to put all the high dividend investments into super and the low income investments outside super. When you reach preservation age, you can always put everything into super (if it's less than $450k - using the bring forward rule).
Title: Re: Australian Investing Thread
Post by: Wadiman on December 11, 2014, 04:03:34 PM
Makes sense Deborah - thanks!
Title: Re: Australian Investing Thread
Post by: bigchrisb on December 11, 2014, 04:10:02 PM
I take an overall asset allocation approach.  I have four investment vehicles, each with different tax and ownership issues:
- Self managed super fund
- Family trust
- Company beneficiary of the trust
- Myself.

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

That works for me as a reasonably tax efficient holding structure.  But its probably only became worth the running costs with a total of $1m+ in investable assets.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on December 11, 2014, 04:14:21 PM
LolzM -

Thanks for your thoughts.

I should have made the post a little clearer.

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

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

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

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

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

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

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

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

yes, it can become very complicated. 
Title: Re: Australian Investing Thread
Post by: deborah on December 13, 2014, 02:06:44 AM
LolzM -

Thanks for your thoughts.

I should have made the post a little clearer.

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

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

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

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

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

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

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

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

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

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

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

So most people pay no tax on their super when they withdraw it. I expect this to change some time.
Title: Re: Australian Investing Thread
Post by: marty998 on December 13, 2014, 04:25:35 AM
To take advantage of the tax advantages of super you would tend to put all the high dividend investments into super and the low income investments outside super. When you reach preservation age, you can always put everything into super (if it's less than $450k - using the bring forward rule).

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

Title: Re: Australian Investing Thread
Post by: deborah on December 15, 2014, 03:18:52 PM
As the result of a question in another thread, I am wondering what distribution split between Australian Shares/US Shares/International Shares is recommended? I can't seem to find this with google, so I thought I would ask here. Also, if you don't have this split - why?
Title: Re: Australian Investing Thread
Post by: potm on December 15, 2014, 03:49:17 PM
Vanguard has a few articles discussing it.
Here is one:
https://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=3&ved=0CC0QFjAC&url=https%3A%2F%2Fstatic.vgcontent.info%2Fcrp%2Fintl%2Fauw%2Fdocs%2Fliterature%2Fresearch%2Frole-home-bias-global-asset-allocation-decisions.pdf%3F20130819%257C151400&ei=82SPVPi_Nc7s8AX_v4LoDQ&usg=AFQjCNFVPIusCHvfykXYn9XPwIHyNo2m_w&bvm=bv.81828268,d.dGc
Title: Re: Australian Investing Thread
Post by: deborah on December 15, 2014, 04:55:13 PM
Thanks very much for that article Potm - it helps you to work out what your actual split should be which is very useful.

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

What sort of share split do you go for, and why?
Title: Re: Australian Investing Thread
Post by: bigchrisb on December 15, 2014, 06:11:34 PM
Thanks very much for that article Potm - it helps you to work out what your actual split should be which is very useful.

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

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

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

For example, some Australian listed companies have a massive proportion of their earnings overseas - of stocks I own, some quick examples are WFD (US/Europe plus others), CSL (US, Germany), CPU (Mostly US), UOS (all Malaysia), AHD (German cinemas) and so on. I have about 30% of investments in foreign ETFs, but once you add in the overseas earnings of my ASX stocks, its more like 70% of earnings are out of Australia. Even the big AUS stocks have non-trivial overseas earnings - for example 35% of ANZ's profit came from outside Australia.
Title: Re: Australian Investing Thread
Post by: deborah on December 15, 2014, 06:30:50 PM
Thanks Chris, I agree that a lot of Australian stocks are like this. In some ways it's the best of both worlds - getting franked dividends and international exposure.
Title: .
Post by: This_Is_My_Username on December 15, 2014, 09:28:34 PM
chris, are you saying that it is less important than it seems to buy WXOZ, VGS, VEU, VTS; because you get international exposure via most companies in the ASX200?
Title: Re: Australian Investing Thread
Post by: dungoofed on December 15, 2014, 09:30:14 PM
Personally I'd target around 20% Australian equity.

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

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

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

So why have anything invested in Australian equity at all? Well, I would have hated to have been an Australian fully exposed to the overseas market in 2007, looking to retire in 2008.
Title: Re: Australian Investing Thread
Post by: dungoofed on December 15, 2014, 09:34:57 PM
PS This_Is_My_Username - looks like we had a crosspost here, where I touched on your question but didn't fully answer it. Anyway, I didn't ignore it, just don't have the time now to update mine to make it look like it's not completely ignoring yours :)
Title: Re: Australian Investing Thread
Post by: dungoofed on December 15, 2014, 09:38:41 PM
...and another quick, unrelated question. Does anyone know the best way for an Australian to get quick exposure to the Russian economy? It's not quite "blood in the streets" but I'd consider chucking $5000 in there as a speculative investment. Is IBK my only real option here?
Title: Re: Australian Investing Thread
Post by: The Falcon on December 17, 2014, 12:06:50 AM
^ if you have a brokerage account buy one of the NYSE listed Russia ETFs.........at the current earnings multiple its pretty much blood in the streets.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on December 17, 2014, 01:39:52 AM
You're a braver man than I dungoofed. From what I've been reading it's definitely getting to "blood on the streets" territory! The currency plunging ten percent in a night, etc
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on December 17, 2014, 01:46:13 AM
Also, still haven't managed to find NYSE and other foreign listed ETFs via online brokerage accounts like nabtrade. Do I have to open up the IRESS trader system perhaps?  I had to do that for creating conditional orders such as stop losses before

If anyone has success please let me know

Or perhaps it's only something you get via a full service broker.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on December 17, 2014, 04:22:44 AM
if you ring your broker (nabtrade), they should be able to do it, but the brokerage will cost a lot more.

here is the commsec international brokerage brochure:

https://www.commsec.com.au/content/dam/EN/PDFs/Product/International/Brochure/internationalsecuritiestrading
Title: Re: Australian Investing Thread
Post by: potm on December 17, 2014, 06:12:05 AM
Interactive brokers, option express.
Don't bother with commsec, fees are stupid.
Title: Re: Australian Investing Thread
Post by: dungoofed 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.

Title: Re: Australian Investing Thread
Post by: bigchrisb 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. 
Title: Re: Australian Investing Thread
Post by: MsRichLife 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.
Title: .
Post by: This_Is_My_Username 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
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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
Title: Re: Australian Investing Thread
Post by: deborah on December 18, 2014, 12:07:27 AM
Traditionally stocks go up and bonds go down and vice versa
Title: Re: Australian Investing Thread
Post by: potm 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.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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
Title: Re: Australian Investing Thread
Post by: dungoofed 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%
Title: Re: Australian Investing Thread
Post by: MsRichLife 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!
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on December 18, 2014, 05:51:28 PM
Yep, appears it was a glitch as it's down 1.61% today
Title: Sharesight
Post by: Wadiman 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.

Title: Re: Australian Investing Thread
Post by: marty998 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.
Title: Re: Australian Investing Thread
Post by: deborah 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?
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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.
Title: Re: Australian Investing Thread
Post by: dungoofed 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
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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
Title: Re: Australian Investing Thread
Post by: dungoofed 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

Title: Re: Australian Investing Thread
Post by: marty998 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.
Title: Re: Australian Investing Thread
Post by: terrier56 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.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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
Title: Re: Australian Investing Thread
Post by: dungoofed 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).
Title: Re: Australian Investing Thread
Post by: marty998 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.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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.
Title: Re: Australian Investing Thread
Post by: Rustycage 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?
Title: Re: Australian Investing Thread
Post by: steveo 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.
Title: Re: Australian Investing Thread
Post by: marty998 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?
Title: Re: Australian Investing Thread
Post by: Wadiman 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.
Title: Re: Australian Investing Thread
Post by: dungoofed 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.
Title: Re: Australian Investing Thread
Post by: dungoofed 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.
Title: Re: Australian Investing Thread
Post by: BattlaP 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.
Title: Re: Australian Investing Thread
Post by: marty998 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.
Title: Re: Australian Investing Thread
Post by: marty998 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.



Title: Re: Australian Investing Thread
Post by: dungoofed 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.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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
Title: Re: Australian Investing Thread
Post by: marty998 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
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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!
Title: Re: Australian Investing Thread
Post by: marty998 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.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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.
Title: Re: Australian Investing Thread
Post by: dungoofed 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)
Title: Re: Australian Investing Thread
Post by: deborah 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?
Title: Re: Australian Investing Thread
Post by: LonerMatt 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.
Title: Re: Australian Investing Thread
Post by: dungoofed 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.

Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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
Title: Re: Australian Investing Thread
Post by: dungoofed 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)

Title: Re: Australian Investing Thread
Post by: MsRichLife 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'.
Title: Re: Australian Investing Thread
Post by: dungoofed on January 07, 2015, 05:08:55 AM
It's paid off reasonably well so far.

It paid off 2.5% today

Title: Re: Australian Investing Thread
Post by: Ascotillion on January 07, 2015, 04:16:49 PM
Wow, lots of information in here. I'm posting so I can follow along; like a lot of you I'm a beginner who is looking into investing a little bit in the future. Thanks everyone!
Title: Re: Australian Investing Thread
Post by: terrier56 on January 07, 2015, 04:22:30 PM
Europe right now is starring into a deflationary environment.

After seeing the US recovery in recent year I believe this will give them the green light to start QE which should solve both deflation and weak euro economies (chance for Germany to over inflate). For this reason I will be loading up on VEU over the next couple of months.
Title: Re: Australian Investing Thread
Post by: deborah on January 07, 2015, 04:41:12 PM

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'.
I was absolutely sure you were crazy for buying gold, but I was obviously completely WRONG. Sorry for doubting you MsRichLife!
Title: Re: Australian Investing Thread
Post by: MsRichLife on January 07, 2015, 05:07:40 PM

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'.
I was absolutely sure you were crazy for buying gold, but I was obviously completely WRONG. Sorry for doubting you MsRichLife!

It's only been a couple of months, so time will tell. I'm sure it will have it's ups and downs, but I always plan to have GOLD in my portfolio so the dips will be good buying opportunities.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on January 07, 2015, 05:51:17 PM
I took profit on gold stocks from a few months ago, but still have some of the GOLD etf myself. At the time I too was considering having it as part of my portfolio (very small amount), but haven't made up my mind. It's been a good investment at times over the last decade, but gold over the long term, I believe pretty much just tracks inflation.

I guess the attraction is that it's supposedly inversely correlated with equities. If things take a downward spiral over the next few months in equity world, owning gold will probably be a good trade short / medium term. Of course this sort of thing makes no difference to long term investors / people who use a dollar cost averaging approach
Title: Re: Australian Investing Thread
Post by: dungoofed on January 07, 2015, 08:51:29 PM
As someone who has seen peers destroyed financially when each of the two bubbles burst over the last 20 years I can say that those who held gold fared the best when they lost their job and needed to liquidate something.
Title: Re: Australian Investing Thread
Post by: terrier56 on January 08, 2015, 04:59:04 PM
Latest vanguard chart for up to the 2013/2014 period

https://static.vgcontent.info/crp/intl/auw/docs/resources/index_chart.pdf?20150102|091500
Title: Re: Australian Investing Thread
Post by: Jim from QLD on January 14, 2015, 06:15:59 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)

My takeaway from this is hedge according to where you want to spend your retirement. I know general wisdom is to try and get into
international markets due to the ASX being a small chunk of the investable market and very finance/commodity focused, but I seem to prefer australian companies, the franking is hard to pass up!

It's also my belief that the franking regime encourages aussie equities to act more income-investment like rather than capital growth investment (which is not to say that capital growth doesn't occur, just that tax regimes like the US where dividends are taxed more than capital gains are conducive to low yield high volatility markets). I prefer the income-investment nature as it is steady and predictable.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on January 14, 2015, 06:29:53 AM
It's also my belief that the franking regime encourages aussie equities to act more income-investment like rather than capital growth investment (which is not to say that capital growth doesn't occur, just that tax regimes like the US where dividends are taxed more than capital gains are conducive to low yield high volatility markets). I prefer the income-investment nature as it is steady and predictable.

I agree that Australian investors certainly treat investing in equities as if they're income investments. And that's been the theme for years now. However they're not actually income investments in my opinion, and I'm not so sure they actually will continue to behave like income investments forever.

For one thing equities are far more risky and volatile than traditional income investments such as bonds. For example, take Woodside Petroleum - people are treating this as an income stock. In fact, it is the highest holding in Vanguard's High Yield ETF VHY last time I checked. However with the oil price volatility, it has fallen around 18% over the last few months. Losing 18% of your capital doesn't sound like an income play to me. 

However with rates still very low, the hunt for yield continues unabated. To illustrate this, VHY has massively outperformed VAS over the last few years. I don't believe it will last forever though.
Title: Re: Australian Investing Thread
Post by: sirdeets on January 14, 2015, 06:38:32 PM
Any Australian focused tips on personal finance for youngish people?

I just read an article focused on US investors regarding contributing to tax effective "super" like accounts, but being able to access them early. 

As I understand it - with our superannuation system - unless you are under severe hardship and can prove it, you can't touch it until you are over 55.  Not very helpful for me and others who want to retire from full time work in my 30s.

Things I have done in the past:

- First Home Savers Account - no longer available but was a good way to get a 20% guaranteed return

- First home buyer concessions (state dependent) - can sometime swing the "rent v buy" equation, depending on the area.  Australia housing I see as overvalued overall but helped in my particular market (Gold Coast, QLD - worst performing real estate over the last 5 years:) )

- Tax returns - deserves a thread of its own but lots of deductions are possible, especially if you are working from home at all, study in an area directly related to your employment (I did this - claimed on TAX even though the money went onto my HELP debt - legal and defers payments while getting tax refunds now)

- Make the most of the credit card balance transfer deals and pay off in full

- Use a no annual fee citi bank signature card for all expenses and pay off in full.. get money in offset for a bit longer and the rewards can be used to buy coles gift cards..

- Online gambling bonus arbitrage

- Take advantage of any employee share plans that offer discounts to market value

- Salary sacrificing FBT exempt items are your workplace

- Something I haven't done - but Tax lost harvesting.  I.e. STW tanks in a year, you sell it, and buy VAS straight away.  You then claim the loss on STW sale to offset any other capital gains in portfolio immediately.  Yes - your cost basis for VAS is now a lot lower - but paying tax in the future is better than now.

- Getting private health insurance to save money (avoid surcharge on tax return)

- Something I haven't done - but in your last year of HECS/HELP - timing the payment so you get a discount

Any other things that young people can do to take advantage of the system?

Title: Re: Australian Investing Thread
Post by: dungoofed on January 14, 2015, 09:18:12 PM
My takeaway from this is hedge according to where you want to spend your retirement. I know general wisdom is to try and get into international markets due to the ASX being a small chunk of the investable market and very finance/commodity focused, but I seem to prefer australian companies, the franking is hard to pass up!

Hi Jim - A few weeks back Bloomberg writer William Pesek wrote that Australia might also be staring down the barrel of a "lost decade" a la Japan (http://www.smh.com.au/business/the-economy/australia-adrift-lost-decade-beckons-as-good-fortune-wanes-20141209-1239ix.html)

Now, any talk about Pesek involving lost decades are to be taken with a pinch of salt as he's the author of "Japanization: What the World Can Learn from Japan's Lost Decades"(http://www.amazon.com/Japanization-World-Japans-Decades-Bloomberg/dp/1118780698). He obviously has bias as a "lost decade guru," and a correct prediction would galvanise his fate as people line up to ask him "O Pesek! Pray tell which country shall next be affected by a lost decade!"

But it deserves some thought: if we could go back in time 20 years to the start of Japan's lost decade (sic) what would be the best strategy for Japanese investors? It turns out that Japanese investors have even more home bias than Australians, with most of them long JGBs and maybe a few Japanese stocks.

Now, here is where it gets interesting. At first glance you'd think that these Japanese investors should have piled into international stocks (and by extension, Australians in the same position now). But the reality is that when you look at things in terms of standard of living you find out that the Japanese haven't done too badly over the last 20 years, despite what you have been hearing on the news.

The takeaway for Australians? I think it's a "soft" recommendation to diversify a part of your portfolio into international stocks if you haven't done so already. But if you don't, and you plan to retire in Australia, then you will still be fine with 100% in Australian stocks/property.
Title: Re: Australian Investing Thread
Post by: journey2financialfreedom on January 15, 2015, 06:30:26 PM
Anyone else jumping on Woodside (WPL) ?
Title: Re: Australian Investing Thread
Post by: JLR on January 24, 2015, 03:27:37 AM
What a great thread. I've learned so much. And have a list of things I now know I need to learn more about....Thank you! :)

Looking at buying some Vanguard ETFs in the near future. Have some money earmarked for it, and have my Etrade account ready to go, but am just waiting to make sure my husband still has a job next month before I pull the trigger and buy.
Title: Re: Australian Investing Thread
Post by: marty998 on January 24, 2015, 04:32:02 AM

Hi Jim - A few weeks back Bloomberg writer William Pesek wrote that Australia might also be staring down the barrel of a "lost decade" a la Japan (http://www.smh.com.au/business/the-economy/australia-adrift-lost-decade-beckons-as-good-fortune-wanes-20141209-1239ix.html)


Been there, done that. Already had the lost decade. The ASX is exactly where it was 10 years ago.
Title: Re: Australian Investing Thread
Post by: dungoofed on January 25, 2015, 06:10:24 AM
Touche. The difference of course being that if a Japanese investor put 10k per year into the Nikkei each year for ten years from 1992 he'd have 100k in his investment account, while of you had have done the same into VAS since 2005 you would have gained a lot back from the bargains in 2008.
Title: Re: Australian Investing Thread
Post by: dungoofed on January 27, 2015, 07:44:55 AM
There are plenty of "what's the floor for oil??" threads at the moment, but I was wondering whether anyone in here had their eye out for bargains among Australian miners, whether anyone wanted to have a punt at where or when it all will bottom out?

I'm not particularly keen for extra exposure to Australian miners in excess of VAS holdings but I was looking at the Australian companies in the SPDR S&P Pan Asia Dividend Aristocrats ETF[1] and MND and BHP stand out as massive potential bargains (I'll be looking at SUL and WOW in further detail too).  Also Fortescue.

I know Bigchrisb mentioned he was scooping up some miners but I couldn't remember whether these were large or small ones. The small cap miners have taken bigger hits than the above three (despite very fancy web sites).

Actually that's another thing I have noticed - a lot of Australian blue chips need to get a web designer in to bring their sites into the 21st century.


[1] For your information the Australian holdings according to the prospectus were:

Ansell (ANN)
APA Group (APA)
BHP Bilton (BHP)
Coca Cola Amatil (CCL)
Cochlear (COH)
Monadelphous Group (MND)
Ramsay Health Care (RHC)
Super Retail Group (SUL)
Woolworths (WOW)
Title: Re: Australian Investing Thread
Post by: bigchrisb on January 27, 2015, 04:02:04 PM
I've been buying bits and pieces in both the oil and iron sectors.  As usual, I didn't manage to pick the absolute bottom, but still feel there is value in the longer term.

Things I've bought in the last 6 months:
- $20k of BHP.
- $10k of Santos.
- $10k of AGL
- $10k of UOS
- $10k of VEU
- $10k EAX
- $5k of CIN
- $45k of VAS when the market was in the 5100-5200 range.  Not trying to pick winners, but happy to index in at lower values.
These are in my "bottom drawer" allocation.  i.e. businesses / ETFs I see as things I can happily hold forever, and are currently at what I think is a good price.

The next are very much specualtive buys, that I'm happy to trade.  Compared to the $ above, its really play money.
$5k ARI
$5k ANG
$5k GRB

I've also got open positions with NWH, DCG and FMG, all of which were speculations that I've lost significant $$ on (20%-70%), gambling too early.  Fortunately, overexposure to REITS over the same period has offset these.  The REITS I mostly picked up while they were smashed up during the GFC, so a "value" attempt several years ago.  I'm hopeful that the energy and materials stocks will seem the same in hindsight, but its painful in the meantime!

Title: Re: Australian Investing Thread
Post by: misterhorsey on January 27, 2015, 09:25:08 PM
Hi all, great thread! New to the MMM forums and have learnt quite a bit thus far just from reading from the first post!

I had a question regarding Vanguard ETFs, but as it I didn't want to hijack the thread I set up another post.  But I also wanted to acknowledge all the goodness contained in this thread that prompted me to start rethinking my investment strategy.

Title: Re: Australian Investing Thread
Post by: dungoofed on January 27, 2015, 11:49:55 PM
bigchrisb - thanks for that. Nothing in there that really gives me heartburn in your value picks. And even your speculative trades that are down, they'll have to make some tough decisions but nothing they haven't weathered before. Just make sure when you're down at the pub with your mates you remember the unwritten rule and only tell them about the REITS; losing trades have no place in conversations when beer is involved :P

The other sector-related stock I've been keeping an eye on is Ausdrill.

The thing is I think I'm doing it the wrong way around, in that I should probably choose a few stocks from a shortlist based on research, and then just wait for them to come down in price, instead of starting with a shortlist of potential bargains and then starting to do the research. By the time I've finished reading annual statements and whatnot the window of opportunity may well have passed.

Then again, some like ARI are trading a P/B of 0.08. In a few years people looking back will no doubt point out that it was a no-brainer to buy at the time.

Title: Re: Australian Investing Thread
Post by: potm on January 27, 2015, 11:56:19 PM
I would calculate that P/B ratio again and be careful about basing an investment decision on such a measure.
Impairments can quickly show you how meaningless it is.

Just because something has fallen a lot, does not make it cheap and good value.
Title: Re: Australian Investing Thread
Post by: marty998 on January 28, 2015, 02:47:08 AM
Didn't ARI used to be BSL? And old BSL shareholders were previously diluted to infinity?

ARI could well be dead in a years time.
Title: Re: Australian Investing Thread
Post by: marty998 on January 28, 2015, 02:51:48 AM
Sorry, mixed up with onesteel right?

Ignore me lol.

Meanwhile at the pointy end of the market, CBA hit another record high today. Not a bad idea to just pour all your money into it. Pretty soon it will be half the market anyway.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on January 28, 2015, 06:04:25 AM
Anyone been parking any spare cash in the USD ETF?

I have been a little, and it's paid off pretty well so far. Made 10% in a couple of months.

Some people might say at these levels "oh you've missed the best part of the trade already" and that would be true. However, unless I'm drastically misunderstanding things, a fall from 80 to 70 would be worth more than the fall from parity to 90. And a fall from 70 to 60, even more so.

Of course, you could just buy VTS and be buying US shares at the same time. I know this is "timing the market", but I can't help but feel a correction is coming in US equities in the next few months....
Title: Re: Australian Investing Thread
Post by: FFA on January 28, 2015, 09:10:11 AM
It's also my belief that the franking regime encourages aussie equities to act more income-investment like rather than capital growth investment (which is not to say that capital growth doesn't occur, just that tax regimes like the US where dividends are taxed more than capital gains are conducive to low yield high volatility markets). I prefer the income-investment nature as it is steady and predictable.

I agree that Australian investors certainly treat investing in equities as if they're income investments. And that's been the theme for years now. However they're not actually income investments in my opinion, and I'm not so sure they actually will continue to behave like income investments forever.

For one thing equities are far more risky and volatile than traditional income investments such as bonds. For example, take Woodside Petroleum - people are treating this as an income stock. In fact, it is the highest holding in Vanguard's High Yield ETF VHY last time I checked. However with the oil price volatility, it has fallen around 18% over the last few months. Losing 18% of your capital doesn't sound like an income play to me. 

However with rates still very low, the hunt for yield continues unabated. To illustrate this, VHY has massively outperformed VAS over the last few years. I don't believe it will last forever though.
Indeed, I was studying these same ETFs 6 months ago and keen for yield. Was close to investing in VHY until I noticed WPL as the top holding which made me lose confidence in the methodology completely so I just stuck with the basic VAS.
Title: Re: Australian Investing Thread
Post by: FFA on January 28, 2015, 09:19:45 AM
Of course, you could just buy VTS and be buying US shares at the same time. I know this is "timing the market", but I can't help but feel a correction is coming in US equities in the next few months....
Yeah i have the same feeling, maybe not a bad time to rebalance VTS. I expect more volatility in coming months as expectations for US interest rate rises approach.

The global economy still seems out of sorts to me with govt bond yields for 5+ yrs for Germany, Switzerland, Japan etc below 0.5% or even negative in some cases!
Title: Re: Australian Investing Thread
Post by: deborah on January 28, 2015, 09:58:57 PM
George Cochrane is at it again about retiring early - it's his whole column this week!

http://www.canberratimes.com.au/money/super-and-funds/early-retirement-looks-attractive-but-is-it-a-goer-20150129-1310nj.html
Title: Re: Australian Investing Thread
Post by: FFA on January 29, 2015, 09:04:24 AM
George Cochrane is at it again about retiring early - it's his whole column this week!

http://www.canberratimes.com.au/money/super-and-funds/early-retirement-looks-attractive-but-is-it-a-goer-20150129-1310nj.html
He seems to make the traditional assumption about needing a percentage of preretirement income. It is not necessarily the case maybe they are living on $34k or less now. Perhaps he should read this MMM blog!

" to stretch $1 million over that time period, you could only spend around $34,000 a year.... I suspect this will require a significant drop in living standards given your current combined incomes of $180,000 a year before tax."
Title: Re: Australian Investing Thread
Post by: happy on January 29, 2015, 03:40:24 PM
Yes their current and future living expenses are not mentioned, so how he comes to such a firm judgement is a bit sloppy.
What struck me is that with a mustachian way of life, both those cases are quite possible.
Title: Re: Australian Investing Thread
Post by: happy on January 29, 2015, 03:44:54 PM
Basic questions here:

1. What do people use to track the market?  Do you look at "market watch" on asx.com.au? Or something else? Do you look at asx200 or all ords or something else?
2. What is the simplest way to do this in your opinion?
Title: Re: Australian Investing Thread
Post by: potm on January 29, 2015, 04:24:14 PM
What are you looking to track and for what reason?
If you want to keep track of the index then just follow XJO for the ASX 200.
I have watchlists set up for companies I want to keep track of that I may be interested in buying if the opportunities present themselves.

If you are asking about the actual sites or apps to use then I use Commsec. I have an account with them, no longer have any holdings with them. They have high fees but their website and app are very good.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on January 29, 2015, 04:26:16 PM
www.google.com/finance

It's free and has lots of useful stuff on there, can compare companies with charts, indexes, etc. The data is real time for the US market, but 20mins delayed for the ASX I think.
Title: Re: Australian Investing Thread
Post by: dungoofed on January 29, 2015, 09:25:09 PM
I've been thinking about portfolio tracking a bit lately too. Currently putting together a tool that tells me just a few basic things:

1) Dividends vs expenditure (aka FIRE-ometer)
2) "You have $5000 sitting idle in your bank account. Invest it."
3) "Investing some money? You're underweight in xxxxxx."
4) "Need some cash? The best investment to sell would be yyyy."
5) "The market is crashing"
6) "Consider selling AAA to buy some more BBB" - ie you are so far from your target allocation that you might benefit from inflicting some capital gains tax and selling an overperformer.
7) "You need to sell these bonds, and buy these ones"
8) "zzzz on your watchlist is cheap right now" (HT: potm)

I currently implement 7 by putting a reminder in Google Calendar for, say, 15 years later, each time I buy a bond that needs to be long term.

Title: Re: Australian Investing Thread
Post by: happy on January 29, 2015, 10:07:54 PM
What are you looking to track and for what reason?

 At some point in the future I will have  a lump sum to invest and I'm trying to prepare myself now or I may move to self funded super. I started watching my super balance daily to try to get an idea of how it fluctuated, and to gauge my emotional responses when it went up or down. Just familiarising myself basically. I soon realised however that since it is in a big fund, its widely diversified and doesn't really reflect movements in say the ASX200. So I set out to find out how to monitor "the market", and went to the ASX page but got a bit overwhelmed by the detail. I realise after reading the responses that even saying "the market" is too loose - i.e. which part of the market etc.  So I guess I'm asking if there's a summarised format somewhere that I can check daily and say "ah the market is up" FWIW.

As I type this I wonder, well what is it worth? What is the point of doing that?  I wonder if its time for me to get some skin in the game in a small way. At my age I don't need too much outside super, and don't want to earn more income that will be highly taxed, but maybe I should take some small positions in some index funds just so I can see how it all works. 
Title: Re: Australian Investing Thread
Post by: potm on January 29, 2015, 10:49:30 PM
I've been thinking about portfolio tracking a bit lately too. Currently putting together a tool that tells me just a few basic things:

8) "zzzz on your watchlist is cheap right now" (HT: potm)


Commsec has an alerts feature in the app that can give you a push notification when a share reaches a certain price.


As I type this I wonder, well what is it worth? What is the point of doing that?   

I think that is the question you have to answer, what are you aiming to achieve. What will your strategy be to invest the lump sum. I think reading some investment books would be of more benefit than to watch the market each day.
Title: Re: Australian Investing Thread
Post by: FFA on January 29, 2015, 11:38:45 PM
I've been thinking about portfolio tracking a bit lately too. Currently putting together a tool that tells me just a few basic things:

1) Dividends vs expenditure (aka FIRE-ometer)
2) "You have $5000 sitting idle in your bank account. Invest it."
3) "Investing some money? You're underweight in xxxxxx."
4) "Need some cash? The best investment to sell would be yyyy."
5) "The market is crashing"
6) "Consider selling AAA to buy some more BBB" - ie you are so far from your target allocation that you might benefit from inflicting some capital gains tax and selling an overperformer.
7) "You need to sell these bonds, and buy these ones"
8) "zzzz on your watchlist is cheap right now" (HT: potm)

I currently implement 7 by putting a reminder in Google Calendar for, say, 15 years later, each time I buy a bond that needs to be long term.
I just use an excel spreadsheet.

Inputs: balances from online trade account / superannuation / bank balances
Outputs: net worth, income yield, asset allocation actual vs target and delta to rebalance.

In separate tabs in the same s/sheet I keep a record of all share trades, super contributions, dividends, etc

Agree with potm  "what are you aiming to achieve. What will your strategy be to invest the lump sum. I think reading some investment books would be of more benefit than to watch the market each day."

I'm a recent convert to the boglehead / passive approach.... If you give up on market timing and stock picking, then portfolio tracking becomes much more simplified towards measuring what you have versus the plan, and there's not so much need for alerts/watchlists/ratios/charts etc
Title: Re: Australian Investing Thread
Post by: happy on January 30, 2015, 04:08:20 PM
Quote
I think that is the question you have to answer, what are you aiming to achieve. What will your strategy be to invest the lump sum. I think reading some investment books would be of more benefit than to watch the market each day.

Yes I agree I definitely have more  theory to learn. My problem is that I'm good at reading and theorising and planning, but not very good at implementation. I stand and watch for a long time before I do anything ( hence I'm "watching the market").  My head is swimming with theory about bogleheads, canadian couch potato, permanent portfolios, dividend investing etc etc. If I'm not careful I'll read forever and never do anything.  So as well as the theory I'm trying to learn what to actually do, since this will be a point of weakness for me.  Lack of familiarity with the practical process is likely to paralyse me, so as I say I'm trying diminish this possibility. Some things you just have to do to learn about ( e.g. you can read about a new piece of software, but you actually have to use it to develop skill).
Title: Re: Australian Investing Thread
Post by: potm on January 30, 2015, 04:57:17 PM
Seems like you're following the theory of passive investing, which would advocate not watching the market. There really is no skill involved in it. Just get off your ass and create a brokerage account. In fact you don't need to even get off your ass. CMC is good for low cost brokerage if you don't already have an account.
Title: Re: Australian Investing Thread
Post by: happy on January 30, 2015, 05:58:55 PM
Seems like you're following the theory of passive investing, which would advocate not watching the market. There really is no skill involved in it. Just get off your ass and create a brokerage account. In fact you don't need to even get off your ass. CMC is good for low cost brokerage if you don't already have an account.

Yes agreed. Not intending to pick individual stocks or trade.

Thanks  to those who offered  practical tips/sites etc
Title: Re: Australian Investing Thread
Post by: FFA on January 30, 2015, 09:03:44 PM
Seems like you're following the theory of passive investing, which would advocate not watching the market. There really is no skill involved in it. Just get off your ass and create a brokerage account. In fact you don't need to even get off your ass. CMC is good for low cost brokerage if you don't already have an account.

Yes agreed. Not intending to pick individual stocks or trade.

Thanks  to those who offered  practical tips/sites etc
Yup just do it like Nike.

A few further thoughts. 1. I'd say limited skill rather than no skill. An example is averaging a lump sum over perhaps 3-6 months to your target AA. Depending how big your portfolio is, but it's a much more gentle entry and avoids losing confidence / giving up in case entry timing unlucky. 2. Try hard to focus on process not outcomes. Be happy if you follow your plan even if portfolio down. Be annoyed with yourself when you break rules, eg decide to skip a scheduled rebalance, even if it resulted in a profit. Easier said than done, but this general mindset is very important I believe.

Good luck
Title: Re: Australian Investing Thread
Post by: potm on January 30, 2015, 09:59:32 PM
In terms of the practical aspects of buying ETFs, avoid buying in the first half hour or so of market opening. Let them settle down and the market makers to put the orders in. If doing a market order, check the spread to make sure you aren't paying too much.
Title: Re: Australian Investing Thread
Post by: dungoofed on January 31, 2015, 07:12:02 PM
I've been thinking about portfolio tracking a bit lately too. Currently putting together a tool that tells me just a few basic things:

8) "zzzz on your watchlist is cheap right now" (HT: potm)


Commsec has an alerts feature in the app that can give you a push notification when a share reaches a certain price.



Just wondering whether you or anyone else had considered selling puts to accumulate a position in a stock.
Title: Re: Australian Investing Thread
Post by: potm on January 31, 2015, 07:27:57 PM
Just wondering whether you or anyone else had considered selling puts to accumulate a position in a stock.

The intention of writing puts would be to earn some extra income and under a bad scenario you end up accumulating a position in a stock.
The option market in Australia is a lot less liquid so I have not looked into it. I doubt I would be tempted even if it was liquid anyhow. I buy good businesses when they are selling at an attractive price. The basic overall strategy is pretty simple.

I don't mean any offense but I'd like to point you to one of your posts which makes a very good point:
Coming off the back of devastating losses like I had there is massive temptation to do anything you can that will give you an edge. Needless to say this can be a very dangerous way of thinking if it results in you taking on greater risk, and in the worst case it can be a gateway to a slippery slope of riskier and riskier investments, similar to how a gambler steps up their bets on a losing streak.

I can't help but think your judgement is being skewed by your desire to make back your losses, just a reminder to keep a clear head.
Title: Re: Australian Investing Thread
Post by: dungoofed on January 31, 2015, 10:54:27 PM
: ) yes none taken - you are correct and thanks for the reminder (and the reminder that I need to update my journal!)

The risk is that the price drops well through the price of the put you sell, and you have to pay more for the stock than it is currently trading at. But if I had decided that say BHP is worth $30, and I'd be overjoyed to buy it at $25, then selling a put at that price (or at that price plus the premium, because the premium is effectively a discount on the price you pay) strikes me as no worse off than putting a limit order at the same price. In both cases you're going to be left paying for and holding a stock that is now worth a lot less. This shouldn't matter under normal circumstances, but it's the black swan event of the company folding or being bought out at a lower stock price, locking in the loss, that would make it painful.

I can however see the advantage of having BHP on a watch list at $25 as opposed to having a limit order or selling a put at $25. You can take the time to see whether whatever is pushing the price down is worth considering or whether your initial analysis still holds true. On the other hand, if the price just touched $25 before going back up then you may have missed an opportunity. 

Title: Re: Australian Investing Thread
Post by: potm on January 31, 2015, 11:15:30 PM
If you're interested in buying BHP at $30 dollars, then you should just buy it.
If you write the put, if the price goes up then you miss out on buying BHP for a little option income. If it goes down then you buy BHP for a lot higher than you could have. Neither are ideal outcomes.

The point of writing options is always in the hope that the contract expires out of the money and you get yourself a little income. The strategy you are suggesting hedges the exposure by your willingness to buy the share if the price does drop. Still, the aim of the strategy is for that not to happen though.
Another way to do it is to write calls for shares you already own.

It's more popular in the US as the option market is a lot more liquid and its a way to earn some extra income with the low yields on the companies there.
There is no free lunch though.
Title: Re: Australian Investing Thread
Post by: Meat Popsicle on February 01, 2015, 12:37:06 AM
Hello!

I've been following this thread with interest and now have an Australian orientated question about a EFT for gold.

The motivation is for diversification and I'm trying to figure out the best way for exposure to to gold, with relative ease of liquidation (for portfolio rebalancing) ...also personally I have zero interest in physically holding it!
The solution that jumps out at me is ASX traded EFT, however if there's a more effective solution someone can suggest I'm all ears :)

Anyway, the question I have is PMGOLD a sound option?
(Brief comparison with a popular gold EFT is GOLD)

GOLD MER is 40 basis points whilst PMGOLD is only 15 basis points.

PMGOLD is 1/100th troy ounce of the shiny stuff, whilst GOLD seems just under that.

PMG is issued by Gold Corporation (trading as The Perth Mint), a statutory authority of the Government of Western Australia.
GOLD is backed by physical allocated gold held by HSBC Bank USA (the custodian).

PMGOLD is listed on the ASX site structured product, whilst GOLD is a share (unsure what the difference is there)

The viewpoint I've arrived at is that there's not a great difference in the implementation, only the MER – am I missing something here, why does anyone use the other ETF that are all at least quarter of a percent MER higher?


http://www.perthmint.com.au/investment_gold_asx.aspx
http://www.etfsecurities.com/institutional/au/en-gb/products/product/etfs-physical-gold-gold-asx
Title: Re: Australian Investing Thread
Post by: dungoofed on February 01, 2015, 09:16:42 AM
The point of writing options is always in the hope that the contract expires out of the money and you get yourself a little income. The strategy you are suggesting hedges the exposure by your willingness to buy the share if the price does drop. Still, the aim of the strategy is for that not to happen though.

Keep in mind I am specifically referring to the case where you believe a stock is valued at $30, but would like to buy at $25. I'm not interested in making a small stream of income selling naked puts - I actually plan to buy the stock if it comes down. Selling a put would mean you could own the stock when it came down in price and the premium you collect is just the icing.

However as you mentioned the market isn't particularly liquid. I might try it for one trade to see how it works in practice, but not rushing to get started with options just yet.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 01, 2015, 09:30:20 AM
Hi Meat -

If you've already read the PMGOLD prospectus I suggest your next stop is here: http://goldchat.blogspot.jp/

The main difference, and the reason PMGOLD is so much cheaper, is because it is a call on unallocated gold. Let me break this down into its two components for you.

1) it's a call on physical gold, which means that at any time you can contact Gold Corporation and request the physical gold to which you have claim be sent to you. There will be a charge for this but from what I have seen it is not unreasonable.

2) they don't actually have gold set aside for people making the claims above. While this may sound bad, especially compared to GOLD which is supposedly an allocated ETF, it is the reason they can keep their MER low. In the case of the ETF there are multiple transactions as they have to request the custodian to purchase/sell gold to cover their risk as the price of gold changes. In the worst case scenario for PMGOLD, you would have to wait a little if everyone suddenly decided to do a run on gold and claim their calls at once. The reason is because there is a constant flow of gold into the Perth Mint from mining companies. So even if they don't have your gold today, under most situations they should be receiving a new shipment shortly anyway, and you'll receive your physical out of that.

Regarding which one you choose to purchase, it will come down to the reasons you are looking to get PMs exposure. The other options are unallocated ETFs that just track the price but have no actual gold, onshore physical and offshore physical.
Title: Re: Australian Investing Thread
Post by: FFA on February 01, 2015, 07:27:00 PM
: ) yes none taken - you are correct and thanks for the reminder (and the reminder that I need to update my journal!)

The risk is that the price drops well through the price of the put you sell, and you have to pay more for the stock than it is currently trading at. But if I had decided that say BHP is worth $30, and I'd be overjoyed to buy it at $25, then selling a put at that price (or at that price plus the premium, because the premium is effectively a discount on the price you pay) strikes me as no worse off than putting a limit order at the same price. In both cases you're going to be left paying for and holding a stock that is now worth a lot less. This shouldn't matter under normal circumstances, but it's the black swan event of the company folding or being bought out at a lower stock price, locking in the loss, that would make it painful.

I can however see the advantage of having BHP on a watch list at $25 as opposed to having a limit order or selling a put at $25. You can take the time to see whether whatever is pushing the price down is worth considering or whether your initial analysis still holds true. On the other hand, if the price just touched $25 before going back up then you may have missed an opportunity.
i think your logic makes sense, if you are going to place a "set in stone" limit order, then why not enter the trade via a put option and capture an extra discount. However most limit orders are not set in stone, and a bit like your watchlist approach, still have the flexibility to cancel the order if there is major market upheaval or a company specific event that changes your desire to invest, provided of course you cancel before the order gets hit.

The motley fool guy has been writing about this strategy in recent months and giving the specific example of how he acquired BHP around $27 or thereabouts.

But for sure, it's a complex strategy and you really need to know what you're doing in detail, and understand all the risks. Not something i would personally be doing at this point but can see it might be of interest to explore for others. A small trial trade might be a good approach to test it out for real and appreciate all the practical issues like liquidity, hidden transaction costs, etc...
Title: Re: Australian Investing Thread
Post by: dungoofed on February 01, 2015, 09:41:29 PM
Motley Fool you say? Thanks will check it out.
Title: Re: Australian Investing Thread
Post by: Meat Popsicle on February 02, 2015, 01:02:11 AM
@dungoofed thanks for the breakdown and the link – looks like a good site and quite a fair amount of useful insight there for me to chew through :)
Title: Re: Australian Investing Thread
Post by: marty998 on February 02, 2015, 01:38:57 AM
Reporting season kicks off this week. Expecting blood on the floor for several miners (BCI, MGX etc).

I hear UGL is in a spot of bother too.

CBA and TLS are the big ones to watch next week.

RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.
Title: Re: Australian Investing Thread
Post by: deborah on February 02, 2015, 02:08:15 AM
Thanks Marty!
Title: Re: Australian Investing Thread
Post by: DrowsyBee on February 02, 2015, 08:47:05 PM
RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.

Picked your jaw up off the floor yet, marty?
Title: Re: Australian Investing Thread
Post by: terrier56 on February 02, 2015, 09:04:16 PM
RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.

Picked your jaw up off the floor yet, marty?

He's probably smiling still asx200 on track to hit 5700
Title: Re: Australian Investing Thread
Post by: DrowsyBee on February 02, 2015, 09:10:41 PM
RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.

Picked your jaw up off the floor yet, marty?

He's probably smiling still asx200 on track to hit 5700

Haha, and here I was thinking "I'll just see what's good after the Interest Rate decision" like a sucker. That'll teach me for timing the market.
Title: Re: Australian Investing Thread
Post by: FFA on February 02, 2015, 09:17:36 PM
RBA board meeting tomorrow - I'll be astounded if rates are cut, they are already at 0% adjusted for inflation.

Picked your jaw up off the floor yet, marty?

He's probably smiling still asx200 on track to hit 5700
onwards and upwards for shares and property it seems! but I can't help but feel a bubble is being stoked. hugely stimulative interest rates plus oil prices very low.

Central banks making further cuts to interest rates even because of the oil price fall. this feels a mistake to me, the oil price fall is a one-off temporary deflation effect. just let it pass. the oil price will stabilize and inflation return to norm in the next quarter. the overall economic effect of low oil is expansionary, so it shouldn't need a further monetary boost on top. Anyway let the party roll on for some time yet.

While I don't really "get it", i'm also smiling as it's lucky for me if it continues just a little longer.... I'm relocating back in the coming month and become a tax resident once again after a long time. I'll be most happy for a low AUD and high ASX in the next month, to boost value of money transferred back as well as the price of assets on return (deemed CG acquisition cost)...... fingers crossed !
Title: Re: Australian Investing Thread
Post by: potm on February 02, 2015, 09:47:29 PM
It's only a bubble if interest rates subsequently go back up, at this stage it doesn't look like that is happening any time soon!
When the music is playing, you have to get up and dance lol.

If the dollar keeps dropping to 60c, it might be time to think of moving overseas to work.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 02, 2015, 09:57:08 PM
Wow, well my investment account really liked the news. Hold local shares and international. A combination of rising ASX and falling AUD was positive all round.

Oh and still not planning on selling my USD ETF yet. Really liking that trade so far, and guessing it could go a fair bit further.

Thank you RBA?
Title: Re: Australian Investing Thread
Post by: dungoofed on February 02, 2015, 10:33:07 PM
For another Aussie expat view, VAS's increase is offset by the lower AUD so it makes no difference to me (except for the AUD I had bought in advance to hedge a move in the other direction - d'oh!)

US stocks bought before the US started tapering was the carry trade of the past few years.
Title: Re: Australian Investing Thread
Post by: FFA on February 02, 2015, 10:50:56 PM
For another Aussie expat view, VAS's increase is offset by the lower AUD so it makes no difference to me (except for the AUD I had bought in advance to hedge a move in the other direction - d'oh!)

US stocks bought before the US started tapering was the carry trade of the past few years.
hi dungoofed, I guess it depends what currency you define your portfolio / net worth in. I always measure in AUD despite living away more than a decade, because I knew i'd always head back one day and live long-term in oz. So the way I tend to look at it is VAS up increases net worth and AUD down helps increase money flow from income earnt overseas transferred back to oz.

hi potm, not necessarily saying we're in a bubble yet, but a bubble being stoked perhaps, agree keep dancing but stay on your toes....  "If the dollar keeps dropping to 60c, it might be time to think of moving overseas to work." -- just the opposite of what i'm doing ha, pls don't get me back into OMY paralysis again hahaha
Title: Re: Australian Investing Thread
Post by: dungoofed on February 02, 2015, 11:10:54 PM
LOL win-win!

Although if the goal is more dividend income from less investment then we really want VAS to go down in price. Net worth doesn't really mean much if you never plan to sell.
Title: Re: Australian Investing Thread
Post by: marty998 on February 03, 2015, 03:11:53 AM
Blatch. Yes I am still sitting here like a stunned mullet. This is all getting a bit silly.

I kept laughing at the US/Euro dummies in charge of the central banks and their hairbrained wacky ideas behind zero or negative interest rates and printing stupid amounts of money.

Used to think the land of Oz was better than that. Now we are going down the same path.

What was the point of that decision from the RBA? Households have already got an injection into their budgets of the equivalent of 2 interest rate cuts from the falls in the price of petrol and electricity.

If these falls didn't happen over the last few months, it seems the RBA boffins would have you believe they would have cut rates by 75bps today!

As someone who personally benefits from lower rates, I still find it a slightly mad.

Watch for the dollar to collapse below 70, and head towards 60. Rest of the world will be moving to a tightening bias, whereas we are moving to an easing bias.

In some respects the chickens are coming home to roost. Our economy did not undergo the structural changes it needed to in 08/09 to remove the deadwood. It's happening now with falls in commodities back to more reasonable long term price trends, slowdowns in mining, sackings in manufacturing, etc.

Meanwhile, the US economy is abut 5 years ahead, having already gone through this phase.

If Abbott survives this week he will be gone by the end of the year. Budget will have to be tough, people will revolt, economy will get worse before it gets better

He could end up being dumped not because of unpopularity but because he'll be the first PM to preside over a recession in 24 years. How is that for irony for someone who campaigned on being a good economic manager.

my 2c rant fwiw
Title: Re: Australian Investing Thread
Post by: deborah on February 03, 2015, 03:34:53 AM
The NSW election is next month - what is your prediction for that Marty?
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 03, 2015, 08:31:56 AM
Well on one hand people might say they didn't need to cut because the dollar is lower. But if they didn't cut, then the dollar might well have headed higher after it found support, as bond buyers etc. start becoming interested in our rates which are higher than the rest of the world.

Which is the main point IMO - our rates aren't high, but they are higher compared to the rest of the world, and that's what can have an effect.

On Abbott / the budget - people seem to have this vague idea that "Liberals must be good with the economy" and it is completely baseless. I for one am not surprised at all that Abbott hasn't turned out to be an economic genius. This satirical article pretty much summarises my thoughts whenever someone touts out that tired old cliche:

Quote
"This REACHer constantly rails against, “Labor’s mess” that left Australia the economic envy of the world wreck that it is.  Like a harpy, the REACHer screeches “deficit” up and down the hallowed halls of sandstone universities everywhere, never actually explaining why the deficit’s a bad thing, but ready to sputter, “because we’d end up like Greece” when pressed. “Well, if you put it like that…” you may wonder, “how then do we avoid ending up like a country bankrupted by the government allowing massive corporate tax evasion to happen?”. “By electing a government that allows massive corporate tax evasion to happen” is their chin-raised response. It’s as logical as this REACHer’s announced relationship status on Facebook with a woman far less groomed than he is, followed by the next status update about being about how much he loves, “The Real Housewives of Melbourne”."
http://www.sbs.com.au/comedy/article/2015/01/30/how-aspirational-class-are-voting-wrong-party
Title: Re: Australian Investing Thread
Post by: dungoofed on February 03, 2015, 01:41:56 PM
LOL

Ok this thread is bordering on getting political. I'm fine with that because, well, I'm Australian and love to talk politics as much as the next bloke/sheila but I just thought I'd point it out because I don't want this thread to lose it's status as possibly the best "Australian Investing Thread" on the Internet right now.

With that out of the way, I wanted to talk about two things unique about the Australian economy: deficit = bad, surplus = good mantra, and whether we squandered the biggest resource boom since the 1800s.

(unfortunately I haven't got much time so will just lay it out there and come back later to clean up the mess. I'll try and tie it in with the rate cuts and what the politicians are trying to do here)

So basically, during the 90s we had this budget surplus AND a strong economy. Unfortunately people fallaciously assumed that the budget surplus was the cause of the strong economy and the politicians of the time (happened to be Howard government but could have been anyone) did nothing to dispel this myth. The reality is nothing is confirmed in this regard, and if anything the Keynsians are currently in the lead with their "government deficit spending helps prop up the economy in times of softness." Anyway, what that means is that the Australian public who lived through the 90s, hearing that we now have a budget deficit, are concerned that this means the economy is in the shitter. But even worse are the politicians who are happy to run with this in order to implement their policies, cut budgets, etc.

The reality, as Marty pointed out, is that we are finally consolidating and clearing out the inefficiencies in the Australian markets, something which the US did back in 2008 (banks being the major exception), while Europe and Japan still refuse to go through this process. Even so, lowering rates yesterday is a sign that the government is somewhat committed to propping up certain industries in the short-to-medium term, in particular exporters.

Secondly, as you know we have just come out of a massive resource boom, the likes of which only come around every 200 years or so. I'm trying to find the details of the last one but from memory it was like a wheat or wool boom or something in the 1800s. The rough question I want to ask is "did we squander it?" but a more appropriate question might be "should we have created a sovereign wealth fund from the spoils?"

Lets look at OPEC nations quickly. They realise that they have this finite resource underneath desert. Once that is gone they're basically fucked. But for now the going is good! So they're happily exploiting their natural resources and buying up huge parts of the world economy. So that one day when they run out of oil the country should in theory be able to just live on the dividend cheques for the rest of eternity.

An example more similar to Australia might be Norway, who found massive oil deposits nearby and decided "the spoils of these resources belong not just to us but to all future Norwegians" and set up a similar sovereign wealth fund.

I naively googled "Australia's sovereign wealth funds" recently expecting to find a massive list of different ways we have been putting away money for the future, making sure the natural spoils of our country have been well managed, setting some aside for future generations.

Anyone who has done the same google search knows where this is heading. There are like two - one is a Western Australia-only fund, and the other is this piddly little education fund that I think Howard set up.

Ok so then what happened to the massive windfall that we no doubt received from this resource boom?? Besides making mining magnates into politicians and either fatter (in the case of males) or uglier (in the case of females and Palmer).

Well, we basically propped up the middle class for about eight years. We didn't let swaths of home owners experience default on their loans by keeping unemployment more or less constant (I'm comparing with the US in this case. Bear with me). In the end, this is what we have to show for it. Not a constant stream of dividends from the greatest companies in the world, as we would have had if we directed the cream from the mining boom into a sovereign wealth fund.

Now, whether this was a good use of opportunity will remain a question for the ages, and is academic now. For me, without a home, the thought of home ownership is even more of a far off dream these days than it was 10 years ago. But more importantly, we still have all these inefficient businesses in our economy. Marty mentioned it above, the impending recession is something that the US got over and done with quickly, whereas Australia has chosen to do it a little differently. Is this better or worse? Who knows. What I do know is that my strategy doesn't change - continue to purchase assets classes which are currently undervalued, and assume that in the end it will all revert back to the mean.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 03, 2015, 05:16:56 PM
On the sovereign wealth fund idea - it sounds cynical, but I think the reality is most Australians either aren't economically savvy enough or forward thinking enough, to have wanted to set something like this up.

http://www.theguardian.com/commentisfree/2014/sep/04/oil-tax-norway-could-teach-australia-a-thing-or-two-about-managing-wealth
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 03, 2015, 05:19:02 PM
But I agree, amusing political points aside, let's not diverge too much from the original excellent thread. My next post will once again be investment related. Come on 6000 on the ASX200!
Title: Re: Australian Investing Thread
Post by: dungoofed on February 03, 2015, 06:04:38 PM
On the sovereign wealth fund idea - it sounds cynical, but I think the reality is most Australians either aren't economically savvy enough or forward thinking enough, to have wanted to set something like this up.

http://www.theguardian.com/commentisfree/2014/sep/04/oil-tax-norway-could-teach-australia-a-thing-or-two-about-managing-wealth

Thanks for ruining my morning. Seriously feel like crying after reading that.
Title: Re: Australian Investing Thread
Post by: potm on February 03, 2015, 10:16:55 PM
While we're all celebrating rising wealth from higher asset prices, for the majority of us still in the accumulation phase, lower interest rates and higher asset values will make it hard for us to accumulate wealth as returns on investments will be lower.
Investors have benefited greatly from the reduction in interest rates from highs of 17% on rising asset values. Unfortunately we're approaching a point where it can't go much further (although negative interest rates in the euroland?!) so all the easy gains will be gone when we have reached that point. If interest rates ever reverse their course then it will have the opposite affect on asset prices. Things could go a lot higher first though and who knows how long interest rates will stay low.

Title: Re: Australian Investing Thread
Post by: FFA on February 03, 2015, 10:51:55 PM
It's getting trickier this year for sure, it's never easy though. I think the market presents a conundrum for all, not just accumulators. I guess many retirees who had hoped to bank on 5% interest rates (as used to be the norm) are pushed to take more risk for their income too.

I'm certainly concerned about complacency, excessive monetary stimulation (globally, not just Australia) and how all this QE will finally resolve. Eurozone and Japan looks as fragile as ever (what's the next step after QE, in case that fails too??). India is a brighter spot these days and China seems to land softly, so far. But really it seems the world is once again riding on the back of the US. Can it keep up the momentum against a rapidly rising USD though?

Anyway for now the trend is certainly onwards and upwards. Don't fight the central banks, as they say!

For my portfolio, i'm glad to have discovered and adopted the boglehead way recently. So am not worrying too much about all of the above, just trying to focus on what i can control and keep my asset allocations at the targeted levels.... A lot less stressful this way :)
Title: Re: Australian Investing Thread
Post by: pancakes on February 04, 2015, 03:54:06 AM
I'm subscribing because I want to follow along.

I still need to go back and read over from page 1 so maybe this has been covered but I'd love to hear how some of the more experienced posters got started.

Title: .
Post by: This_Is_My_Username on February 04, 2015, 04:04:22 AM
Quote
"Australia's sovereign wealth funds"
dungoofed, you should have found the Future Fund, which has  $105bn, plus the EIF, BAF, and HHF, making $115bn in total.
http://www.futurefund.gov.au/
Title: Re: Australian Investing Thread
Post by: dungoofed on February 04, 2015, 04:55:27 AM
That Future Fund is funded by taxes to pay the superannuation obligations of civil servants. Not quite what I was referring to (but probably prudent nonetheless. And I don't know how I missed it).

I hadn't heard of those other three - thanks.
Title: Re: Australian Investing Thread
Post by: MammaStash on February 07, 2015, 06:40:43 PM
Hi Aussies!
Very happy to find this thread. I have a lot of learning to do. Will be reading from start along with other investing reading over the next couple months.

In theory I'll be receiving a lump sum to invest sometime later this year and I need to get it right.

I take from what I have read so far you are all pretty happy with the Aussi Vanguard eft products? I'll have some specific questions later - have been a little confused about the range of options.

So pleased to see Aussie discussion - our retirement, taxation and fx issues are so diff than US it's good to get some local thoughts and references.

Stash on :-)
Mamma
Title: Re: Australian Investing Thread
Post by: FFA on February 08, 2015, 07:38:04 PM
In theory I'll be receiving a lump sum to invest sometime later this year and I need to get it right.

I take from what I have read so far you are all pretty happy with the Aussi Vanguard eft products? I'll have some specific questions later - have been a little confused about the range of options.
Hi MammaStash, i'm only a recent investor in VAS/VTS/VEU etf's, but happy so far. From what I could see vanguard is lowest cost (although blackrock ishares not far behind) and that was a key factor. Liquidity or buy/sell spread could be better, but if you're a buy and hold (possibly forever) investor then it doesn't matter much really, lower cost is more important.

For lump sums, assuming you've decided the desired asset allocation, then the other key consideration is timing, whether you go in all at once, or dollar cost average (DCA) to smooth out purchase level. Which depends on the size of the lump sum relative your overall portfolio, and your risk tolerance/psychology. Based on your comment "need to get right", I suggest you consider DCA approach as a safer option. It's a very tough task to pick a single day when markets are at good value, especially if there's a lot of pressure riding on it...
Title: Re: Australian Investing Thread
Post by: DrowsyBee on February 08, 2015, 07:50:15 PM
Does anyone here see any benefit in buying both VGS and VTS, or is it just a waste of time to get exposure to the US market twice?
Title: Re: Australian Investing Thread
Post by: marty998 on February 08, 2015, 08:22:24 PM
That Future Fund is funded by taxes to pay the superannuation obligations of civil servants. Not quite what I was referring to (but probably prudent nonetheless. And I don't know how I missed it).

I hadn't heard of those other three - thanks.

Yeah it's not quite a sovereign wealth fund in the conventional sense. It's money set aside to pay for Commonwealth Public Servants's defined benefit obligations.

Most of the money in the future fund was raised from the sale of Telstra.

There are currently 3 other "satellite" funds: Building Australia Fund (BAF), Health and Hospitals Fund (HHF) and Education Investment Fund (EIF). These are funds set aside to pay for major capex requirements. Labor appears to be opposed to BAF, HHF and EIF on the basis that if the money is there it should be spent (think they ran down the capital quite quickly out of those funds when in office). Long term planning is not a strong suit for them.

It's probably about time that capex was removed from the federal budget income statement (surplus/deficit argument), but no, all capex is "expensed" in the year incurred, which always makes the current year look worse than it should.

A Disability Care Fund for the NDIS and Medical Research Fund are in place (or will be in place pending passing of budget measures?)

ASX is having a down day today. After 12 days straight of gains it was probably due. Valuations looking a bit stretched on forward P/E basis.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 08, 2015, 10:46:34 PM
Does anyone here see any benefit in buying both VGS and VTS, or is it just a waste of time to get exposure to the US market twice?

There are a number of differences between the two - treatment of dividends, MER and global diversification come to mind immediately.

If someone held VTS and were thinking instead that VGS would be better for their international exposure then unless it was in their super I'd tell them not to bother selling their VTS, just start accumulating VGS. But that's me.

Top 10 holdings the only notable omissions from VTS are Nestle and Novartis. Fantastic companies I'm sure but I wouldn't lose any sleep just because I was more exposed to the American versions.

Title: Re: Australian Investing Thread
Post by: dungoofed on February 08, 2015, 10:51:28 PM
& thanks again Marty. See, why wouldn't the government issue bonds for major capex projects, and use tax money from mining to purchase VGS or equivalent? Anyway, it's got me wanting to watch The Dish again.
Title: Re: Australian Investing Thread
Post by: MammaStash on February 09, 2015, 05:07:25 AM
Thx FFA. Good point re dca. Rest of portfolio is pathetic! So I need to try to get best start.

I'll be watching this thread as I read up and work out my choices. Thx all :)
Title: Re: Australian Investing Thread
Post by: FFA on February 09, 2015, 08:14:42 AM
Does anyone here see any benefit in buying both VGS and VTS, or is it just a waste of time to get exposure to the US market twice?
usually vts is paired with veu to give global shares, in a ratio of 45/55% or thereabouts to roughly match relative mkt caps. There will be a small overlap with your oz shares as veu also includes oz, but it's small.

Since vgs was recently introduced you can have a single etf for global shares ex oz, so it's a neater and more practical solution. However as dungoofed mentioned diversification is less in vgs with approx a quarter of the companies indexed versus vts/veu combined. Vgs mer appears higher on the surface but Im not sure it's that much different after adjusting for withholding taxes.

Hope this helps.
Title: Re: Australian Investing Thread
Post by: marty998 on February 09, 2015, 02:24:11 PM
& thanks again Marty. See, why wouldn't the government issue bonds for major capex projects, and use tax money from mining to purchase VGS or equivalent? Anyway, it's got me wanting to watch The Dish again.

Because Tony Abbott says debt is bad. Labor tried to do that with NBN. They set up a separate company which borrowed to fund most of the capex.

The Liberals screamed blue murder about it and said that all the debt borrowed by NBN should be listed as an expense in the budget and added to total debt on the government books.

They conveniently forgot to mention that whilst NBN Co would have ended up with $40billion debt, it would also have a $40 billion asset, worth even more as more households connected to it.

Of course if Labor had been allowed to complete it, I would have no doubt the Liberals would have privatised it at the earliest opportunity, and claimed the sale proceeds as a "surplus".
Title: Re: Australian Investing Thread
Post by: MMMaybe on February 09, 2015, 08:31:35 PM
I'm watching the USD/AUD rate closely as I am hoping to transfer money to Aus. What do you think will be the tipping point for the AUD to start heading down to 70 and below? Seems pretty firm at 78c for now.
Title: Re: Australian Investing Thread
Post by: bigchrisb on February 09, 2015, 09:26:59 PM
I'm watching the USD/AUD rate closely as I am hoping to transfer money to Aus. What do you think will be the tipping point for the AUD to start heading down to 70 and below? Seems pretty firm at 78c for now.

When the moon is full in Sagittarius?

I'm terrible at forecasting currency.  My gut feel is that there has been an awakening in the last couple of months about Australia softening, including from the RBA - hence the rate cut.  However, there is a fair likelihood that its pretty priced in already.

Given that its a whole lot better than it used to be, why not take a dollar cost averaging approach and spread your transfers over a period of time, rather than trying to time the currency market?
Title: Re: Australian Investing Thread
Post by: FFA on February 09, 2015, 09:29:42 PM
I'm watching the USD/AUD rate closely as I am hoping to transfer money to Aus. What do you think will be the tipping point for the AUD to start heading down to 70 and below? Seems pretty firm at 78c for now.
Hi Francesca, personally I've given up trying to predict FX.... suggest you try not to watch the chart too closely, I find the closer I watch the more I get confused! Please also don't completely discount the possibility that it could go the other way too. Certainly it would be against most forecasts and expectations, but forecasts are not so reliable from what I can tell...

I guess the above is not what you're looking for, so let me add : If I was still trying to predict FX, I would be keeping an eye on the relative interest rates (any hint/speculation of further RBA cut to 2% will greatly help your objective, and if the Fed keeps on track for lift off around mid year, which seems a reasonable bet after the strong jobs number recently), and commodity prices (if they stabilize/rebound it could spur some recovery on the AUD and go against you).

I would second bigchrisb's suggestion to dollar cost average your transfer if possible/practical.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 09, 2015, 10:28:20 PM
As one of the most qualified people around here to answer this I'm still going to give you the "correct" answer: keep your money in the currency in which you are going to spend it.

The people making money on currency trades are the ones moving 10s of millions each time the market moves (and they're getting squeezed out these days too). You're welcome to keep it in USD and try to time the market but please just recognise it for what it is ie speculating.

Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 09, 2015, 10:28:49 PM
To the poster who asked about the vanguard funds and buying VGS and VTS.

I think it's simpler to have VTS with VEU (and these ETFs came out at a similar time), or get VGS/VGAD with VGE (emerging markets). Obviously if you do the latter you need to think about how much you want to allocate to emerging markets and probably weight VGE much lighter.

Second what dungoofed said about if you already have one, just start buying the other, rather than selling

& thanks again Marty. See, why wouldn't the government issue bonds for major capex projects, and use tax money from mining to purchase VGS or equivalent? Anyway, it's got me wanting to watch The Dish again.

Because Tony Abbott says debt is bad. Labor tried to do that with NBN. They set up a separate company which borrowed to fund most of the capex.

The Liberals screamed blue murder about it and said that all the debt borrowed by NBN should be listed as an expense in the budget and added to total debt on the government books.

They conveniently forgot to mention that whilst NBN Co would have ended up with $40billion debt, it would also have a $40 billion asset, worth even more as more households connected to it.

Of course if Labor had been allowed to complete it, I would have no doubt the Liberals would have privatised it at the earliest opportunity, and claimed the sale proceeds as a "surplus".

+1
Title: Re: Australian Investing Thread
Post by: DrowsyBee on February 10, 2015, 12:22:22 AM
Thanks guys. At the moment I have VGS, VAS and VAP. I was thinking of building on the VGS by having an international portfolio that is made up of VGS, VGAD, VGE and VTS.

I read someone in this thread saying they thought it was a good idea to have a small proportion of the hedged VGAD with a larger proportion of VGS. But I also wanted a bit more exposure to the US market and get a small proportion of VGE in there.

From what I gather, however, this might be a weirdly complex way to have index funds.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 10, 2015, 12:59:55 AM
If you can keep your ratios clear so you can stick to them easily, and it's not overly complex to you, then go for it
Title: Re: Australian Investing Thread
Post by: DrowsyBee on February 10, 2015, 01:21:17 AM
Haha, should have known the answer would be the old mustachian belief of "dude, if it works for you, just do it however you want".
Title: Re: Australian Investing Thread
Post by: FFA on February 10, 2015, 01:21:53 AM
If you can keep your ratios clear so you can stick to them easily, and it's not overly complex to you, then go for it

+1. Definitely strive for simple, practical and consistent

Personally, I like to start with the high-level AA which is to decide what percentage domestic vs global shares. I feel this is the most important thing to get right.

After that, I view it as second order optimization to tweak the global share exposure : US vs non US; developed vs emerging; hedged vs unhedged. I get a sense most people focus on the first two, but I actually am more keen on the hedging component. The logic being most default portfolios are skewed towards domestic market, in part to minimize FX risk. Given the small scale and lack of diversity in the ASX, I would prefer to have a larger weight on global shares (in the first order AA mentioned above). So including a global (hedged) allocation intends to strike a compromise between these issues.
Title: Re: Australian Investing Thread
Post by: FFA on February 10, 2015, 01:27:00 AM
Haha, should have known the answer would be the old mustachian belief of "dude, if it works for you, just do it however you want".

I also came around to this view that what you do finally is not so critical. The important part is to make sure it's compatible with you (risk tolerance, beliefs, etc) and that you stick to it rigidly (rebalance). The first part (compatibility) greatly improves the chances of the second part (discipline).
Title: 4% SWR for Aus?
Post by: Wadiman on February 10, 2015, 04:21:32 AM
Not sure how many of you have seen/read this but it is brilliant! 

http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2

Long and short of it - the 4% 'heuristic' is not too bad for Aus.  Interesting data re asset allocation results vs portfolio failure over time.

Got it off the Whirlpool forum which I know some of you check out from time-to-time
Title: Re: Australian Investing Thread
Post by: deborah on February 10, 2015, 04:49:04 AM
Wadiman you are a ledg!
Title: Re: Australian Investing Thread
Post by: Ozstache on February 10, 2015, 05:49:14 AM
I read that finsia paper in detail yesterday and was going to post something up about it. Wadiman beat me to it!

I agree that it starts out giving the 4% rule a good run for its money in an Australian context, but gee it gets pessimistic in the final few pages of the report. I was half expecting finsia to finish it up with how finsia financial advisors can help you navigate the stormy 4% waters, but it peters out before it gets to that. Still, some pretty good guff in there for us Aussies (and New Zealanders, Japanese, Italians and the Dutch).


Title: Re: 4% SWR for Aus?
Post by: Minion on February 10, 2015, 03:02:43 PM
Not sure how many of you have seen/read this but it is brilliant! 

http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2

Long and short of it - the 4% 'heuristic' is not too bad for Aus.  Interesting data re asset allocation results vs portfolio failure over time.

Got it off the Whirlpool forum which I know some of you check out from time-to-time

Thanks for this. Can you add the Whirlpool thread link too please?
Title: Re: Australian Investing Thread
Post by: Wadiman on February 10, 2015, 07:02:11 PM
Here you go:

http://forums.whirlpool.net.au/forum/150

The discussions range from very insightful to humorous!
Title: Re: Australian Investing Thread
Post by: MsRichLife on February 10, 2015, 11:13:51 PM
Thanks for the link to that report Wadiman. Certainly some food for thought. Other members of the broader forum may well benefit from reading this, especially given the view that the 4% rule is sacrosanct.
Title: Re: Australian Investing Thread
Post by: Wadiman on February 11, 2015, 02:26:41 AM
Good suggestion - will post seperately in this category
Title: Re: Australian Investing Thread
Post by: dungoofed on February 12, 2015, 03:23:18 PM
Looks like Betashares' QUS slipped under my radar among all the Medibank IPO hysteria (congratulations anyone who speculated on that btw, it has increased nicely since float). Basically a US version of their QOZ ie weightings based on RAFI instead of market cap.

http://betashares.com.au/products/name/ftse-rafi-u-s-1000-etf/

0.30% MER, also it's not a cross-listed ETF so no US tax forms. Nothing in the holdings that gives me heart burn (ok, maybe 1.5% in Apple heh).
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 12, 2015, 07:24:38 PM
Looks good, but probably just another like a "smart beta" on the US stock exchange.

I think for US exposure you can't really go past VTS. The total stock market index it's based upon has also outperformed the S&P500 over the last decade or so. All for .05% MER.

QUS looks good, but 25 basis points (difference in MER between VTS and QUS) is significant over the long term. It was the size of the latest RBA rate cut!
Title: Re: Australian Investing Thread
Post by: FFA on February 12, 2015, 07:44:23 PM
Looks good, but probably just another like a "smart beta" on the US stock exchange.

I think for US exposure you can't really go past VTS. The total stock market index it's based upon has also outperformed the S&P500 over the last decade or so. All for .05% MER.

QUS looks good, but 25 basis points (difference in MER between VTS and QUS) is significant over the long term. It was the size of the latest RBA rate cut!

Thanks for sharing dungoofed. I must admit I had the same thought as above and inclination to stick with VTS.... For my money, I'm not convinced by alternate index approaches (including VHY) if the extra MER and portfolio complexity is worthwhile.
Title: Re: Australian Investing Thread
Post by: Lynn52 on February 13, 2015, 10:42:02 PM
Hi,

I'm in suburbs of Melbourne - great to be reading an Australian thread on MMM.

I'm aiming to retire in just over a year, at 50 and trying to think through safe withdrawal rates and interested in what views are for Australia.

Best I have come up with for my situation so far is:


I'm trying to get to 25% of my planned annual income from dividends and the rest from 4% drawdown on super.

If I end up with more assets than what I require (given this recent surreal increase on the ASX it is actually possible but I'm not counting on it at all), I'll just plan to take out a lower percentage from super, such as 3.9%  or whatever it works out to be.

I expect that when we have some down years, we will have to reduce expenditure, which will be challenging.  I'm aiming for the AFSA comfortable standard for a couple, which currently is about $58kpa.  Initially this seemed really hard to get my expenses that low -- I have ongoing medical costs, travel to the US every 18 months to visit my parents who are in their 80s, and have to pay about $1k each year just to get my US taxes filed) -- but we have been working hard on expenses following the Your Money or Your Life approach (loosely) and are now comfortably there.

My partner is some 10 years older than me.  We might get a small amount of pension given the age difference with my super not being accessible for at least 10 years, but that will be offset by my having to pay tax on my super in the US as I withdraw it.  So, we aren't counting on any Australian pension income.

Am I off with the fairies or does this seem like a reasonable plan?

Thanks.
Lynn


Title: Re: Australian Investing Thread
Post by: dungoofed on February 13, 2015, 11:49:38 PM
Quick question, is my understanding that for bequeathed assets the cost basis changes but there is also a cgt obligation on death? And this is different to the US where there is no cgt obligation on death?
Title: Re: Australian Investing Thread
Post by: happy on February 14, 2015, 12:34:33 AM
Hi,

I'm in suburbs of Melbourne - great to be reading an Australian thread on MMM.

I'm aiming to retire in just over a year, at 50 and trying to think through safe withdrawal rates and interested in what views are for Australia.

Best I have come up with for my situation so far is:

  • Any superannuation (employer and industry fund between myself and my partner) plan on 4% drawdown
    Any shares owned outright plan on income being what ever the dividend actually is. 
    Have a one-off separate amount for some planned expenditures in first two years. 

I'm trying to get to 25% of my planned annual income from dividends and the rest from 4% drawdown on super.

If I end up with more assets than what I require (given this recent surreal increase on the ASX it is actually possible but I'm not counting on it at all), I'll just plan to take out a lower percentage from super, such as 3.9%  or whatever it works out to be.

I expect that when we have some down years, we will have to reduce expenditure, which will be challenging.  I'm aiming for the AFSA comfortable standard for a couple, which currently is about $58kpa.  Initially this seemed really hard to get my expenses that low -- I have ongoing medical costs, travel to the US every 18 months to visit my parents who are in their 80s, and have to pay about $1k each year just to get my US taxes filed) -- but we have been working hard on expenses following the Your Money or Your Life approach (loosely) and are now comfortably there.

My partner is some 10 years older than me.  We might get a small amount of pension given the age difference with my super not being accessible for at least 10 years, but that will be offset by my having to pay tax on my super in the US as I withdraw it.  So, we aren't counting on any Australian pension income.

Am I off with the fairies or does this seem like a reasonable plan?

Thanks.
Lynn

As well as SWR, you also need to consider cash flow.

If you were born in 1966, then the earliest you can withdraw from super is age 60. There is a minimum withdrawal rate from super which is age based - at 60 you must withdraw at least 4%. And rises as you get older. You can find rates and calculators at Moneysmart (Or ATO)https://www.moneysmart.gov.au/superannuation-and-retirement (https://www.moneysmart.gov.au/superannuation-and-retirement)

So you need to have a strategy to get you from 50 to 60 - i.e. enough dividends or sell some shares, or have another income source to fund all your needs. I wasn't quite sure how you were going to do this from your post. Once you hit 60 you  can access your super and cover some or all of your expenses.

Is 4% a SWD for Australia? - maybe , but Wade Pfaus research indicated it was a bit lower http://wpfau.blogspot.com.au/search?q=australia+safe+withdrawal+rate (http://wpfau.blogspot.com.au/search?q=australia+safe+withdrawal+rate)  - 3.5%. 
Title: Re: Australian Investing Thread
Post by: deborah on February 14, 2015, 12:44:51 AM
Lynn52, there are minimums that you must take out of super each year - until 65 it is 4%, then it goes up to 5%... ending at about 13% when you are rather old and decrepit. These are the minimums from your super that is in pension phase. You can leave some of your super in accumulation phase if you want (you can't take anything out until it is converted to pension phase) but that has 15% tax on earnings, whereas money in pension phase doesn't. And you probably won't be able to put anything into super after you are 65. The government wants your superannuation to run out while you are living - but not quickly enough for you to need a pension.

See the following (only a few posts back) for Australian SWR.

Not sure how many of you have seen/read this but it is brilliant! 

http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2

Long and short of it - the 4% 'heuristic' is not too bad for Aus.  Interesting data re asset allocation results vs portfolio failure over time.

Got it off the Whirlpool forum which I know some of you check out from time-to-time

Dungoofed - see https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Gifts,-inheritances-and-deceased-estates/Deceased-estate-and-CGT/
Title: Re: Australian Investing Thread
Post by: happy on February 14, 2015, 04:18:21 AM
Lynn52, there are minimums that you must take out of super each year - until 65 it is 4%, then it goes up to 5%... ending at about 13% when you are rather old and decrepit. These are the minimums from your super that is in pension phase. You can leave some of your super in accumulation phase if you want (you can't take anything out until it is converted to pension phase) but that has 15% tax on earnings, whereas money in pension phase doesn't. And you probably won't be able to put anything into super after you are 65. The government wants your superannuation to run out while you are living - but not quickly enough for you to need a pension.


Yes Deborah is correct : If you don't want as much as 4% of the whole sum you have, just leave some in the accumulation phase.
Title: Re: Australian Investing Thread
Post by: marty998 on February 14, 2015, 05:23:23 AM
Just because you take out 4% or more from super doesn't mean you have to spend the 4%. You can stick the leftover in  a saving account of buy direct shares if you wish, earnings of which will still be tax free up to a point...

Tax system is quite generous in that as a couple you could earn $40k outside of super and still not pay tax.....
Title: Re: Australian Investing Thread
Post by: deborah on February 14, 2015, 01:39:08 PM
George Cochrane's latest post http://www.canberratimes.com.au/money/super-and-funds/whats-my-best-tax-move-before-i-go-20150211-13ax1z.html includes some interesting stuff on a dual citizen going back to the US, and changing an SMSF to company rather than individual ownership
Title: Re: Australian Investing Thread
Post by: Lynn52 on February 15, 2015, 04:09:23 AM

As well as SWR, you also need to consider cash flow.

If you were born in 1966, then the earliest you can withdraw from super is age 60. There is a minimum withdrawal rate from super which is age based - at 60 you must withdraw at least 4%. And rises as you get older. You can find rates and calculators at Moneysmart (Or ATO)https://www.moneysmart.gov.au/superannuation-and-retirement (https://www.moneysmart.gov.au/superannuation-and-retirement)

So you need to have a strategy to get you from 50 to 60 - i.e. enough dividends or sell some shares, or have another income source to fund all your needs. I wasn't quite sure how you were going to do this from your post. Once you hit 60 you  can access your super and cover some or all of your expenses.

Is 4% a SWD for Australia? - maybe , but Wade Pfaus research indicated it was a bit lower http://wpfau.blogspot.com.au/search?q=australia+safe+withdrawal+rate (http://wpfau.blogspot.com.au/search?q=australia+safe+withdrawal+rate)  - 3.5%.

Thanks Happy for your reply. 

Good question - for money until I am 60 we will be drawing down from my partner's super (who is some 10 years older) and using directly held share dividends.  When my partner's super account runs dry, I will be in my 60s and will then access my super.   

Thanks for the Wade Pfau reference -- I've read some of his stuff and find it very interesting, but hadn't read that one.  Sounds like from his research an Australian 50% stock / 50% bond portfolio having a withdrawal rate of 3.5% works - it will be interesting to see what the SAFEMAX will be for retirees after 1981 (given that he couldn't go any further as writing in 2011).  That's very encouraging given that I will retire in Australia.

I am aiming for a higher stock weighting, a75% stock/infrastructure through direct stocks and super and 25% fixed interest through a diversified fixed interest through Australian Super.   Thinking about it, 1/3 of the stocks/infrastructure are international shares, so I'm holding more shares but not as much in Australia as compared to Pfau's article.  So not sure if on balance that still lands me, based on Pfau's research, at about the 3.5%.

Lynn52, there are minimums that you must take out of super each year - until 65 it is 4%, then it goes up to 5%... ending at about 13% when you are rather old and decrepit. These are the minimums from your super that is in pension phase. You can leave some of your super in accumulation phase if you want (you can't take anything out until it is converted to pension phase) but that has 15% tax on earnings, whereas money in pension phase doesn't. And you probably won't be able to put anything into super after you are 65. The government wants your superannuation to run out while you are living - but not quickly enough for you to need a pension.

See the following (only a few posts back) for Australian SWR.

Not sure how many of you have seen/read this but it is brilliant! 

http://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf?sfvrsn=2

Long and short of it - the 4% 'heuristic' is not too bad for Aus.  Interesting data re asset allocation results vs portfolio failure over time.

Got it off the Whirlpool forum which I know some of you check out from time-to-time

Thanks for your reply Deborah.  Okay, sounds like keeping my partner's accumulation account open will be a good idea so that if we withdraw more than our target spend we can put it back into accumulation as long as my partner is still under 65, or into mine once my partner is over 65.  I will have to check on contributions to super from a U.S. tax perspective when I am not working as I'm not sure I will be able to defer tax on earnings on that portion if the contribution didn't come from earned income.  The whole US-tax-on-Australian-super is just so complex that so I find it hard to plan tax effectively for my super, but I do have a good Aust-US tax preparer, which helps somewhat.

And thanks for bringing up the "How Safe are Safe Withdrawal Rates in Retirement? An Australian Perspective".   It is interesting that over 40 years in Australia 75% stocks/25% bonds etc has gotten an 88% success rate at 4%.   And a 95% SAFEMAX is 4% over 30 years.  Based on this research, if I could just bring myself to go 100% Australian stocks, in theory I would have a better chance of having my funds last as long as they need to. I'm not sure I'm quite that brave.  Is any one else that brave.

George Cochrane's latest post http://www.canberratimes.com.au/money/super-and-funds/whats-my-best-tax-move-before-i-go-20150211-13ax1z.html includes some interesting stuff on a dual citizen going back to the US, and changing an SMSF to company rather than individual ownership

I read that article in The Age this morning and it immediately made me feel faint and stressed --I've been through the "getting right with Uncle Sam" process and found it really really stressful -- I feel really sorry for the individual writing in if they aren't already working with a good US-Australia tax consultant. For U.S. tax reasons, I am more grateful than I can describe that I have not married my partner, do not have an SMSF, am not running a business overseas, do not have capital gains on my residence of more than USD$250k, and do not own Passive Foreign Investment Company shares (LICs, trust companies listed on ASX, or companies that have not paid a dividend for a year or two).  Expat US Tax is a great service for US citizens in Australia.


Thanks Marty998.  I hadn't realised a couple could earn $40k per year outside of super and not have to pay tax.  I will have to research that more as next financial year my partner will start selling some stocks that are outside of super and purchasing them inside super -- but have to manage it to avoid paying too much tax -- sounds like I'll need to do more research there.


---

Based on Pfau and the Australian Perspective report, seems like 3.5% is pretty much safe for Australia, and 4% may also work but I will need to be very vigilant in keeping track of how I'm going at 4%.  I think I need to formalise some of my thinking about rules to to use in adjusting drawdown amount each year when market returns are poor.

Thanks again for all the replies and suggestions - all of them really got me thinking more.   Great to get Australian perspectives since I am Australian.



Title: Re: Australian Investing Thread
Post by: FFA on February 16, 2015, 12:43:13 AM
Here's another article with some retirement modeling specific to Oz. Sharing here as I thought it might be of interest...

http://www.towerswatson.com/en-AU/Insights/Newsletters/Asia-Pacific/view/2014/How-important-are-your-investment-and-spending-strategies (http://www.towerswatson.com/en-AU/Insights/Newsletters/Asia-Pacific/view/2014/How-important-are-your-investment-and-spending-strategies)

Pls note: I've never used Towers Watson (so don't take it as a recommendation) and I don't have any connection to them whatsoever.

Actually I found this in the weekly vanguard smart investing email I subscribe to. It's refreshing to see the focus on the spending side of the equation, instead of just looking at investment options !
Title: Re: Australian Investing Thread
Post by: bigchrisb on February 17, 2015, 09:55:00 PM
Was anyone else using interactive brokers in Australia on a margin account?  I had an account with them, up until their issues with ASIC, and closed my accounts shortly afterwards - the main reasons I was using them were cheap international brokerage, and cheap margin debt.

I got a very unexpected letter from them today.  They have been ordered by ASIC to refund the net fees an interest to retail clients.  That means the total fees an interest, less any statutory costs, and the total margin interest less the cost of funds. 

For me, this means that for a few years of my investments, I'm getting back about 85% of my brokerage costs, and about 93% of the margin interest that I'd paid.  For someone with leverage over a few years, its a non-trivial windfall - think about getting back a few years of interest on your home loan.

If you had an account with them over this period, I suggest you check back with them and see if you are in the same situation.  It does make me wonder about the solvency of their Australian operations too - I'd hate to think what impact repaying three years gross revenue would have on my business - it would most likely drive an insolvency. 
Title: Re: Australian Investing Thread
Post by: marty998 on February 17, 2015, 10:15:25 PM


ASIC media release (http://asic.gov.au/about-asic/media-centre/find-a-media-release/2014-releases/14-336mr-asic-investigation-leads-to-interactive-brokers-refunding-15-million-to-australian-customers/). IB didn't have a licence to issue margin loans so they've been forced to refund all related revenue.

If your refund is non-trivial, you must have been their biggest client! Total pool being refunded is only $1.5 million.

Title: Re: Australian Investing Thread
Post by: bigchrisb on February 17, 2015, 10:30:56 PM
Interesting.

I'm surprised that the amount is that low - at $1.5M across 3000 accounts, I was certainly bigger than average.   

Goes to show that remaining a retail client is worth something?  One of the tricks I used to get a lower interest rate offer in my last margin negotiations was to provide the competitor with proof of wholesale status (accountant's letter for control of over $2.5M of assets, or >$250k income last two financial years).  My existing lender (which is a retail account) then price matched it. I wonder what the level of "insurance" from ASIC oversight etc is actually worth in terms of basis points?
 
Title: Re: Australian Investing Thread
Post by: bigchrisb on February 17, 2015, 10:43:23 PM
Anyone else having a fight with the ATO about getting their foreign income tax offsets recognized?

I've got about $1000 of foreign income tax offsets that the ATO didn't give back this year.  The rationale is that they are a "non-refundable" tax offset, unlike AU franking credits, which are fully refundable.

I had this happen a couple of years ago, and after I protested it, I eventually got them back.  Basically, the argument I used was:
- The credits are not refundable - this means they cannot take the amount of tax paid negative.
- However, the credits can be used to lower the total tax paid
- I still paid $$$$ in total tax (despite getting some of the over payments refunded).

Its annoying to have to go through it though.

Anyone else had this issue?



Title: Re: Australian Investing Thread
Post by: potm on February 18, 2015, 06:24:29 AM
Are you sure it's 93% of the interest you paid? It should be interest charged to you, plus brokerage, less their cost of funds and some fees.
Title: Re: Australian Investing Thread
Post by: bigchrisb on February 18, 2015, 03:42:58 PM
Are you sure it's 93% of the interest you paid? It should be interest charged to you, plus brokerage, less their cost of funds and some fees.

Yep, the 93% was from dividing the two numbers on the statement of refund from them.  I borrowed mostly USD in my IB account, paying about 1.5% interest.  From their refund document, their cost of funds on USD over this period was almost zero.  Guess that's where a lot of the QE printing money ended up!
Title: Re: Australian Investing Thread
Post by: dungoofed on February 18, 2015, 11:31:48 PM
Richard Livingston in today's SMH:

http://www.smh.com.au/money/planning/nestegg-needs-hard-to-calculate-20150217-13dtz2.html

Any idea what they are trying to do over at http://www.eviser.com.au ?

Title: Re: Australian Investing Thread
Post by: happy on February 19, 2015, 02:45:39 AM
Thanks for the link dun goofed. Figures in the article are all over the shop in terms of withdrawal rate.
Title: Re: Australian Investing Thread
Post by: deborah on February 19, 2015, 03:11:41 AM
Thanks for the link dun goofed. Figures in the article are all over the shop in terms of withdrawal rate.
I actually tried to replicate them at the MoneySmart site and couldn't - usually I can! The comfortable retirement assumes you will get the pension, whereas the other doesn't, so the figures should be a bit all over the shop anyway.
Title: Re: Australian Investing Thread
Post by: travelbug on February 19, 2015, 04:03:24 PM
Hi everyone,

I love this thread, but I have two newbie questions for the more experienced among us please.

1. Do you invest in Vanguard Index funds by buying them directly with your etrade account? Or have you set up an account directly with Vanguard. (looking at VTS and VEU at the moment as a small parcel of 20k, will be looking to invest 600k+ later this year)

2. What percentage of your portfolio is invested in index funds versus individual shares?

I have always invested in individual shares and was looking to fund our retirement with dividends from the blue chip brigade, after researching index funds they look like a good way to stay in the market long term with a bit more of a safety net.

Thanks

TB


Title: Re: Australian Investing Thread
Post by: Ozstache on February 19, 2015, 04:38:51 PM
Hi everyone,

I love this thread, but I have two newbie questions for the more experienced among us please.

1. Do you invest in Vanguard Index funds by buying them directly with your etrade account? Or have you set up an account directly with Vanguard. (looking at VTS and VEU at the moment as a small parcel of 20k, will be looking to invest 600k+ later this year)

2. What percentage of your portfolio is invested in index funds versus individual shares?

I have always invested in individual shares and was looking to fund our retirement with dividends from the blue chip brigade, after researching index funds they look like a good way to stay in the market long term with a bit more of a safety net.

Thanks

TB

1. I invest in Vanguard index funds through NAB Trade
2. 100%. I trust the broader market more than I trust my own emotions with individual stocks and the returns are more than satisfactory.
Title: Re: Australian Investing Thread
Post by: happy on February 19, 2015, 05:00:10 PM
Hi everyone,

I love this thread, but I have two newbie questions for the more experienced among us please.

1. Do you invest in Vanguard Index funds by buying them directly with your etrade account? Or have you set up an account directly with Vanguard.



Thanks

TB

I'm interested in this too. If one was only buying vanguard, is it necessary to do it through a broker? Any pluses or minuses to setting up a direct account v doing through a broker? Presumably cheaper without a middleman?
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 19, 2015, 05:40:51 PM
If it's ETFs you're buying (listed on ASX) you need a broker of some sort (either online broker or the traditional broker). Online brokerage is a lot cheaper, I believe, but you don't get any advice or other full service. I've never had a full service broker though so I don't know what it's like.

Unlisted funds you buy directly through Vanguard, but the MER tends to be a fair bit higher unless you have a large amount of money to invest
Title: Re: Australian Investing Thread
Post by: travelbug on February 19, 2015, 05:52:06 PM
Thanks guys.

So if I was to purchase VTS or VEU or even VGE with my etrade account as I usually purchase WOW or CBA etc, that would be me buying into the index fund that MMM and so many here invest in?

TB
Title: yes
Post by: This_Is_My_Username on February 19, 2015, 09:40:46 PM
yes
Title: Re: Australian Investing Thread
Post by: marty998 on February 19, 2015, 09:51:05 PM
yes

If you want your high dividend payers without the resources/mining exposure of BHP/RIO then look at VHY.

4 banks, TLS, WOW, WES and WPL, with a smattering of other industrials like Transurban and Sydney Airport.

One word of caution, there is no "market depth" as such with an index fund. A market maker (typically a big investment bank) sets a moving market depth around about the theoretical unit price, depending on intraday movement of the constituent index. Units in the fund are not traded like shares in other listed companies where they must be sold to another buyer. Units in an ETF are created/destroyed when you buy and sell.

You will likely end up paying away a small entry/exit type fee this way, but thats the price we pay for convenience. The upshot is that you never have to worry about liquidity, your order will always be 100% filled if the market maker accepts your price.

Title: Re: Australian Investing Thread
Post by: dungoofed on February 19, 2015, 11:05:52 PM
Anyone know whether they have something like this for Australia:

https://personal.vanguard.com/us/faces/JSP/Funds/Tools/FundsToolsEtfCostPurchInfoContent.jsp

I haven't seen one. I think you could finagle something similar if you find ETFs with similar MER though, YMMV.
Title: Re: Australian Investing Thread
Post by: travelbug on February 20, 2015, 02:56:57 AM
yes

If you want your high dividend payers without the resources/mining exposure of BHP/RIO then look at VHY.

4 banks, TLS, WOW, WES and WPL, with a smattering of other industrials like Transurban and Sydney Airport.

One word of caution, there is no "market depth" as such with an index fund. A market maker (typically a big investment bank) sets a moving market depth around about the theoretical unit price, depending on intraday movement of the constituent index. Units in the fund are not traded like shares in other listed companies where they must be sold to another buyer. Units in an ETF are created/destroyed when you buy and sell.

You will likely end up paying away a small entry/exit type fee this way, but thats the price we pay for convenience. The upshot is that you never have to worry about liquidity, your order will always be 100% filled if the market maker accepts your price.

Thank you so much. That makes sense. I appreciate everyone's help.

Title: Re: Australian Investing Thread
Post by: FFA on February 20, 2015, 05:30:52 PM
Hi everyone,

I love this thread, but I have two newbie questions for the more experienced among us please.

1. Do you invest in Vanguard Index funds by buying them directly with your etrade account? Or have you set up an account directly with Vanguard. (looking at VTS and VEU at the moment as a small parcel of 20k, will be looking to invest 600k+ later this year)

2. What percentage of your portfolio is invested in index funds versus individual shares?

I have always invested in individual shares and was looking to fund our retirement with dividends from the blue chip brigade, after researching index funds they look like a good way to stay in the market long term with a bit more of a safety net.

Thanks

TB

1. I invest in Vanguard index funds through NAB Trade
2. 100%. I trust the broader market more than I trust my own emotions with individual stocks and the returns are more than satisfactory.
I'm also with Nabtrade.
I'm 100% index for global shares and about 60% index for oz (excluding super, would be higher with super as that's all index). I decided to hold some direct asx blue chips for dividends and since they are buy and hold forever, and as the Asx index is relatively concentrated anyway.
Title: Re: Australian Investing Thread
Post by: DerringerJones on February 20, 2015, 09:53:14 PM
Hey, I'm just starting out and I've read a decent chunk of this thread.
I've found that there is a lot of acronyms and terms that I know nothing about.
That being the case, I was wondering if anyone could recommend some reading material to help me get up to speed, as I'm super excited to get in on all this.
Preferably something that can explain the very basics so I can work my way up.
Thanks

Derringer
Title: Re: Australian Investing Thread
Post by: steveo on February 21, 2015, 10:21:07 PM
Hi everyone.

I'd like to ask a favor of all the Australian posters. I work for one of the big banks and we have to do a training course on experimentation. My idea was to create something like Betterment in Australia.

If we had that would you use the service assuming it was exactly the same - low fees, automatic asset allocation and tax loss harvesting ?

I can't see any of the big banks ever offering this service as I think it would cut their profits in other areas of financial advice/services too much but it'd be interesting if there was a demand for a service like that.
Title: Re: Australian Investing Thread
Post by: deborah on February 21, 2015, 11:40:26 PM
Hey, I'm just starting out and I've read a decent chunk of this thread.
I've found that there is a lot of acronyms and terms that I know nothing about.
That being the case, I was wondering if anyone could recommend some reading material to help me get up to speed, as I'm super excited to get in on all this.
Preferably something that can explain the very basics so I can work my way up.
Thanks

Derringer
Just ask what the terms are - sometimes this thread is talking about specific ETFs (Exchange Traded Funds - an index that is traded on the stock exchange) such as VTS or VEU or VGE - which are the three letter names for the ETF on the ASX (Australian Stock Exchange). Many of the other three letter acronyms are shares (WOW - Woolworths, BHP - BHP Billiton...). I guess if you looked up the acronym on the ASX you would probably find just about every one.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 22, 2015, 01:07:50 AM
Just to add to deborah's post, you can get the ETFs (ETPs) on a single page here:

http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm#9124-content

Make sure you're on the ETP tab in the table. Otherwise you might have to start googling or as deborah said just ask us : )

Title: Re: Australian Investing Thread
Post by: dungoofed on February 22, 2015, 01:31:38 AM
Hi everyone.

I'd like to ask a favor of all the Australian posters. I work for one of the big banks and we have to do a training course on experimentation. My idea was to create something like Betterment in Australia.

If we had that would you use the service assuming it was exactly the same - low fees, automatic asset allocation and tax loss harvesting ?

I can't see any of the big banks ever offering this service as I think it would cut their profits in other areas of financial advice/services too much but it'd be interesting if there was a demand for a service like that.

Hi Steveo -

I assume you have already seen www.stockspot.com.au. They are "partnered" with Macquarie, though no mention of whether they are an investor. Would like to get Chris from StockSpot to comment but my impression is that it's still quite manual when compared to Betterment/etc.

I think it's just a matter of time before the American robo-investors arrive in Australia in earnest and disrupt the entire industry. If Stockspot or someone else could do it first and do it better then there would be a massive opportunity here, albeit with lower margins.

(although I've been wrong with similar predictions before. I'm still waiting for sub-$1 buy trades, like they have in Canada*)

Personally I wouldn't use it if it were the same as Betterment - the fees are still too high, and I like the control (real or imagined) of my current setup. But I could see myself recommending it to friends/relatives one day that were trying to get started in investing.

* edit: specifically Questtrade
Title: Re: Australian Investing Thread
Post by: DrowsyBee on February 22, 2015, 02:38:52 AM
I'll throw out one question about acronyms. What are all the different names for their family members like DH and DD?
Title: Re: Australian Investing Thread
Post by: Sunnymo on February 22, 2015, 02:57:49 AM
I'll throw out one question about acronyms. What are all the different names for their family members like DH and DD?

DH = Dear husband
DW = Dear wife
DP  = Dear partner
DF = Dear fiance
SO = Significant other
DD(1)/DS(1) = Dear Daughter/Son 1, 2, 3

I hope this is what you meant
Title: Re: Australian Investing Thread
Post by: DrowsyBee on February 22, 2015, 03:04:30 AM
Really? That simple? I've been thinking the D stood for "Domestic" but that didn't make sense.

Yes, that helps, thanks.
Title: Re: Australian Investing Thread
Post by: Sunnymo on February 22, 2015, 03:06:02 AM
Could also be 'darling' I suppose. I spend time on a parenting website so I see these a lot.
Title: Re: Australian Investing Thread
Post by: FFA on February 22, 2015, 03:50:23 AM
I'll throw out one question about acronyms. What are all the different names for their family members like DH and DD?

DH = Dear husband

I must tell my wife this. I think she often has an alternative one in mind :)
Title: Re: Australian Investing Thread
Post by: Sunnymo on February 22, 2015, 04:26:37 AM
I'll throw out one question about acronyms. What are all the different names for their family members like DH and DD?

DH = Dear husband

I must tell my wife this. I think she often has an alternative one in mind :)

Lots of words that start with 'D'!
Title: Re: Australian Investing Thread
Post by: steveo on February 22, 2015, 05:47:22 AM
Hi everyone.

I'd like to ask a favor of all the Australian posters. I work for one of the big banks and we have to do a training course on experimentation. My idea was to create something like Betterment in Australia.

If we had that would you use the service assuming it was exactly the same - low fees, automatic asset allocation and tax loss harvesting ?

I can't see any of the big banks ever offering this service as I think it would cut their profits in other areas of financial advice/services too much but it'd be interesting if there was a demand for a service like that.

Hi Steveo -

I assume you have already seen www.stockspot.com.au. They are "partnered" with Macquarie, though no mention of whether they are an investor. Would like to get Chris from StockSpot to comment but my impression is that it's still quite manual when compared to Betterment/etc.

I think it's just a matter of time before the American robo-investors arrive in Australia in earnest and disrupt the entire industry. If Stockspot or someone else could do it first and do it better then there would be a massive opportunity here, albeit with lower margins.

(although I've been wrong with similar predictions before. I'm still waiting for sub-$1 buy trades, like they have in Canada*)

Personally I wouldn't use it if it were the same as Betterment - the fees are still too high, and I like the control (real or imagined) of my current setup. But I could see myself recommending it to friends/relatives one day that were trying to get started in investing.

* edit: specifically Questtrade

Thanks for the comments. I'd like more feedback from other posters. Cmon would you use it or not.

I'll give my feedback. I personally would prefer to do it myself simply by investing in index etf's if the fees are a little lower.
Title: Re: Australian Investing Thread
Post by: FFA on February 22, 2015, 07:24:00 PM
Hi everyone.

I'd like to ask a favor of all the Australian posters. I work for one of the big banks and we have to do a training course on experimentation. My idea was to create something like Betterment in Australia.

If we had that would you use the service assuming it was exactly the same - low fees, automatic asset allocation and tax loss harvesting ?

I can't see any of the big banks ever offering this service as I think it would cut their profits in other areas of financial advice/services too much but it'd be interesting if there was a demand for a service like that.

Hi Steveo -

I assume you have already seen www.stockspot.com.au. They are "partnered" with Macquarie, though no mention of whether they are an investor. Would like to get Chris from StockSpot to comment but my impression is that it's still quite manual when compared to Betterment/etc.

I think it's just a matter of time before the American robo-investors arrive in Australia in earnest and disrupt the entire industry. If Stockspot or someone else could do it first and do it better then there would be a massive opportunity here, albeit with lower margins.

(although I've been wrong with similar predictions before. I'm still waiting for sub-$1 buy trades, like they have in Canada*)

Personally I wouldn't use it if it were the same as Betterment - the fees are still too high, and I like the control (real or imagined) of my current setup. But I could see myself recommending it to friends/relatives one day that were trying to get started in investing.

* edit: specifically Questtrade

Thanks for the comments. I'd like more feedback from other posters. Cmon would you use it or not.

I'll give my feedback. I personally would prefer to do it myself simply by investing in index etf's if the fees are a little lower.
Hi Steveo,

It's funny you mention this, I have had the exact same idea recently and given it some thought already

At 0.15% MER (for $100k plus) I would be tempted to give it a look, but frankly i'd probably end up DIY too in the end. 0.15% is still 0.15% and over 40+ years it adds up.

Personally I would be keen if someone made a low cost investment portal (basically like an industry super fund available for non-super). Vanguard is heading in this direction, but their MER's are on the high side especially for small portfolio balances, and the wholesale is inflexible unless you have a huge portfolio. So for mid sized folks, it ends up being easier to tinker with a spreadsheet and executing etf's via online broker.

Re: Betterment, I haven't looked in too much detail, but i'm not a huge fan of the heavy engineering/ statistical portfolio optimisations. I don't know how much this contributes to their MER. I would advocate a simple questionnaire to determine risk tolerance, then some basic portfolios (conservative, balanced, growth etc). And maybe an option for automatic age adjustment (e.g. "age in bonds" type heuristic) so it can be a long-term / set and forget / one fund solution for those truly passive investors who want to focus their time elsewhere safe in the knowledge their funds are being invested in an efficient and disciplined manner.

The key thing for Australia is it's such a niche / small scale market. I'm not sure if a betterment (or equivalent) would fly. Nonetheless I think the banks will be experiencing severe disruption to their fin. advice / fund mgmt businesses regardless, which will come from the passive investment/etf. With Vanguard / iShares already in the market and growing, this trend can continue and accelerate rapidly if Australia follows the US. And traditional active retail fund managers will face the same challenges as Fidelity to retain market share.
Title: Re: Australian Investing Thread
Post by: FFA on February 22, 2015, 08:15:08 PM
I assume you have already seen www.stockspot.com.au. They are "partnered" with Macquarie, though no mention of whether they are an investor. Would like to get Chris from StockSpot to comment but my impression is that it's still quite manual when compared to Betterment/etc.
Thanks dungoofed for this link I hadn't heard of stockspot. Am going to check it out in more detail but my first click to the fees page.... was excited for a few seconds to see 0.044% (platinum >$500k) until I realized it's monthly :(   

So then, 0.53% p.a. and upwards MER... i'm sure I won't be going for this, but keen to explore what they are offering nonetheless.

Once again, I think the big problem for Oz is the sub scale. This is a niche within a niche. The volumes will always be small and therefore the costs will never be cheap. And the target market is index investors who tend to be cost sensitive, so it seems to me a tough challenge to work.
Title: Re: Australian Investing Thread
Post by: steveo on February 22, 2015, 08:23:44 PM
Thanks for the comments. It'd be good to get a bunch more comments.

I also hadn't heard of stock spot. Its basically the same thing as what I was thinking about.

FFA - for this to be a successful product I believe like you that you have to offer a really low MER. I can't see one of the big banks (who I work for) ever taking this up however I still think its a good idea for a training exercise.

Title: Re: Australian Investing Thread
Post by: FFA on February 22, 2015, 08:58:50 PM
Thanks for the comments. It'd be good to get a bunch more comments.

I also hadn't heard of stock spot. Its basically the same thing as what I was thinking about.

FFA - for this to be a successful product I believe like you that you have to offer a really low MER. I can't see one of the big banks (who I work for) ever taking this up however I still think its a good idea for a training exercise.
Agree not a big bank. But it could be an industry super fund or Vanguard, basically a Not For Profit business model is needed. IMO it would be hard to compete with Vanguard and I understand they are investing more to grow in Oz (focused towards super I think). Their diversified funds MER 0.35%, and they are experimenting now elsewhere with low cost financial advice. It is easy to imagine a simple package of low cost advice plus these diversified funds that will be hard for others to match. Realistically this is the likely disruptive threat to the Australian funds management industry. i guess the days of 2% MERs for CFS etc are numbered.

p.s. Yes good idea for training exercise and nifty approach to get us all to help you complete it too ;)
Title: Re: Australian Investing Thread
Post by: steveo on February 22, 2015, 09:09:39 PM
p.s. Yes good idea for training exercise and nifty approach to get us all to help you complete it too ;)

I'm meant to interview people. This is so much easier. Help me out more dudes. It'll be over soon.
Title: Re: Australian Investing Thread
Post by: bigchrisb on February 22, 2015, 10:15:34 PM
Pretty sure those loitering on these boards are deep into the DIY quadrant (financial or otherwise), so probably a somewhat skewed response.

Personally, I wouldn't pay a brass razoo for this.  I'm pretty cost sensitive - with about $2.5M under my management, one basis point is $250 a year to the bottom line.  Even paying myself $100 an hour, saving a basis point is worth two and a half hours of my time.  I'm also the kind of investor that has swapped from IVV to VTS to get from 0.07 to 0.05% (when the cost basis worked out too, for CGT).  I'm probably not the ideal profit centre for wealth management.

Heck, even my low cost ETFs and LICs (which average about 15 basis points) are costing me close to a months expenses every year.

Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 22, 2015, 10:19:41 PM
I'm wondering how long it will be before someone comes up with an Australian Shares Ex-Resources ETF :p
Title: Re: Australian Investing Thread
Post by: dungoofed on February 22, 2015, 10:26:49 PM
haha

I think if it were done well it could be as big as Betterment in the US. But the problem is making it profitable. The word on the street is that Betterment/Wealthfront/etc are not profitable, but just positioning themselves for when the big banks need to play catchup and buy out someone.
Title: Re: Australian Investing Thread
Post by: steveo on February 22, 2015, 11:44:56 PM
Pretty sure those loitering on these boards are deep into the DIY quadrant (financial or otherwise), so probably a somewhat skewed response.

Personally, I wouldn't pay a brass razoo for this.  I'm pretty cost sensitive - with about $2.5M under my management, one basis point is $250 a year to the bottom line.  Even paying myself $100 an hour, saving a basis point is worth two and a half hours of my time.  I'm also the kind of investor that has swapped from IVV to VTS to get from 0.07 to 0.05% (when the cost basis worked out too, for CGT).  I'm probably not the ideal profit centre for wealth management.

Heck, even my low cost ETFs and LICs (which average about 15 basis points) are costing me close to a months expenses every year.

This makes sense to me. I'm not in your financial position however I would probably prefer to invest directly rather than through a company like Betterment.
Title: Re: Australian Investing Thread
Post by: steveo on February 22, 2015, 11:46:10 PM
haha

I think if it were done well it could be as big as Betterment in the US. But the problem is making it profitable. The word on the street is that Betterment/Wealthfront/etc are not profitable, but just positioning themselves for when the big banks need to play catchup and buy out someone.

I agree with these comments. I can only imagine a big bank going for this as a way to retain market share and hopefully increase expenses at a later point in time.
Title: Re: Australian Investing Thread
Post by: potm on February 22, 2015, 11:48:09 PM
Most ppl who take control of their own finances and know about MER would have a similar view.

For everyone else, they'll be on their 2%+ MER. There's not much market demand for it.

I think firstly there needs to be more demand and competition in the ETF space so that their MERs get lowered. Unfortunately our market is so small. What we do have is a big pool of investments in super, if only the government would put some real reform into place for that instead of this mySuper or whatever it is they have done.
Title: Re: Australian Investing Thread
Post by: bigchrisb on February 25, 2015, 10:42:40 PM
Speaking of managing MERs on a portfolio of size, has anyone else considered redeeming their ETFs in specie? 

What this means is that you surrender $x in the ETF in exchange for the direct underlying holdings.  I reckon ETFs make a lot of sense during the accumulation, but the MER becomes non trivial eventually.  For example, the redemption unit on VAS is about $1.5M.  That means, if you have $1.5M of VAS, you can redeem it for the underlying $1.5M of securities (and a one off fee of approx $1250 - refer the PDS).

If I had 1.5M sitting there at a MER of 0.15%, I'm paying someone $2250 a year to "manage" the shares.  As its a market cap ETF, this really only means trading when shares are created or destroyed - and not just because of price changes.  I figure once a portfolio gets to that sort of size, the effort of dealing with dividend details from 300 individual stocks would start to be paid for by the cost savings.

Anyone else looked at this path before?  I'm still to figure out the CGT treatment of an in-specie redemption too.  There would be some bonus opportunities available from tax loss harvesting too.

I guess what I'm trying to say is that is there a point at which it makes sense to run your own index fund, rather than have someone else running it for you?
Title: Re: Australian Investing Thread
Post by: dungoofed on February 26, 2015, 12:03:38 AM
Steveo you might find this recent article a relevant read:

http://www.sharesight.com.au/2015/02/24/where-is-the-uber-of-australian-wealth-management/
Title: Re: Australian Investing Thread
Post by: happy on February 26, 2015, 01:39:15 AM
Steveo I've often seen Betterment  being  given positive reviews and thought "I wish we had something like that in Oz", but  I suspect if it were really available I'd look at the cost, and weigh up pretty carefully whether it really delivered anything I couldn't do myself.
Title: Re: Australian Investing Thread
Post by: Ozstache on February 26, 2015, 01:59:02 AM
Speaking of managing MERs on a portfolio of size, has anyone else considered redeeming their ETFs in specie? 

What this means is that you surrender $x in the ETF in exchange for the direct underlying holdings.  I reckon ETFs make a lot of sense during the accumulation, but the MER becomes non trivial eventually.  For example, the redemption unit on VAS is about $1.5M.  That means, if you have $1.5M of VAS, you can redeem it for the underlying $1.5M of securities (and a one off fee of approx $1250 - refer the PDS).

If I had 1.5M sitting there at a MER of 0.15%, I'm paying someone $2250 a year to "manage" the shares.  As its a market cap ETF, this really only means trading when shares are created or destroyed - and not just because of price changes.  I figure once a portfolio gets to that sort of size, the effort of dealing with dividend details from 300 individual stocks would start to be paid for by the cost savings.

Anyone else looked at this path before?  I'm still to figure out the CGT treatment of an in-specie redemption too.  There would be some bonus opportunities available from tax loss harvesting too.

I guess what I'm trying to say is that is there a point at which it makes sense to run your own index fund, rather than have someone else running it for you?

Regardless of how much I end up with in index funds, I don't mind paying 0.15% of whatever that amount is to keep my management effort to a minimum, the paperwork simple for tax time and to stop me fiddling with the mix to build a better index!
Title: Re: Australian Investing Thread
Post by: potm on February 26, 2015, 02:59:25 AM
Also if you ever needed to sell it might be a bit of a hassle to sell 300 individual stocks!
Hopefully in the long run our MERs will reduce to be closer to 0.05 like in the US.

On another note, the odds of another interest rate cut next month have once agin shifted to more likely than not. If not next month then it seems almost certain we'll get one in the next few months.
There'll be a bit of a lag effect but I can see lots of new money pouring into the market once term deposits mature and people realise they are getting less than 3%.
Title: Re: Australian Investing Thread
Post by: MsRichLife on February 26, 2015, 03:19:09 AM
There'll be a bit of a lag effect but I can see lots of new money pouring into the market once term deposits mature and people realise they are getting less than 3%.

Yep. I'm one of them. My term deposits that were earning a reasonable return are maturing and I'm looking to move the funds into the market. If I'm thinking this way, I can imagine a lot of others are too.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 26, 2015, 02:48:30 PM
Call me a contrarian market timer but wouldn't this be a good time to be stocking up on defensive assets (bonds, money market, cash, term deposits, maybe some gold)?

All the usual measures (Shiller PE Ratio, lack of Graham Number stocks, rolling 12 month # of IPOs, etc) are indicating the US and Australian markets are currently overpriced. I'm not saying we're in bubble territory but I'd be quite cautious trying to find value in today's market.
Title: Re: Australian Investing Thread
Post by: MsRichLife on February 26, 2015, 04:20:03 PM
Yes. I'm in a quandary. I developed an investment plan six months ago with strict rules for buying into and selling out of the market. I did that to take the emotion out of it all. Turns out, I haven't had a buying opportunity for some time, so in cash I remain.
Title: Re: Australian Investing Thread
Post by: bigchrisb on February 26, 2015, 05:34:44 PM
In some good news for Australian investors, Vangaurd seems to be lowering its fees. Saw a new prospectus has been issued for VEU, lowering the fees from 0.15% to 0.14%.  Wonder if similar will happen with their other funds?

Its nice that vanguard seem to do this proactively, and pass it on to their investors.

While 1 basis point may not seem like much, I have about $240k in VEU, so this is a straight transfer of $24 a year from Vanguard back to me. Happy days to the investors in VEU!
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 26, 2015, 10:33:36 PM
RBA cuts are pretty good for existing portfolios of index funds - domestic shares go up and the AUD goes down, driving up international holdings.

I don't hold any term deposits though. I feel for the retirees. I am also scared for the typical Australian SMSF's asset allocation, loaded up with equities. I hope all this "rates lower for longer" stuff is on the money, and no gigantic shocks in the market occur. Many retirees in Australia will get badly burnt. My baseless hunch is that the next big shock will be in property, but not for a while
Title: Re: Australian Investing Thread
Post by: potm on February 26, 2015, 11:44:54 PM
Call me a contrarian market timer but wouldn't this be a good time to be stocking up on defensive assets (bonds, money market, cash, term deposits, maybe some gold)?

All the usual measures (Shiller PE Ratio, lack of Graham Number stocks, rolling 12 month # of IPOs, etc) are indicating the US and Australian markets are currently overpriced. I'm not saying we're in bubble territory but I'd be quite cautious trying to find value in today's market.

Bonds are the most overpriced assets of all at the moment, which makes shares, although at very high prices, not that overpriced relatively.
We're in unprecidented situations with central banks going berserk, driving down interest rates, printing massive amounts of money. So much hinges on what actions they take from here.
It's very hard to predict how other people will behave to ride the market ups and downs successfully. Indexing just gives you the average. I prefer to buy good companies, with earnings which will not be too impacted by an economic downturn.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 27, 2015, 12:34:57 AM
Agree bonds have flipped upwards in recent weeks but not as much as stocks have.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 27, 2015, 07:27:30 AM
Agree bonds have flipped upwards in recent weeks but not as much as stocks have.

Thinking in months and years though, not weeks, and stocks are nowhere near as overpriced as bonds are.

In Europe plenty of interest rates now have a negative yield on them. I heard this recently, some media pundit quoting a bond trader: "People tell me... oh come on, you can't make money on a bond at 0%! And I reply: Really? people told me that at half a percent, and I've made a fortune since then..."
Title: Re: Australian Investing Thread
Post by: potm on February 27, 2015, 07:55:29 AM
What you have to understand is that bond prices move inversely with interest rates. The longer the duration, the more the impact. All time record low interest rates means all time high bond prices. Anyone buying bonds now for a 'safe' investment may be in for a rude shock. But as AustalianMustachio mentions, we still have some room to move in Australia.
Title: Re: Australian Investing Thread
Post by: FFA on February 27, 2015, 09:52:36 AM
Speaking of managing MERs on a portfolio of size, has anyone else considered redeeming their ETFs in specie? 

What this means is that you surrender $x in the ETF in exchange for the direct underlying holdings.  I reckon ETFs make a lot of sense during the accumulation, but the MER becomes non trivial eventually.  For example, the redemption unit on VAS is about $1.5M.  That means, if you have $1.5M of VAS, you can redeem it for the underlying $1.5M of securities (and a one off fee of approx $1250 - refer the PDS).

If I had 1.5M sitting there at a MER of 0.15%, I'm paying someone $2250 a year to "manage" the shares.  As its a market cap ETF, this really only means trading when shares are created or destroyed - and not just because of price changes.  I figure once a portfolio gets to that sort of size, the effort of dealing with dividend details from 300 individual stocks would start to be paid for by the cost savings.

Anyone else looked at this path before?  I'm still to figure out the CGT treatment of an in-specie redemption too.  There would be some bonus opportunities available from tax loss harvesting too.

I guess what I'm trying to say is that is there a point at which it makes sense to run your own index fund, rather than have someone else running it for you?
I think there's definitely a point, and especially so if you're prepared to hold asx20 (which probably covers two thirds or more of the asx 300 mkt cap anyway). Compromise some diversification but much easier on the admin, and most of these large caps are high yield stocks too. Basically this is what I did for roughly half my oz shares. I'd rather this than vhy ...
Title: Re: Australian Investing Thread
Post by: andystkilda on February 27, 2015, 02:55:37 PM
Has anyone invested significant funds in oil (through ETFs or shares that are highly exposed to the price of crude oil)?

...or am I the only one stupid enough?
Title: Re: Australian Investing Thread
Post by: dungoofed on February 27, 2015, 07:27:49 PM
While 1 basis point may not seem like much, I have about $240k in VEU, so this is a straight transfer of $24 a year from Vanguard back to me. Happy days to the investors in VEU!

Yeah most important is whether other ETF providers feel pressure to lower their own MERs. There are a lot of ETFs for which I look at the MER and think "You guys are just pulling numbers out of a hat." I understand that there are costs for running an ETF but 0.3% on a RAFI ETF, yes there's a formula involved but it's still just a formula, no different to VAS etc.

I guess conversely if local providers were really overcharging then overseas providers would see it as an opportunity to muscle in, which they haven't.

Regarding redeeming ETFs in specie, I think I'll probably be a stock picker like FFA well before my VAS holding reaches that level. But you're right it is a fair saving at that level, and it's something you can do now instead of waiting for Vanguard/etc to lower their fees.

Title: Re: Australian Investing Thread
Post by: dungoofed on February 27, 2015, 07:56:24 PM
What you have to understand is that bond prices move inversely with interest rates. The longer the duration, the more the impact. All time record low interest rates means all time high bond prices. Anyone buying bonds now for a 'safe' investment may be in for a rude shock. But as AustalianMustachio mentions, we still have some room to move in Australia.

Hi potm - I guess my point was that anyone with a stocks/bond ratio target allocation (eg 70/30) who was about to invest right now would almost certainly be buying bonds instead of stocks simply because they would currently be overweight in stocks due to recent outperformance (both US and Australian markets). And I don't think this is a bad thing if 30% of your portfolio in bonds is what you're committed to.

Of course this begs the question, is 30% (or any percent) of your portfolio in bonds actually a good strategy? (yes, we have discussed this before on this thread. Deja vu)
Title: Re: Australian Investing Thread
Post by: FFA on February 27, 2015, 08:09:56 PM
What you have to understand is that bond prices move inversely with interest rates. The longer the duration, the more the impact. All time record low interest rates means all time high bond prices. Anyone buying bonds now for a 'safe' investment may be in for a rude shock. But as AustalianMustachio mentions, we still have some room to move in Australia.

Hi potm - I guess my point was that anyone with a stocks/bond ratio target allocation (eg 70/30) who was about to invest right now would almost certainly be buying bonds instead of stocks simply because they would currently be overweight in stocks due to recent outperformance (both US and Australian markets). And I don't think this is a bad thing if 30% of your portfolio in bonds is what you're committed to.

Of course this begs the question, is 30% (or any percent) of your portfolio in bonds actually a good strategy? (yes, we have discussed this before on this thread. Deja vu)
A concern I have is if the usual diversification benefit of negative correlation might break down this time. Reason being the distortion of QE and ultra low monetary policy. Traditional biz cycle theory, interest rates are hiked as the share mkt peaks to cool the economy and vice versa at the trough. The current cycle is shares being pushed up by low interest rates. So at the moment share and bond prices are moving together and they might not hedge each other as well as they have before...

I'm also not at all keen on bonds for the time being.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 27, 2015, 08:15:44 PM
Might need some gold in there then (blaspheme!)
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on February 27, 2015, 08:31:45 PM
I agree, in this crazy central bank dominated era, we are pretty much in uncharted waters. Both bonds and equities have been propped up massively.

I personally think holding some cash is a good strategy as a hedge. For the buying opportunities in severe market downturns, if nothing else.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 27, 2015, 09:50:57 PM
btw Paul Krugman has already declared QE a runaway success. A little old but here's a good starting place if you want to learn more:

http://www.bloombergview.com/articles/2014-11-11/theres-more-to-qe-than-krugman-thinks

Title: Re: Australian Investing Thread
Post by: potm on February 28, 2015, 12:41:15 AM
Like I said, long dated bonds make stocks look very cheap at the moment. Following some set investing formula will not protect you. As FFA has mentioned, the negative correlation has broken down due to the actions of reserve banks. We now have negative interest rates in some countiries, that is absolutely insane.
Title: Re: Australian Investing Thread
Post by: dungoofed on February 28, 2015, 02:08:19 AM
Sorry that wasn't an endorsement of Krugman/QE. If anything you and I are on the same page potm, except that I'm still happy to plow money into AGBs as per my strategy. Specifically, GSBG37 (with a little in VGB). It's not a massive portion of my portfolio. It's a hedge against "stocks doing worse than whatever bonds are doing."

My brother warned me about drag due to hedging against too many black swans. You've pointed out that bonds don't return enough to warrant the risk. I'd argue that with everyone bearish on AGBs they should be a bargain right now. But the reality is that no-one knows for sure, and the best we can do is understand the underlying and invest accordingly.
Title: Re: Australian Investing Thread
Post by: potm on February 28, 2015, 07:13:56 AM
I didn't read the link. I just hope you understand how bonds work. Long dated bonds have significant price risk. They are not 'safe' assets. What they hedge against is falling interest rates. Not much else to say so I'll leave it at that.
Title: Re: Australian Investing Thread
Post by: alsoknownasDean on February 28, 2015, 08:42:35 AM
Has anyone invested significant funds in oil (through ETFs or shares that are highly exposed to the price of crude oil)?

...or am I the only one stupid enough?

Haha, I've considered the same thing. I've found an oil ETF that had taken a battering in the last year and was thinking that it's more likely to rise in the medium term.

Still, I'm probably better off putting my money into more conservative investments at first :)
Title: Re: Australian Investing Thread
Post by: FFA on February 28, 2015, 09:04:02 AM
I didn't read the link. I just hope you understand how bonds work. Long dated bonds have significant price risk. They are not 'safe' assets. What they hedge against is falling interest rates. Not much else to say so I'll leave it at that.
potm, how do u consider term deposits? Just curious. I feel the same way, have a fair cash allocation and very little FI. Recently put some of this cash (less than 15%) in a 5 yr TD at 4.15%... Would u consider this safe? To me it is, but then in some ways it's no different to a long dtd bond except you don't really reprice your TD when rates change.

Dungoofed, maybe u can consider such TD instead of AGB's ? To me anyway they make better sense the yield is more than 1% higher and they are also govt backed up to 200k...
Title: Re: Australian Investing Thread
Post by: qwerty8675309 on February 28, 2015, 04:51:35 PM
This is a great thread! Thought I'd just say hi and introduce myself. 31yo from Melbourne. Have just under $300k in various ETFs and LICs:

40% VAS and STW (I'm trying to unwind my STW holding and move it over to VAS because of the fees, but don't want to pay CGT, so I'm waiting for a market drop)
10% AFI, ARG or MLT (Invested depending on the LIC with the biggest NTA discount)
30% VTS (for exposure to the US)
20% VEU (for exposure to rest of the world)

Also have $35k in an emergency fund, but I've been thinking about reducing it to $15k (because my yearly expenses are around $15k a year). I'm not sure about the US, but here in OZ, if I lose my job, the redundancy payout is fairly substantial (worked mine out to be around $36k based on the schedule at fairwork.gov.au). Part of this is tax free as well. Essentially, if I factored this into my emergency fund, I could probably have a $0 emergency fund (or an amount that is substantially lower than I have now). What do all of you think?
Title: Re: Australian Investing Thread
Post by: potm on February 28, 2015, 06:06:07 PM

potm, how do u consider term deposits? Just curious. I feel the same way, have a fair cash allocation and very little FI. Recently put some of this cash (less than 15%) in a 5 yr TD at 4.15%... Would u consider this safe? To me it is, but then in some ways it's no different to a long dtd bond except you don't really reprice your TD when rates change
[/quote]

Yes, term deposits are much better than bonds in terms of yield at the moment. 5 years is not too long a timeframe so you are not as exposed to changes in interest rates. Bonds give you longer exposure though, which protects you against falling interrst rates. This would have been good for all the retirees who were too scared to invest and are now struggling. If they had gotten themselves some long dated bonds back when rates were high they would have been protected.

As to your term deposit. Do you value that 4.15% yeild highly enough to want to lock it in for 5 years. Personally I would rather keep cash. You can spend cash on neccesities or investments when the opportunities arise.
Title: Re: Australian Investing Thread
Post by: FFA on March 01, 2015, 08:20:19 AM
Yes agree, 85+% of my defensive allocation in high interest savers earning mid to high 3%. Just wanted at least some FI in portfolio and saw TD as better way to go than bonds right now.

But the other point I was getting at maybe TD seems safer since it doesn't have mtm repricing. Eg soon after I locked mine in the bank reduced to 4% (yay), but unlike a bond there is no 2ndary mkt and therefore no increase above face value due to the rate cut.
Title: Re: Australian Investing Thread
Post by: potm on March 01, 2015, 01:54:42 PM
You're thinking about it the wrong way. Having no secondary market is a negative. You can sell the bond if you need the money but with the term deposit you have to break it and pay whatever that costs. Your term deposit does change in value when interest rates change, you just can't see it. Kind of like an unlisted company.
Title: Re: Australian Investing Thread
Post by: DrowsyBee on March 01, 2015, 05:40:59 PM
http://www.canberratimes.com.au/business/number-of-new-australian-millionaires-hits-fiveyear-high-20150301-13qv45.html?skin=text-only (http://www.canberratimes.com.au/business/number-of-new-australian-millionaires-hits-fiveyear-high-20150301-13qv45.html?skin=text-only)

From yesterday's Canberra Times. I'm guessing this Net Worth is from property and people finally paying off their PPOR/Investment Properties with such low interest rates. Looks like we are on track to have over 1 million millionaires in this country in the near future, according to the article.

"The largest barrier preventing rich investors from taking up investment advice was the preference for control." - Ain't that a funny problem, if you've got a million dollars without Financial Advice, why would you need it after you've got $1 million? With a background in marketing, if I wanted to target these millionaires, I'd do more articles about millionaires and impending doom and gloom to make millionaires think they need professional help to maintain their net worth. So, probably expect more articles mentioning the r-word that sell financial advice in the near future.
Title: Re: Australian Investing Thread
Post by: FFA on March 02, 2015, 02:20:56 AM
This is a great thread! Thought I'd just say hi and introduce myself. 31yo from Melbourne. Have just under $300k in various ETFs and LICs:

40% VAS and STW (I'm trying to unwind my STW holding and move it over to VAS because of the fees, but don't want to pay CGT, so I'm waiting for a market drop)
10% AFI, ARG or MLT (Invested depending on the LIC with the biggest NTA discount)
30% VTS (for exposure to the US)
20% VEU (for exposure to rest of the world)

Also have $35k in an emergency fund, but I've been thinking about reducing it to $15k (because my yearly expenses are around $15k a year). I'm not sure about the US, but here in OZ, if I lose my job, the redundancy payout is fairly substantial (worked mine out to be around $36k based on the schedule at fairwork.gov.au). Part of this is tax free as well. Essentially, if I factored this into my emergency fund, I could probably have a $0 emergency fund (or an amount that is substantially lower than I have now). What do all of you think?
Personally I would keep enough to live for a year and not rely on any redundancy or other assistance, treat them as bonuses if and when you get them.

Separate from this emergency fund, you may consider if you want to be 100% equities (very high risk tolerance needed) or have some cash/fixed interest allocation. I'm not sure if you have already, or what you've shown is your entire portfolio in the shares. Some people use age related rules of thumb e.g 110 minus your age, which would imply in your case 79% shares /21% bonds-term deposits-cash.

Your share allocations and logic all seem very sensible.
Title: Re: Australian Investing Thread
Post by: deborah on March 02, 2015, 03:24:24 AM
Also have $35k in an emergency fund, but I've been thinking about reducing it to $15k (because my yearly expenses are around $15k a year). I'm not sure about the US, but here in OZ, if I lose my job, the redundancy payout is fairly substantial (worked mine out to be around $36k based on the schedule at fairwork.gov.au). Part of this is tax free as well. Essentially, if I factored this into my emergency fund, I could probably have a $0 emergency fund (or an amount that is substantially lower than I have now). What do all of you think?
Personally I would keep enough to live for a year and not rely on any redundancy or other assistance, treat them as bonuses if and when you get them.
There are a lot of other things that can happen besides redundancy! Even a redundancy is not guaranteed (or at least not immediately). If a company goes under, it often hasn't paid employees' superannuation (companies can legitimately be a quarter behind in this, and when companies are about to go under, they are usually further behind), let alone the redundancy and holiday payments owed. There are schemes for these circumstances, but they are not going to give you everything. For instance http://www.theaustralian.com.au/news/nation/firm-has-to-cash-up-and-pay-workers-superannuation/story-e6frg6nf-1225891380508 was the first case where the federal General Employee Entitlement and Redundancy Scheme was used.

Quite some years ago, I was injured when a double decker bus rammed my car, and could only work part time for three years. Because I didn't have a work history of 6 months in the type of work I was doing, I couldn't claim for the enormous amount of money I missed out on earning. This is just one instance where there are cracks that you can fall between. Your emergency fund is for those types of unpredictable things. By all means, pare it down to 1 year's spending, but I wouldn't go without it entirely.
Title: Re: Australian Investing Thread
Post by: qwerty8675309 on March 02, 2015, 04:42:22 AM
Personally I would keep enough to live for a year and not rely on any redundancy or other assistance, treat them as bonuses if and when you get them.

Separate from this emergency fund, you may consider if you want to be 100% equities (very high risk tolerance needed) or have some cash/fixed interest allocation. I'm not sure if you have already, or what you've shown is your entire portfolio in the shares. Some people use age related rules of thumb e.g 110 minus your age, which would imply in your case 79% shares /21% bonds-term deposits-cash.

Your share allocations and logic all seem very sensible.

Giving this some more thought, you are definitely correct - there is always the chance that there won't be a redundancy payment, particularly if the company goes under or refuses to pay. I think I'll stick with a years worth of expenses in my emergency fund.

I know it seems risky, but yes - excluding my emergency fund, 100% my investments are in equities. My investment strategy is to stay 100% in equities until 25 years before retirement, and then to increase my bond holding by 2% a year until retirement. This is based on a Vanguard article I read a while back. It said that over 25-30 years, equities have a very high chance of returning a positive return (from memory it was something like 99%) based on historical market returns, even if you included the great depression over that 30 year period. I also see bonds as being a bit of a drag on my portfolio at my age (just a personal preference) because the income is not franked, and the average returns are generally lower than with equities. I do see the advantage of holding bonds as a re-balancing strategy though, so I can take advantage of stock market corrections, but given the correlation between bonds and equities lately, I'm not sure how much of an advantage this will actually be.
Title: Re: Australian Investing Thread
Post by: dungoofed on March 02, 2015, 07:21:12 PM
On another note, the odds of another interest rate cut next month have once agin shifted to more likely than not. If not next month then it seems almost certain we'll get one in the next few months.

Indeed, the talking heads have gone from "will the RBA cut rates?" to "the RBA will cut rates, but here are the reasons why it's a bad idea..."

Not sure how this is all going to turn out. Frustrating that as a country the only tool in our tookit is interest rates.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on March 02, 2015, 08:38:16 PM
RBA cuts are pretty good for existing portfolios of index funds - domestic shares go up and the AUD goes down, driving up international holdings.

Haha after glancing at the news, looks like i jinxed myself
Title: Re: Australian Investing Thread
Post by: FFA on March 05, 2015, 06:06:38 PM
http://www.rba.gov.au/speeches/2015/sp-dg-2015-03-05.html (http://www.rba.gov.au/speeches/2015/sp-dg-2015-03-05.html)

This is worth a read
Title: Re: Australian Investing Thread
Post by: urbanista on March 05, 2015, 06:41:07 PM
I could probably have a $0 emergency fund (or an amount that is substantially lower than I have now). What do all of you think?

What if you get sick and need an urgent surgery but the public hospital would not be able to book you in immediately? Our uncle had to have an emergency heart by-pass surgery. Public system said he had to wait, and he had inadequate private cover so they didn't cover it. Eventually, he was able to use family connections to get surgery done in the public hospital quickly. I have no such connections, so prefer to keep cash ready. Also, he run up $10K bill just for special tests - that's out of pocket.

Title: Re: Australian Investing Thread
Post by: dungoofed on March 05, 2015, 09:54:19 PM
http://www.rba.gov.au/speeches/2015/sp-dg-2015-03-05.html (http://www.rba.gov.au/speeches/2015/sp-dg-2015-03-05.html)

This is worth a read

One area where low interest rates do appear to be having the broadly expected effect is on asset prices: global equity markets have been strong; property prices are again recording solid gains in some countries; and bond prices have increased substantially. However, for these increases in asset prices to boost the global economy, households and businesses need to respond by increasing their spending. While in the United States there are now some signs that this is happening, on the whole the response of private spending to higher asset prices has been muted.

Overall, looking at this experience, I find it difficult to escape the conclusion that changes in interest rates are not affecting decisions about spending and saving in the way they might once have done.
Undoubtedly, low interest rates are helping to repair balance sheets by lowering debt-servicing costs and by pushing up asset prices. In so doing, they are helping lay the foundations for future growth in consumption and investment. But, while this repair process is taking place, consumption is weaker than it otherwise would be. In turn, subdued consumption growth is feeding through to a more subdued business climate and weaker investment.


Maybe people have become more mustachian!


Title: Re: Australian Investing Thread
Post by: FFA on March 05, 2015, 10:18:28 PM
MMM is derailing the global economy !?! Haha

On a serious note though I find this cautionary and from a credible source... basically admitting that monetary policies are not really working as intended anymore, have substantially propped up shares and property, and we are in unchartered territory.
Title: Re: Australian Investing Thread
Post by: potm on March 05, 2015, 11:11:50 PM
Thanks for the link, good speech that summaries where we are. Doesn't tell us where we're headed from here though, unprecendented times. Monetary policy might not be having much impact with reductions, but I'm sure any rate rises would have some pretty significant impacts at the moment.
Title: Re: Australian Investing Thread
Post by: englyn on March 05, 2015, 11:27:16 PM
Why would a Mustachian with share investments have a non-zero emergency fund?
Consider possible scenarios.
1) Most likely - nothing bad happens. In which case your money's better off invested.
2) Somewhat likely - small bad thing happens, like unexpected major car expenses. In which case, a zero balance zero fee credit card is your friend, until you have the chance to pay it off from wages/cash allocation/if all else fails share sales.
3) Extremely unlikely - something really terrible happens. For which I have credit cards, health insurance (because it's less than the medicare levy surcharge), income protection/TPD insurance. And if all else fails I can sell shares and get the cash in a few days.
The opportunity cost of having money out of the market is way more than the tiny chance of potential cost of having to sell shares at a suboptimal time IMO.
Title: Re: Australian Investing Thread
Post by: FFA on March 06, 2015, 08:07:48 AM
Why would a Mustachian with share investments have a non-zero emergency fund?
Consider possible scenarios.
1) Most likely - nothing bad happens. In which case your money's better off invested.
2) Somewhat likely - small bad thing happens, like unexpected major car expenses. In which case, a zero balance zero fee credit card is your friend, until you have the chance to pay it off from wages/cash allocation/if all else fails share sales.
3) Extremely unlikely - something really terrible happens. For which I have credit cards, health insurance (because it's less than the medicare levy surcharge), income protection/TPD insurance. And if all else fails I can sell shares and get the cash in a few days.
The opportunity cost of having money out of the market is way more than the tiny chance of potential cost of having to sell shares at a suboptimal time IMO.
Depends on your risk tolerance and personal situation. Ten years ago I thought the same way. Nowadays since becoming FI and having two young kids I became much more risk averse. Basically it's all about 3). If my wife or child gets in any kind of serious problem I want to have cash on hand if needed.
Title: Re: Australian Investing Thread
Post by: deborah on March 06, 2015, 04:28:57 PM
Why would a Mustachian with share investments have a non-zero emergency fund?
Consider possible scenarios.
1) Most likely - nothing bad happens. In which case your money's better off invested.
2) Somewhat likely - small bad thing happens, like unexpected major car expenses. In which case, a zero balance zero fee credit card is your friend, until you have the chance to pay it off from wages/cash allocation/if all else fails share sales.
3) Extremely unlikely - something really terrible happens. For which I have credit cards, health insurance (because it's less than the medicare levy surcharge), income protection/TPD insurance. And if all else fails I can sell shares and get the cash in a few days.
I do agree that an "emergency fund" is somewhat unnecessary, but I always have a year of cash lying around that I can get at very easily, and is used for all my day to day costs. After all, in the mustashian world, this is a fairly small amount of money, gaining reasonable interest, which stops me from having to sell shares or other long term investments in a low market. If I need it for an emergency, I will just need to buy less as the dividends etc. slowly increase the pool back to what I want. It also enables me to take advantage of investment opportunities.
Title: Re: Australian Investing Thread
Post by: DrowsyBee on March 06, 2015, 04:46:06 PM
Can't we easily explain the lack of increase in spending by the...you know...incredibly low rates that people are taking advantage of to pay off their house quicker than normal?
Title: Re: Australian Investing Thread
Post by: FFA on March 06, 2015, 04:57:09 PM
Can't we easily explain the lack of increase in spending by the...you know...incredibly low rates that people are taking advantage of to pay off their house quicker than normal?
Normal expected behavior people will pay off faster when interest rates are high, and their repayments will be bigger anyway due to the interest component. With low rates people might let the loan sit and interest components are less. More important the impact on new borrowings to spend/invest, which are incentivized by low rates and discouraged by high rates. That's the usual theory but it's not working so well this time around.
Title: Re: Australian Investing Thread
Post by: Minion on March 06, 2015, 05:05:00 PM
I'm taking full advantage of the low interest rates to smash our non tax deductable debt.
Title: Re: Australian Investing Thread
Post by: happy on March 07, 2015, 03:17:18 PM
I am also. Having had a mortgage back in the 17% interest days, makes me realise what an opportunity I have right now at <5%. Also my mortgage has to go before I can retire…..
Title: Re: Australian Investing Thread
Post by: Astatine on March 08, 2015, 12:07:26 AM
Me too. I was too young to have a mortgage when mortgage interest rates were sky high, but I did have term deposits at the time with amazing interest rates. Want to clear our mortgage asap. Should be done sometime next year, assuming health and job security are both fine.

Re emergency funds: I always want to have about a year's worth of expenses as my emergency fund. I plan on using online bank accounts with the ok-ish interest rates (or in combination with rolling term deposits). At the moment our emergency fund is in our redraw account. Takes a maximum of 3 business days to access it and we have a credit card to fill in any of the gaps.

Anyone who thinks that insurance is all you need is possibly being a little naive or optimistic. Claiming from insurance is not quick or easy, and requires a lot of evidence. How do I know this? A friend recently had to fill out the paperwork to claim money from her income protection insurance while processing the fact she might not see her 35th birthday, and navigating complex treatment options, while fuzzy headed from chemo and radiation is not easy. And you don't get payment immediately. Meanwhile, not everything is covered in the public health system, and if your life is at risk, waiting is not really a choice, and chemo and the various tests all add up to the thousands of dollars very quickly.

Yes, the likelihood is low, but the consequences are major. Ditto for non-elective surgery, emergency repairs to your house, or being involved in an accident. A compromise might be 3 months worth of expenses in a liquid emergency fund. But $0 is quite optimistic that everything can be covered by a credit card (including rent or mortgage, bills and so on).
Title: Re: Australian Investing Thread
Post by: qwerty8675309 on March 09, 2015, 04:12:55 AM
I've been reading through some of the other interesting posts on the MMM forums regarding asset allocation. This has made me think that my 100% stock allocation (excluding emergency fund) might not be a great idea during the accumulation phase. From what I can understand, there are a few reasons why a portfolio should hold bonds:

1. Reduces portfolio value fluctuations, making large market drops easier to stomach
2. Provides opportunities to rebalance (reversion to the mean, correlation, etc)
3. Helps to reduce the impact to your portfolio if you are forced to sell part of it (http://forum.mrmoneymustache.com/investor-alley/why-would-i-be-in-anything-other-than-100-stocks/msg541404/#msg541404)

Points 1 and 2 are very good reasons to hold at least some portion of your portfolio in bonds, but I think I've underestimated the impact of having to sell part of my portfolio if my emergency fund ever runs out. Take the following scenario - lets say I have 6 months of expenses in an emergency fund, and I have 100% of my portfolio in stocks. The market drops 30% over a few months, and I lose my job (I think the risk of this happening increases during market downturns). I burn through my 6 months of emergency funds, but I still don't have a job. I would be forced to start selling my stocks when they're 30% down until I find another job.

Lets take the same scenario, but mix up the asset allocation a bit. I still have 6 months of expenses in an emergency fund, but now I also have 12 months worth of expenses in bonds. The remainder of my portfolio would be in stocks. The market drops 30% over a few months, and I lose my job. I burn through my 6 months of emergency funds, but instead of selling stocks that would be down 30%, I would start to sell just my bonds (which have kept their value during the downturn). Once I've found a job, I would rebuild my emergency fund and bond position until they are back to the original allocation. This way, I wouldn't be forced to sell my stock position when it is 30% down.

Maybe I'm mad, but has anybody else thought that a bond allocation should be a fixed amount (relative to expenses) during the accumulation phase instead of a percentage of your total portfolio?
Title: Re: Australian Investing Thread
Post by: dungoofed on March 09, 2015, 04:56:08 AM
I saw that exact scenario play out around me many times post-Lehman here in Japan. People bought houses, bought stocks, etc during the boom times. Then had to liquidate when the bottom fell out of the market.

I think it was mentioned in the other thread but one of the best defenses against having to sell in a downturn is having a low COL to begin with. Of my friends here who lost their job post-Lehman, there was one guy whose expenses were so low that he didn't panic at all when he lost his six-figure salary job, he just went out and did some part time jobs and some English teaching for, like, a year in order to tide himself over. He could have benefited from keeping his job and continued piling more money into the market, sure, but all things considered things worked out ok for him.
Title: Re: Australian Investing Thread
Post by: marty998 on March 09, 2015, 02:33:10 PM
Bonds don't necessarily keep their value in a downturn. Many corporate debt instruments (and hybrids) lost as much or more than stocks during this time.

Only if you stick to government bonds can you say for sure they will hold their value.
Title: Re: Australian Investing Thread
Post by: slothman on March 09, 2015, 06:27:12 PM
Only if you stick to government bonds can you say for sure they will hold their value.

What's the advantage of holding bonds over cash? My thinking is to keep over a years living expenses in a high interest savings account and the rest in LICs/ETFs.
Title: Re: Australian Investing Thread
Post by: quidgy on March 09, 2015, 08:47:08 PM
Great thread all. Replying to subscribe.
Title: Re: Australian Investing Thread
Post by: qwerty8675309 on March 10, 2015, 02:34:11 AM
What's the advantage of holding bonds over cash? My thinking is to keep over a years living expenses in a high interest savings account and the rest in LICs/ETFs.

The average return for bonds is higher when compared to cash; however a bond can fluctuate in value because of interest rates and other factors, so it is not capital stable.

I think from the perspective of an emergency fund, it would be prudent to hold most, if not all of your emergency fund in cash. I'm just asking whether there would be advantages in holding some bonds in addition to your emergency fund instead of 100% in stocks during the accumulation phase. This would give you an additional buffer - you could sell down these bonds instead of selling stocks during a market correction if you happen to burn through your emergency funds.
Title: Re: Australian Investing Thread
Post by: marty998 on March 10, 2015, 04:57:08 AM
Hmm in order of preference you should hold your cash as:

1) cash in home mortgage offset account
2) cash in investment offset account
3) cash in high interest online saver account
4) cash in transaction account

Of course, your first option for an emergency should be using a 55 day interest free credit card.

Title: Re: Australian Investing Thread
Post by: Coach on March 15, 2015, 09:39:26 PM
Glad I found this thread, it has been very interesting. This latest question on bonds vs cash coincides with what I've had bouncing around in my head for a couple of weeks.

I've been doing a lot of reading about portfolio balance for different goals, and most of the rationale for the different (passive) strategies make sense to me. What I still haven't got my head around is why even the most aggressive fund options still put around 10% in bonds and/or other fixed-interest instruments. If you've opted for a passive aggressive strategy you're looking at the very long term, only care about growth, and are ignoring volatility, so why have anything at all in bonds?

To make some guesses:
1. As discussed here, it gives you something to sell in an emergency without taking a hit if the market is in a downturn. But in that case (and aside from the bonds vs cash argument) is a fixed percentage of your portfolio necessary instead of just a dollar amount (that could be held in fixed interest investments or even just a good savings account).
2. It's just another bit of diversification. But is it wasteful diversity if you already have good diversification in equities across sectors and countries?
3. People have calculated that (on average and over time) the return of a bond allocation of that size during a downturn is greater than the return it would otherwise provide?

I get principle of negative correlation and why it makes sense for a number of portfolio types - when you need to produce regular income, for example - but wondered if it was worth the opportunity cost if you were going to set-and-forget an aggressive portfolio for thirty years. I presumed you'd move a portion into bonds several years before needing your portfolio to produce an income and weather a downturn, but until then go for growth alone.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on March 16, 2015, 05:50:25 PM
Quote
What I still haven't got my head around is why even the most aggressive fund options still put around 10% in bonds and/or other fixed-interest instruments. If you've opted for a passive aggressive strategy you're looking at the very long term, only care about growth, and are ignoring volatility, so why have anything at all in bonds?

you are correct.

for me, in the accumulation phase, I am 100% shares.

This could potentially get too scary for me as I approach FIRE, so I might change the asset allocation to include fixed interest, or term deposits, or bonds.
Title: Re: Australian Investing Thread
Post by: slothman on March 16, 2015, 05:52:58 PM
for me, in the accumulation phase, I am 100% shares.

100% property and shares for me. With plenty of leverage to boot.
Title: .
Post by: This_Is_My_Username on March 16, 2015, 08:50:16 PM
speaking of leverage,

does anyone know where I can get a margin loan at/near 5% ?

I have already fully borrowed up to 80% LVR on my house, and make interest-only payments.
Title: Re: Australian Investing Thread
Post by: Coach on March 16, 2015, 08:54:36 PM
you are correct.

for me, in the accumulation phase, I am 100% shares.

This could potentially get too scary for me as I approach FIRE, so I might change the asset allocation to include fixed interest, or term deposits, or bonds.

Thanks, I presume then that funds just don't want the headache of offering too many different allocation strategies.
Title: Re: Australian Investing Thread
Post by: dungoofed on March 16, 2015, 09:31:58 PM
This question comes up quite often. Here are two recent examples:

http://forum.mrmoneymustache.com/investor-alley/why-would-i-be-in-anything-other-than-100-stocks/
http://forum.mrmoneymustache.com/investor-alley/the-case-against-100-stocks/

(I believe the former has even more links)

Title: Re: Australian Investing Thread
Post by: superannuationfreak on March 16, 2015, 09:33:19 PM
I've been doing a lot of reading about portfolio balance for different goals, and most of the rationale for the different (passive) strategies make sense to me. What I still haven't got my head around is why even the most aggressive fund options still put around 10% in bonds and/or other fixed-interest instruments. If you've opted for a passive aggressive strategy you're looking at the very long term, only care about growth, and are ignoring volatility, so why have anything at all in bonds?

A key reason is that most investors do not really know their own risk appetite.  In particular, an investor who has not been through a substantial downturn with a substantial "chunk of change" at risk doesn't really know if they can ignore volatility.  If we can, that's great.  If we can't, better-off being honest with yourself, recognising it and setting your asset allocation accordingly rather than selling in a panic during an inevitable periodic downturn.
Title: Re: Australian Investing Thread
Post by: Coach on March 16, 2015, 10:27:09 PM
Ah thanks. Sorry it was an old question, I was searching on the wrong terms.
Title: Re: Australian Investing Thread
Post by: dungoofed on March 16, 2015, 10:30:44 PM
Well as you can see from those threads it is far from decided. Also, we only have past performance to go by.
Title: Re: Australian Investing Thread
Post by: MsRichLife on March 17, 2015, 04:52:43 AM
I've been doing a lot of reading about portfolio balance for different goals, and most of the rationale for the different (passive) strategies make sense to me. What I still haven't got my head around is why even the most aggressive fund options still put around 10% in bonds and/or other fixed-interest instruments. If you've opted for a passive aggressive strategy you're looking at the very long term, only care about growth, and are ignoring volatility, so why have anything at all in bonds?

A key reason is that most investors do not really know their own risk appetite.  In particular, an investor who has not been through a substantial downturn with a substantial "chunk of change" at risk doesn't really know if they can ignore volatility.  If we can, that's great.  If we can't, better-off being honest with yourself, recognising it and setting your asset allocation accordingly rather than selling in a panic during an inevitable periodic downturn.

This is true. I thought I had a high risk tolerance....until 2008 when I lost a huge chunk of change.

Some of the cavalier attitudes I read on the MMM forum make me squirm.
Title: Re: Australian Investing Thread
Post by: Sunnymo on March 17, 2015, 10:48:34 PM
I thought I had a high risk tolerance....until 2008 when I lost a huge chunk of change.

Some of the cavalier attitudes I read on the MMM forum make me squirm.

I actually think my risk tolerance is higher than I give myself credit for but I wouldn't go so far as describing myself as cavalier - more like rational over the emotional.

I track the value of my direct share portfolio and managed funds each fortnight and just went back through it. Direct shares fell from a pre GFC peak of $72k to a low of $46k (break even of $75k). Managed funds fell from all time high of $115k to $64k with $8.5k of my own money thrown in from my own pocket to provide a buffer against a margin call.

I recall feeling concerned but never panicked about the market direction. I also bought throughout the downturn and practice selective reinvestment of divs and the shares are now sitting at $143k and the managed funds at $130k.
Title: Re: Australian Investing Thread
Post by: marty998 on March 18, 2015, 01:19:51 AM
BHP / South32 demerger? Sell straight away or hold because Glencore will make a play for it?

Can't really call it a minor spin-off - at $22 billion valuation it'll still be a top 20 company easy.

Accountants, Lawyers and Investment Bankers have had a field day with this one, upwards of $700 million in fees and expenses. Makes you wonder whether safeguarding shareholder's interests is still the main game, as opposed to keeping white collar workers in jobs :)
Title: Re: Australian Investing Thread
Post by: deborah on March 18, 2015, 03:00:49 AM
They are selling it at the wrong time.
Title: Re: Australian Investing Thread
Post by: dungoofed on March 18, 2015, 05:47:40 AM
$22 billion?

(http://www.riverbendnelligen.com/dreaming.jpg)
Title: Re: Australian Investing Thread
Post by: dungoofed on March 18, 2015, 05:48:43 AM
$700 million should at least buy the most accurate appraisal money can buy.
Title: Re: Australian Investing Thread
Post by: Sparkie on March 18, 2015, 06:05:08 PM
Thanks for this thread. Very enlightening

EDIT: I did post about salary sacrifice but got a decimal point in the wrong place so it was all a bit sill in the end. Disregard :)

Apologies


Title: Re: Australian Investing Thread
Post by: dungoofed on March 22, 2015, 04:04:16 PM
http://www.smh.com.au/small-business/trends/can-the-boomers-sell-their-businesses-20150322-1428k0.html

Looks like there could be some opportunities here for people who know what they're doing.
Title: Re: Australian Investing Thread
Post by: deborah on March 22, 2015, 04:46:06 PM
I know several business owners who just couldn't sell their businesses and ended up walking away. Then there are businesses like Bullocky Bill's at the "dog on the tuckerbox" stop near Gundagai. They have been trying to sell that business for at least the last three years (huge sign out the front for a couple of years, now there is a smaller sign on the doorway - probably put people off). It is always full of customers, and it is a huge place with a big takeaway/restaurant, locally made gifts (mainly food, jam...) and a fruit and vegetable shop. It appears to be running down a bit now, and the place actually at the dog statue has re-opened (it was closed for about ten years from just after Bullocky Bill's opened), and actually produces food that is as good.

There are a lot of businesses being squashed by technology. A friend (who owns a business) was talking about her brother who has a news agency and wants to retire - can't sell a news agency for anything these days (particularly as post office news agencies are all saying they are losing money on the post office side of their business). Her business has gone from four shops to two over the past few years although you would think the business they are in would be technology proof. The huge scaling down of the public service has hit Canberra businesses hard.

People went into these businesses, worked hard, made the business work and give them a livelihood, and now, when they need to sell the business to fund their retirement, the business simply can't sell.

Title: Re: Australian Investing Thread
Post by: TJEH on March 23, 2015, 09:34:32 PM
Hi,

MMM is a very recent find for me, very happy to discover it! I'm hoping to get some insight into developing an investment strategy, so here goes......

I have some equity investments already, made up of individual ASX stocks (NAB, CBA, CSL, COH, BWP), LIC's (AFI, ARG, CTN) and ETF's (VAP). All up ~100k, so fairly small holdings in each as I just got started a few years ago and have been dabbling. I also have ~18KUSD split evenly between ETF's VOO (S&P500) and VXF (US Extended Market) and Berkshire-B, all held via a US broking account.

I'm now at the point where I want to develop a strategy (rather than continue the dabbling!) and ramp up the investments considerably. I have a lump sum in cash that I want to invest and I'm finding it difficult to put together a good plan. I've had some introductory chats to some financial advisers that has more or less confirmed that I probably won't use them!

The ETF and\or LIC path still appeals, I just need to figure out  the strategy and breakdown. I read the greaterfool.ca blog, although Canadian there seems to be some relevance to Australia, and (at least for me) his thoughts seems to resonate.

He often mentions a portfolio as follows, with re-balancing (I think a couple of times a year), along the lines of:

60% Growth: ETF's, comprising a small REIT holding, then one third evenly split between ASX, US, and international markets. Mix of large cap and smaller cap in each.

40% Defensive: ETF's, Half in bonds and half in preference shares.

A couple of links for reference:
http://www.greaterfool.ca/2015/02/03/surprise-9/
http://www.greaterfool.ca/2015/02/13/the-motivator/

Before getting into how such a portfolio breakdown might look, I'd be interested to know your thoughts on the strategy. One part in particular I'm unsure about (uneducated perhaps!) is how the growth and balance components offset each other. I know the idea is that when equities are down, the fixed income will be up, and vice-versa, but in practice it's unclear how this will help me (FYI I'm planning to hold my portfolio long term and live off the income in the not too distant future, perhaps in < 5 years).

I've got a basic understanding how moves in interest rates affect bond prices and yields but I'm unsure how this is a good thing for the portfolio - e.g. do I care that bond prices (ETF's) go up in a market downturn.....I'm not planning on selling anyway. And if I buy them in a downturn it would suggest I'm paying for something that is going to decline in value, as well as getting a low yield. As I said, it's fair to say I don't understand this well.....

There is probably lots more to add, but I'd be appreciative of your thoughts.
Title: Re: Australian Investing Thread
Post by: Sunnymo on March 24, 2015, 04:32:27 AM
Just came across this article...

http://www.brisbanetimes.com.au/business/banking-and-finance/lump-sum-superannuation-payments-for-retirees-could-end-20150324-1m6nou.html (http://www.brisbanetimes.com.au/business/banking-and-finance/lump-sum-superannuation-payments-for-retirees-could-end-20150324-1m6nou.html)

I like the idea of not being able to take Super as a lump sum. So often I hear of people deliberately spending down the lump sum in order to qualify for the pension (or at least a part). It will be interesting to see if/how this develops but would work better for those that have had access to Super for their full working life rather than those that haven't.
Title: Re: Australian Investing Thread
Post by: sirdeets on March 24, 2015, 07:42:59 PM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?
Title: Re: Australian Investing Thread
Post by: bigchrisb on March 24, 2015, 07:56:43 PM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?

No, I don't.  My basis:
- I've got a degree in econometrics
- Played with it over about 10 years (in the thousands of hours), with a mix of real and play money
- My results did not generate any risk adjusted alpha when used for real trades.  Back testing looked super rosy!

My conclusion:
- Either it doesn't work; OR
- I'm not very skilled using it (and after that much time, unlikely to improve); Hence
- I'm better off putting my time into something with a higher productivity, or with a better leisure value.

I still use a bit of value/fundamental analysis, but in the main I'm a passive buy and hold investor.
Title: .
Post by: This_Is_My_Username on March 24, 2015, 09:38:41 PM
Quote
60% Growth: ETF's, comprising a small REIT holding, then one third evenly split between ASX, US, and international markets. Mix of large cap and smaller cap in each.  40% Defensive: ETF's, Half in bonds and half in preference shares

TJEH, that looks fine.  There is no "Correct" asset allocation, and your 60/40 idea seems fair.  The main considerations are your (1)years-to-retirement and (2)risk appetite.   If these 2 things are lower, you need a less risky asset allocation.

Quote
is how the growth and balance components offset each other. (buy and hold)

"Growth" assets will be worth more in the long run, but have lots of ups-and-downs every year.
"Defensive" assets will be worth less in the long run, but have less ups-and-downs every year.

a 60/40 portfolio averages out the growth and volatility.
asset values will have modertately good improvement, with moderate volatility.
cash income (dividends) will have moderately good growth with moderate volatility.

compare this to a 10/90 portfolio which has very shitty growth and almost zero volatility.  Or a 100/0 portfolio which has excellent growth with wild volatility fluctuations.

TJEH let me know if you have any questions?
Title: Re: Australian Investing Thread
Post by: dungoofed on March 25, 2015, 12:02:10 AM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?

No, I don't.  My basis:
- I've got a degree in econometrics
- Played with it over about 10 years (in the thousands of hours), with a mix of real and play money
- My results did not generate any risk adjusted alpha when used for real trades.  Back testing looked super rosy!

My conclusion:
- Either it doesn't work; OR
- I'm not very skilled using it (and after that much time, unlikely to improve); Hence
- I'm better off putting my time into something with a higher productivity, or with a better leisure value.

I still use a bit of value/fundamental analysis, but in the main I'm a passive buy and hold investor.

+1 (though without the degree in econometrics)

I have seen firsthand how little institutional traders rely on it. They talk it up a lot (especially candlestick here in Japan), and are quick to attribute certain movements to it after the fact. But 90% of their profit comes from a combination of long term positions and short term flow trading around market announcements.

Title: Re: .
Post by: TJEH on March 27, 2015, 07:28:55 AM
Quote
60% Growth: ETF's, comprising a small REIT holding, then one third evenly split between ASX, US, and international markets. Mix of large cap and smaller cap in each.  40% Defensive: ETF's, Half in bonds and half in preference shares

TJEH, that looks fine.  There is no "Correct" asset allocation, and your 60/40 idea seems fair.  The main considerations are your (1)years-to-retirement and (2)risk appetite.   If these 2 things are lower, you need a less risky asset allocation.

Quote
is how the growth and balance components offset each other. (buy and hold)

"Growth" assets will be worth more in the long run, but have lots of ups-and-downs every year.
"Defensive" assets will be worth less in the long run, but have less ups-and-downs every year.

a 60/40 portfolio averages out the growth and volatility.
asset values will have modertately good improvement, with moderate volatility.
cash income (dividends) will have moderately good growth with moderate volatility.

compare this to a 10/90 portfolio which has very shitty growth and almost zero volatility.  Or a 100/0 portfolio which has excellent growth with wild volatility fluctuations.

TJEH let me know if you have any questions?

Thanks This_Is_My_Username - sorry for my slackness in replying!

Your comments re growth and volatility make sense.

I suppose, perhaps fortunately, I haven't been invested in the market throughout any significant downturns, hence the importance of bonds are not as clear as they could be.

I'm trying to decide how to invest the defensive part of my portfolio. Previously I've just used high interest accounts and term deposits. I'm trying to see how bonds could help me.

As naive as this sounds, if I'm relying on my investments for my income, should things turn pearshaped on the equities front, theoretically the bonds would be up in value, giving me something to sell in order to generate some income? Maybe.....

Thanks for your reply
Title: Re: Australian Investing Thread
Post by: JamesSyd on March 28, 2015, 12:29:06 AM
Hey everyone, thanks to everyone for this great thread.

I am looking for some advice on the best setup and approach to build and structure my investments. I am way too heavy on cash (I've been spending disproportionate amounts of time earning the money rather than investing it wisely).

My current situation:
I am 30 y.o with a wife (whose not working) and baby. High income job (~500k p.a. net but can fluctuate quite a lot year to year). Living in Sydney and renting so cost of living isn't that low ($700 rent p/w) but otherwise rather frugal. I would like to be able to move onto something more chilled within say 2- 5 years (it's hard to do this when you find yourself in such a good job), and be setup for life (and future generations too if possible).

Trust:
- Approx $400k worth of shares in private company I work for (ownership is tied to my employment with them) and yields ~$60k in dividends which are distributed to my wife who isn't working (this is the reason why they are in a trust otherwise I probably wouldn't have set it up).

Super:
- $80k (in super) AUS stocks

Personal:
- Approx $250k in public stocks (mostly US stocks), not too happy with these holdings either, and think i should just get rid of most of it even if it incurs some CGT, albeit much less than it should be :(
- $1.5m cash

Wife's Name:
- $20k of AUS stocks
- $50k cash (I know, she should hold all the cash, as her marginal tax rate is lower, I'm in the process of doing this now)

Net worth approx $2.3M

After reading through this whole thread, there are several things I want to do, and would really appreciate your input:
- I need to figure out the best way to structure everything:
   - should I buy all the ETFs, LICs etc in the trusts name, or should we just buy these in my wifes name? (trust is more flexible on distributing earnings but has the added admin overhead) What are the things to consider other than that? What is the CGT treatment of assets held in trust? i.e. do you get the 50% exemption if held for greater than 1 year?
   - Should I contribute the full concessional amount to super (I have to pay 30% on contributions because of high income)?
   - I have AMP for my super and am pretty clueless about it. Should I switch to a low cost one? Or should I consider an SMSF? (btw, the reason I don't have more in super is that I've only been working in australia for 3 years). Is there any point in contributing the non-concessional amount?

- Clean up my portfolio and just concentrate on getting similar returns to the market instead of stock picking (so that probably means selling all the random stock positions I have)

- Move more of my cash position into equities overtime (I'm quite annoyed I didn't come to this realisation a year ago before the markets had rallied :p)

- Have a clear investment approach something like:
   - $200k cash/bonds (I don't think I need more as my job security is pretty uncorrelated (probably negatively correlated) to a market downturn
   - And split the rest as 40% aussie, 60% foreign equities

- What do you guys thing about property? I don't like that I'm missing out on the CGT exemption on PPOR, but I feel it's very expensive but have thought that for the last 3 years since moving here and despite this it has gone up in price a lot in Sydney in those 3 years. I feel like I've missed the boat on this as well and am hoping for a big correction so I can get something at a reasonable price but this is probably foolish as there is so much incentive for the governments to prop up property prices and still a decent amount of room to lower rates to avoid people defaulting on their mortgages.

I would really appreciate your thoughts on my situation, thanks!

Title: Re: Australian Investing Thread
Post by: deborah on March 28, 2015, 01:20:34 AM
AMP is just about the worst place to have super - get it into somewhere else!

If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.

Title: Re: Australian Investing Thread
Post by: JamesSyd on March 28, 2015, 02:24:05 AM
Quote
AMP is just about the worst place to have super - get it into somewhere else!

If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.

Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).
Title: Re: .
Post by: This_Is_My_Username on March 28, 2015, 08:16:13 PM
I suppose, perhaps fortunately, I haven't been invested in the market throughout any significant downturns, hence the importance of bonds are not as clear as they could be.

I'm trying to decide how to invest the defensive part of my portfolio. Previously I've just used high interest accounts and term deposits. I'm trying to see how bonds could help me.

As naive as this sounds, if I'm relying on my investments for my income, should things turn pearshaped on the equities front, theoretically the bonds would be up in value, giving me something to sell in order to generate some income? Maybe.....

try VGB or VAF.

but I can't really comment on bonds.  for me personally, I am 100% shares and 100% bravery.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on March 28, 2015, 08:18:56 PM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?

"A random walk down wall street" says no.

academics have studied the results of technical analysts, and they are worse than the market index in the long run.

academics have studied the predictions of technical analysts, and they are worse than the market index in the long run.

Of course, some strategies or plans will get lucky for several years in a row, but that is just luck.  Like flipping 8 tails in a row.
Title: Re: Australian Investing Thread
Post by: deborah on March 28, 2015, 08:31:24 PM
I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
http://www.superguide.com.au/how-super-works/top-performing-super-funds-for-2014-10-years
Title: Re: Australian Investing Thread
Post by: sirdeets on March 31, 2015, 05:13:49 AM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?

No, I don't.  My basis:
- I've got a degree in econometrics
- Played with it over about 10 years (in the thousands of hours), with a mix of real and play money
- My results did not generate any risk adjusted alpha when used for real trades.  Back testing looked super rosy!

My conclusion:
- Either it doesn't work; OR
- I'm not very skilled using it (and after that much time, unlikely to improve); Hence
- I'm better off putting my time into something with a higher productivity, or with a better leisure value.

I still use a bit of value/fundamental analysis, but in the main I'm a passive buy and hold investor.

Thanks Chris and others for your input.  Great to hear some real word feedback.  Being exposed to the academic point of view (being a finance major myself) - I'm aware that its got a bad reputation.  It just sounds ridiculous when people start talking on youtube about shooting stars and other random patterns appearing.

One guy managed to convince me where it may have merit.  If you know how the big end of town work - i.e. how they buy or sell a large amount of shares or fx - you may be able to get in and out with some kind of positive expected value.  For example, you're a country who needs $100m of a particular currency, who starts putting in buy orders a particular way.

But, i'm sure the people who are making these trades will adapt, and how to get a signal of this happening may be difficult, with false positives etc.

In any case I have an 13week course at Uni where I need to actively day trade according to a trading strategy i set up now.  We can use fundamental or technical, or a combination.  With such a short period, I didn't see a whole lot of point in investing in value, so going to give the technicals a whirl.  We get a lot of speakers coming in from industry who are day traders.  So how is this industry around if it doesn't work ?  I suppose for a lot of them the client is footing the bill, so as long as you can convince the client it works, they get their cut..

Title: Re: Australian Investing Thread
Post by: marty998 on March 31, 2015, 02:57:57 PM
Quote
AMP is just about the worst place to have super - get it into somewhere else!

If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.

Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).

JamesSyd...what on earth kind of job do you have as a 30yo that pays 500k per year?
Title: Re: Australian Investing Thread
Post by: deborah on March 31, 2015, 10:27:16 PM
Do you guys think technical analysis works?
That is purely using historical information on price on and volume to understand "trends", and profit from them?

No, I don't.  My basis:
- I've got a degree in econometrics
- Played with it over about 10 years (in the thousands of hours), with a mix of real and play money
- My results did not generate any risk adjusted alpha when used for real trades.  Back testing looked super rosy!

My conclusion:
- Either it doesn't work; OR
- I'm not very skilled using it (and after that much time, unlikely to improve); Hence
- I'm better off putting my time into something with a higher productivity, or with a better leisure value.

I still use a bit of value/fundamental analysis, but in the main I'm a passive buy and hold investor.

Thanks Chris and others for your input.  Great to hear some real word feedback.  Being exposed to the academic point of view (being a finance major myself) - I'm aware that its got a bad reputation.  It just sounds ridiculous when people start talking on youtube about shooting stars and other random patterns appearing.

One guy managed to convince me where it may have merit.  If you know how the big end of town work - i.e. how they buy or sell a large amount of shares or fx - you may be able to get in and out with some kind of positive expected value.  For example, you're a country who needs $100m of a particular currency, who starts putting in buy orders a particular way.

But, i'm sure the people who are making these trades will adapt, and how to get a signal of this happening may be difficult, with false positives etc.

In any case I have an 13week course at Uni where I need to actively day trade according to a trading strategy i set up now.  We can use fundamental or technical, or a combination.  With such a short period, I didn't see a whole lot of point in investing in value, so going to give the technicals a whirl.  We get a lot of speakers coming in from industry who are day traders.  So how is this industry around if it doesn't work ?  I suppose for a lot of them the client is footing the bill, so as long as you can convince the client it works, they get their cut..


Look at how much Tattslotto and any other form of gambling is rigged against you, and how many people indulge in it each week.
Title: Re: Australian Investing Thread
Post by: terrier56 on March 31, 2015, 10:29:10 PM
Quote
AMP is just about the worst place to have super - get it into somewhere else!

If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.

Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).

JamesSyd...what on earth kind of job do you have as a 30yo that pays 500k per year?

I think the job title is "be born in the 1%" LOL. of-course i could be wrong, no offence intended.
Title: Re: Australian Investing Thread
Post by: JamesSyd on April 01, 2015, 04:06:42 AM
Quote
AMP is just about the worst place to have super - get it into somewhere else!

If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.

Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).

JamesSyd...what on earth kind of job do you have as a 30yo that pays 500k per year?

I think the job title is "be born in the 1%" LOL. of-course i could be wrong, no offence intended.

Nah, not born in the 1%.
But I do consider myself very lucky. I'm very fortunate to be in the position I am and to have found such a job.

I'd rather not disclose the job for privacy reasons (you can PM me if you'd really like to know).
Title: Re: .
Post by: TJEH on April 03, 2015, 05:02:28 AM

but I can't really comment on bonds.  for me personally, I am 100% shares and 100% bravery.

Ha, I admire that :)

I haven't decided if bonds are right for me, more reading required to understand them. There is definitely some decision paralysis with my portfolio construction at the moment!
Title: Re: Australian Investing Thread
Post by: dungoofed on April 03, 2015, 03:16:17 PM
Quote
AMP is just about the worst place to have super - get it into somewhere else!

If you have only been in Australia for 3 years, what is your citizenship (I'm guessing US), and where do you plan to live in retirement (or in the future)? Obviously $1.5M cash is not optimal, but where you should put it depends upon where you intend to call home.

Hi deborah, thanks for replying. I will get to work on moving my super from AMP, any recommendations? ING Direct have a low cost super fund I believe.
I'm actually Australian, but started my first job in Europe so that's why I've only been working here for 3 years. There is a chance we move back there at some point (say 20% chance).

JamesSyd...what on earth kind of job do you have as a 30yo that pays 500k per year?

I think the job title is "be born in the 1%" LOL. of-course i could be wrong, no offence intended.

Nah, not born in the 1%.
But I do consider myself very lucky. I'm very fortunate to be in the position I am and to have found such a job.

I'd rather not disclose the job for privacy reasons (you can PM me if you'd really like to know).

1% owns much, earns little.
Title: .
Post by: This_Is_My_Username on April 06, 2015, 06:05:25 AM
Are there any Australian ETF's or LIC's or Manged Funds, or foreign investments listed on the ASX, etc,

That use an indexing method that is not based on market capitalisation?

:

Also, is this a topic that is worth pursuing?  Are there any performance benefits, or risk benefits, or diversification benefits?

Cheers
Title: Re: .
Post by: JamesSyd on April 06, 2015, 06:20:28 AM
Are there any Australian ETF's or LIC's or Manged Funds, or foreign investments listed on the ASX, etc,

That use an indexing method that is not based on market capitalisation?

:

Also, is this a topic that is worth pursuing?  Are there any performance benefits, or risk benefits, or diversification benefits?

Cheers

MVW is an equal weight index.
They have a whitepaper on their website that goes through some of the benefits of such a methodology which i found quite interesting http://www.marketvectors.com.au/strong-foundations-have-equal-footings/

Only problem is that the MER is more than VAS for example
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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!
Title: Re: Australian Investing Thread
Post by: dungoofed on April 06, 2015, 08:56:17 PM
+1.

Even better, ex-resources, ex-financials
Title: Re: Australian Investing Thread
Post by: slothman on April 06, 2015, 09:05:59 PM
Might aswell be ex-australia if thats the case
Title: .
Post by: This_Is_My_Username on April 06, 2015, 09:36:22 PM
MVW has only $20m in the fund ?!

VAS has $9,200m

does that concern anyone?
Title: Re: Australian Investing Thread
Post by: AustralianMustachio 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.
Title: Re: Australian Investing Thread
Post by: marty998 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".
Title: Re: Australian Investing Thread
Post by: slothman 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?
Title: Re: Australian Investing Thread
Post by: marty998 on April 07, 2015, 04:17:51 AM
err...AFI is trading near it's 12 month high? Just like the ASX index?
Title: Re: Australian Investing Thread
Post by: slothman 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).
Title: Re: Australian Investing Thread
Post by: marty998 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.
Title: .
Post by: This_Is_My_Username 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. (?)
Title: Re: Australian Investing Thread
Post by: Emjay 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
Title: Re: Australian Investing Thread
Post by: Wadiman 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".
Title: Re: Australian Investing Thread
Post by: Emjay 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
Title: Re: Australian Investing Thread
Post by: potm 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.
Title: Re: Australian Investing Thread
Post by: Emjay 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.
Title: Re: Australian Investing Thread
Post by: potm 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.

Title: .
Post by: This_Is_My_Username 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. 
Title: Re: Australian Investing Thread
Post by: Emjay 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
Title: Re: .
Post by: dungoofed 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.
Title: Re: Australian Investing Thread
Post by: frugaljo 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...
Title: Re: Australian Investing Thread
Post by: marty998 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...
Title: Re: Australian Investing Thread
Post by: frugaljo 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/ (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?
Title: Re: Australian Investing Thread
Post by: andystkilda 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.
Title: Re: Australian Investing Thread
Post by: marty998 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.
Title: Re: Australian Investing Thread
Post by: Wadiman 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.
Title: Re: Australian Investing Thread
Post by: deborah 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
Title: Re: Australian Investing Thread
Post by: superannuationfreak 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.
Title: Re: Australian Investing Thread
Post by: bigchrisb 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.
Title: Re: Australian Investing Thread
Post by: superannuationfreak 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
Title: Re: Australian Investing Thread
Post by: bigchrisb 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.
Title: Re: Australian Investing Thread
Post by: slothman 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?



Title: Re: Australian Investing Thread
Post by: bigchrisb 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.
Title: Re: Australian Investing Thread
Post by: TJEH 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.....
Title: Re: Australian Investing Thread
Post by: superannuationfreak 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).
Title: Re: Australian Investing Thread
Post by: steveo 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.
Title: Re: Australian Investing Thread
Post by: DrowsyBee 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.
Title: Re: Australian Investing Thread
Post by: marty998 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.
Title: Re: Australian Investing Thread
Post by: DrowsyBee 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 (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.



Title: Re: Australian Investing Thread
Post by: JamesSyd 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 (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)
Title: Re: Australian Investing Thread
Post by: Ozstache on April 20, 2015, 06:49:30 AM
Here's the antidote to that laughably unmustachian article: http://www.smh.com.au/money/super-and-funds/do-the-sums--1m-is-plenty-to-retire-on-20150420-1mowtv.html (http://www.smh.com.au/money/super-and-funds/do-the-sums--1m-is-plenty-to-retire-on-20150420-1mowtv.html)
Title: Re: Australian Investing Thread
Post by: TJEH 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!



Title: Re: Australian Investing Thread
Post by: FFA 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.
Title: Re: Australian Investing Thread
Post by: TJEH 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!
Title: Re: Australian Investing Thread
Post by: FFA 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.
Title: Re: Australian Investing Thread
Post by: TJEH 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.
Title: Re: Australian Investing Thread
Post by: FFA 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!
Title: Re: Australian Investing Thread
Post by: steveo 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.
Title: Re: Australian Investing Thread
Post by: FFA 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.
Title: Re: Australian Investing Thread
Post by: steveo 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.

Title: Re: Australian Investing Thread
Post by: FFA on April 22, 2015, 03:49:42 PM
There's no scientific solution, it mightve been better to put a range as i have posted in the past, anywhere from 70/30 to 40/60 (aus/global) is good i reckon. Depending on your personal desire for home bias to collect franking credits etc. vs your desire for diversification.

i also try to hold higher aus shares outside super and higher global in super. As per other posts on asset location.
Title: Re: Australian Investing Thread
Post by: slothman on April 22, 2015, 09:56:22 PM
There's no scientific solution

If I wanted to do more reading....is there an optimal split? Right now im 75 aus (LICs and VAS) : 25 overseas (VGS)....

P.S. when are you going to start posting on your blog again? :)
Title: Re: Australian Investing Thread
Post by: potm on April 22, 2015, 10:33:59 PM
https://pressroom.vanguard.com/content/nonindexed/6.26.2012_The_Role_of_Home_Bias.pdf
Title: Re: Australian Investing Thread
Post by: potm on April 22, 2015, 10:36:27 PM
Some of the factors in the analysis on page 14 are inaccurate though, especially transaction costs.
Title: Re: Australian Investing Thread
Post by: FFA on April 23, 2015, 01:56:24 AM
There's no scientific solution

If I wanted to do more reading....is there an optimal split? Right now im 75 aus (LICs and VAS) : 25 overseas (VGS)....

P.S. when are you going to start posting on your blog again? :)
Hi Slothman, aiming to start writing again in May.... still surrounded by boxes here, our sea container arrived last week. Mmm forum has been a welcome procrastination from the joys of unpacking. I thought we werent materialistic people but i am dismayed by the amount of stuff we accumulated!
Title: Re: Australian Investing Thread
Post by: dungoofed on April 23, 2015, 03:18:09 AM
Regarding optimal splits, this might be one place to start:

https://www.stockspot.com.au/how-it-works/portfolios/

Scroll down to the bottom, if you remove bonds and gold, the ratios for the most and least aggressive portfolios would be:

Topaz: 67% / 33% (Aussie/International)
Amethyst: 46.5% / 53.5%

To me this seems quite heavy home bias. My stock holding targets 33% Australian stocks, but I often think it is way too high considering the Australian stock market makes up 2% of the global market.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on April 23, 2015, 06:04:44 AM
I'm starting to think about the principles of asset location for the Australian prospective early-retiree
.....
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.
5. IMHO asset allocation is more important to get right than location.

Broadly agree with your last point, although there are some assets that aren't worth holding when 'taxable'.

On 3. I forgot about hedged funds, thanks; currency hedged international is definitely best held in Super as the hedging income is taxed as ordinary income in my experience.  It came as a shock the first time I saw it, from memory the value of my holdings actually went down (due to share market fluctuations) but I still had to pay tax on the hedging income.

Two things related to other parts of the thread.

On ASX diversification, in Super I've considered the Colonial Wholesale version of the Realindex Australian Small Companies fund.  It's definitely pricier than I'd like at 0.89% p.a. (Super version) and I think/hope cheaper alternatives will arrive over time.  But it is the closest we have to a Small Value Index fund and if held in Super the fee 'lock-in' is mitigated (if something cheaper comes along and you switch your super you don't directly pay the capital gains tax in a pooled fund, it effectively gets spread over the remaining unit holders).

On International diversification there really isn't a correct answer.  For maximal diversification, aim for only a few % in Australia.  For maximal tax advantages a higher amount makes sense.  The (expected) efficient frontier would lie somewhere in between.  I personally wouldn't be comfortable with less than 30% of my equities being International, or more than 60% International.  50/50 is a pretty usable rule of thumb but whatever you choose needs to be a strategy you can stick with.
Title: Re: Australian Investing Thread
Post by: slothman on April 23, 2015, 07:23:25 AM
50/50 is a pretty usable rule of thumb but whatever you choose needs to be a strategy you can stick with.

But VGS only spits out 2% without franking credits :(

Edit: Just to confirm is the 4% SWR based on selling part of your portfolio every year to fund the difference between the 2% divs and living expenses?
Title: Re: Australian Investing Thread
Post by: steveo on April 23, 2015, 03:18:36 PM
50/50 is a pretty usable rule of thumb but whatever you choose needs to be a strategy you can stick with.

But VGS only spits out 2% without franking credits :(

Edit: Just to confirm is the 4% SWR based on selling part of your portfolio every year to fund the difference between the 2% divs and living expenses?

The 4% rule is about withdrawing that amount of money every year from your portfolio. It doesn't matter if its dividends or selling down your portfolio.

Australia though has relatively high dividends that are also franked so you might receive dividends of say $5k plus a potential tax rebate of say $2k. I think that is pretty significant.

I'm still leaning towards a 50/50 split however I can see the advantage of just doing 100% VAS.
Title: Re: Australian Investing Thread
Post by: slothman on April 23, 2015, 04:01:27 PM
I'm still leaning towards a 50/50 split however I can see the advantage of just doing 100% VAS.

I can see the advantage of international diversification but having a tough time reconciling ~5.7% gross yields offered by the ASX vs 2% yields of international index fund (VGS).

This is from the perspective of early retirement (investments held outside of super, and never having to sell assets to fund lifestyle).

I might need to overcome my fear of selling if I want to maintain a decent level of diversification and not having to amass a bigger stache than i would've if I was 100% LICs/VAS.

Edit: 5.7% grossed up yield based on 4% fully franked divs (e.g. AFI)
Title: Re: Australian Investing Thread
Post by: slothman on April 23, 2015, 04:29:42 PM
Would it be safe to say that markets like the US have a higher share price growth potential? Hence in exchange for a lower yield I can expect higher capital growth, a portion of which I can sell to fund lifestyle?

Figure 2 in the article below seems to indicate a large portion of returns from US and Japan are from capital growth.
https://www.credit-suisse.com/ch/en/asset-management/news-and-insights/insights.article.html/article/pwp/en/asset-management/2013/a-decent-dividend-yield-please.html
Title: Re: Australian Investing Thread
Post by: FFA on April 23, 2015, 05:02:09 PM
Would it be safe to say that markets like the US have a higher share price growth potential? Hence in exchange for a lower yield I can expect higher capital growth, a portion of which I can sell to fund lifestyle?

Figure 2 in the article below seems to indicate a large portion of returns from US and Japan are from capital growth.
https://www.credit-suisse.com/ch/en/asset-management/news-and-insights/insights.article.html/article/pwp/en/asset-management/2013/a-decent-dividend-yield-please.html
yes, with much bigger sectors like IT and also healthcare. Based on history too, the breakdown of returns is more CG and less dividend in the US.

Australia is heavily tilted to dividends, I think due to heavy financial sector weighting (mature companies). Also i'm sure it's been pumped up further lately with companies maximising dividends at all costs to keep yield hungry investors happy.
Title: Re: Australian Investing Thread
Post by: Roundabouts on April 23, 2015, 05:22:24 PM
I don't have any per-market stats on how effective it is for companies to pay out profits vs reinvesting them, but Roger Montgomery has been running a series on it recently.

http://rogermontgomery.com/costly-dividends/

It is also a common theme among retirees, so there's plenty out there on the benefits and drawbacks of investing primarily for income (sorry, I don't have anything to hand).
Title: Re: Australian Investing Thread
Post by: potm on April 23, 2015, 05:42:21 PM
US companies pay lower dividends and do more share buybacks because of tax implications.
There is concessional treatment of dividends but it is not as good as franking credits.
Title: Re: Australian Investing Thread
Post by: slothman on April 23, 2015, 09:05:08 PM
There is concessional treatment of dividends but it is not as good as franking credits.

What kind of concessions and how does it get treated on our tax returns?
Title: Re: Australian Investing Thread
Post by: bigchrisb on April 23, 2015, 09:26:00 PM
I don't have any per-market stats on how effective it is for companies to pay out profits vs reinvesting them, but Roger Montgomery has been running a series on it recently.

http://rogermontgomery.com/costly-dividends/

It is also a common theme among retirees, so there's plenty out there on the benefits and drawbacks of investing primarily for income (sorry, I don't have anything to hand).

Its an underlying issue with dividend imputation, which means income distributed from a company gets treated at a taxpayers marginal rate.  For a zero tax payer, they would be far better off getting a dividend than having profit reinvested in the company.  For a high rate taxpayer, they are better off with it not distributed, and hence reinvested at the company tax rate.

For example:

A company makes $1 of profit.  It pays 30 cents tax, leaving 70 cents.  It can either distribute all, part or none of this 70 cents.   

The company chooses to distribute the 70 cents, with a 30 cent franking credit. 
Our zero tax payer (say a super fund in pension mode) gets the 70 cents, and then gets the franking credit refunded.  It then has $1.00 it can spend or reinvest.
Our 49% taxpayer (high income earner) gets the 70 cents.  The taxpayer owes 49 cents in tax on this money.  They get a credit for the franking credit of 30 cents, and pay the remaining 19 cents.  They are left with 51 cents to spend or reinvest.

Instead, our company chooses not to pay a dividend, and invests the 70 cents. The price of a share goes up by 70 cents. Our shareholders would have to sell shares to access the funds.
Our zero tax payer would sell 70c of shares.  As they pay no tax, they don't pay any capital gains.  They have 70 cents to spend or invest. They are worse off than if the dividend was paid.
If our 49% taxpayer wants to reinvest the money in the company (not sell the shares), they have invested 70c.  They are better off than getting the dividend.  If they want to spend the money, they would have 70c of capital gain to declare.  Say they wait a year for the 50% discount.  They would pay 17c in tax (70*.5*.49), keeping 53 cents. They are better off than being paid the dividend.

So, if your tax rate is below the company tax rate, you want the dividends to be paid.  If your tax rate is above the company tax rate, you want earnings retained.   

For the Australian market, the value of super funds is about the same as the total market cap. i.e. they are one of the largest and most vocal investor classes, and have tax rates well below corporate tax rates.  Hence there is a strong incentive in the Australian market to have a high payout ratio, as it makes your stock more tax effective for one of your largest investor groups.  Indeed, you see a lot of large cap stocks running high payout ratios, while using DRPs to provide capital for expansion.

That's a significant part of my theory as to why payout ratios in Australia are substantially higher than other jurisdictions.

Title: Re: Australian Investing Thread
Post by: dungoofed on April 23, 2015, 10:27:31 PM
Great writeup! Too bad there is no "Aussie Hall of Fame" section.

One further effect is that you should see investment in growth stocks that may one day become dividend-spewing blue chips (or be bought out by an incumbent) during the accumulation phase. Indeed, I think potm has a strategy similar to this.
Title: Re: Australian Investing Thread
Post by: Roundabouts on April 23, 2015, 10:36:06 PM
Yeah, great writeup!  I hadn't thought about the various tax situations.
Title: Re: Australian Investing Thread
Post by: steveo on April 24, 2015, 02:20:00 AM
I can see the advantage of international diversification but having a tough time reconciling ~5.7% gross yields offered by the ASX vs 2% yields of international index fund (VGS).

I'm struggling with this as well.
Title: Re: Australian Investing Thread
Post by: potm on April 24, 2015, 03:22:32 AM
A company makes $1 of profit.  It pays 30 cents tax, leaving 70 cents.  It can either distribute all, part or none of this 70 cents.   

The company chooses to distribute the 70 cents, with a 30 cent franking credit. 
Our zero tax payer (say a super fund in pension mode) gets the 70 cents, and then gets the franking credit refunded.  It then has $1.00 it can spend or reinvest.
Our 49% taxpayer (high income earner) gets the 70 cents.  The taxpayer owes 49 cents in tax on this money.  They get a credit for the franking credit of 30 cents, and pay the remaining 19 cents.  They are left with 51 cents to spend or reinvest.

Instead, our company chooses not to pay a dividend, and invests the 70 cents. The price of a share goes up by 70 cents. Our shareholders would have to sell shares to access the funds.
Our zero tax payer would sell 70c of shares.  As they pay no tax, they don't pay any capital gains.  They have 70 cents to spend or invest. They are worse off than if the dividend was paid.
If our 49% taxpayer wants to reinvest the money in the company (not sell the shares), they have invested 70c.  They are better off than getting the dividend.  If they want to spend the money, they would have 70c of capital gain to declare.  Say they wait a year for the 50% discount.  They would pay 17c in tax (70*.5*.49), keeping 53 cents. They are better off than being paid the dividend.

So, if your tax rate is below the company tax rate, you want the dividends to be paid.  If your tax rate is above the company tax rate, you want earnings retained.   

The capital gains calculation is not correct. You would only pay capital gains on the 70c you sold minus the cost base, not the entire amount. This may actually be a capital loss and decrease the amount of tax you have to pay on other gains. Still, the original 30c the company paid to the ATO is not ultilised in this scenario unless the company finds a way (see 2 lines below).
General dividends are better for ppl on lower tax brackets than higher but whether a dividend or selling shares to provide cash is more tax effective depends on the circumstance.
Overall, the most effective way for a company to distribute surplus cash is through buy backs at a discount to market value with a fully franked dividend component. This ultilises franking credits and provides them to those who can make most use of them and thus are willing to pay the highest price for the buyback, benefiting all share holders.

There's other factors to consider besides tax. It may not be tax effective to receive a dividend if you are on high income but it's still a hell of a lot better than the company blowing the surplus money on an overpriced acquisition that flops. Also dividends tend to be more stable than share prices (most of the time). This is important if you are relying solely on shares to provide your income to live. If the world goes totally insane tomorrow and share prices drop by 90%. It would be hard if you were selling shares regularly to fund your life. If the company is still able to generate profits and pay dividends as usual, then you are fine. of course shares dropping by 90% might affect the company's profits or some other event would have caused both prices and profits to go down together. We know that markets can be very irrational though, paying drastically different amounts for a dollar of earnings at different times.

Dividends are good but you shouldn't use the div yield as the only factor in judging an investment. Overseas countries tend to pay lower dividends because the tax incentives are different and as Chris mentioned, there isn't as significant ownership by lower tax bracket beneficiaries. Overall though, it is true that US stocks are more expensive than Australian shares at the moment. That may be justified based on higher growth prospects but who knows. It's hard enough to judge the growth prospects of a single company, let alone hundreds in an index. It was supposed to be passive index investing remember.
Title: Re: Australian Investing Thread
Post by: FFA on April 24, 2015, 04:35:37 AM
interesting theory bigchrisb, maybe something in it, but I still favour the simple explanations for asx dividend orientation : 1) the sectoral breakdown and mature nature of the large companies in it, 2) Oz franking policy and huge investor demand for yield.   

Share prices jump on any surprise dividend increment, or plummet on any dividend disappointment, as per bhp's previous results. What would you do if you were a ceo ? even the resources stocks who should conventionally be growth companies with high re-investment, are trying to recast themselves as dividend plays....

I really don't know if the tax considerations are such a big driver of corporate strategy, or more an afterthought. Anyway, most of the MNC's use aggressive tax minimisation to lower their tax rate to negligible :(

CSL is a great example of a growth company, well managed over the  *long* term. Pays a small dividend, completely unfranked, but still a market favourite for the growth it has consistently delivered. The US market has loads of CSL's. The ASX has ..... well just CSL and perhaps a few more. If you know their names please let me know, I need some investment ideas ! :)
Title: Re: Australian Investing Thread
Post by: marty998 on April 24, 2015, 07:50:24 PM
Great posts Chris, FFA, Potm.

One additional theory I have is that US executives are a little bit more entrepreneurial than their antipodean counterparts. They hence retain more profits to reinvest and grow their businesses...

Depends of course on the size of the company, it's sector, and stage of its lifecycle as FFA pointed out.

CSL is a great example of a growth company, well managed over the  *long* term. Pays a small dividend, completely unfranked, but still a market favourite for the growth it has consistently delivered. The US market has loads of CSL's. The ASX has ..... well just CSL and perhaps a few more. If you know their names please let me know, I need some investment ideas ! :)

Apart from CSL we really lack quality science, tech and biotech companies.

CSL used to be a government entity - Commonwealth Serum Laboratories. Since listing on the ASX if I recall correctly it's gone on to be a 100 bagger.

I know there was a big blowup last year about budget funding for the CSIRO....perhaps if the government privatised that one... well you never know if one day it could match the phenomenal performance of CSL.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on April 26, 2015, 08:17:23 AM
I have been having thoughts recently about "safe withdrawal rates" in Australia. I have read that the rate varies across different countries, and in Australia it might be closer to 3% than 4%, etc. etc.

However for me I'm thinking much more about an early semi retirement if anything, not a complete retirement. I do creative work which I love, however in the main it's not always paid well and I have to choose jobs I like a lot less, which pay a lot better. So I wouldn't be living 100% off the income, it would just be there to support me to choose the jobs based on what I really like and not consider the money aspect.

For my situation, and I'm sure many others are like me in the stashing stage, my portfolio is almost 100% shares. I can't see why I over the very long term, I wouldn't just be able to "safely withdraw" the dividend yield, and allow any capital gains to keep my portfolio growing over time. Yes, it will grow less than if I reinvested the dividends, but it's not going to go backwards over the long term.

In that case, with an 100% shares portfolio (say 70% Australian Shares and 30% International) with a grossed up yield of around 5%... the safe withdrawal rate should be... 5%?

So if I'm looking to semi retire with a portfolio of shares, I can actually work with a higher safe withdrawal rate, due to the franking component.

Sure, if there was a crash, the dividends might go down or dry up. But I I've read interviews with bankers etc. that in general, the companies on the ASX "know the deal" and will rather fire people than cut dividends. And if the dividends really did stop completely, it would be unlikely to affect me beyond having to pick up some less enjoyable work to make up for the lost income. Capital loss won't affect me because I'm not looking to sell down my portfolio to fund my lifestyle. All the while the portfolio is growing, and once I get older and closer to full retirement, I would gradually switch the asset classes over to more stable income assets.

So this sounds great in theory. And makes my semi retirement goal seem closer. Anyone care to point out any holes with this idea?
Title: Re: Australian Investing Thread
Post by: FFA on April 26, 2015, 08:45:34 AM
Hi AustralianMustachio,

Not a hole but a clarification :

As I understand SWR it is real not nominal (after inflation), i.e. if you're assuming 5% return on investment assets and 2% inflation, then your SWR is 3%.  SO when people talk 4% SWR as a rule of thumb, I understand this to be 6-7% investment return (dividend plus capital growth) minus 2-3% inflation.
Title: Re: Australian Investing Thread
Post by: slothman on April 26, 2015, 03:25:23 PM
In that case, with an 100% shares portfolio (say 70% Australian Shares and 30% International) with a grossed up yield of around 5%... the safe withdrawal rate should be... 5%?

So if I'm looking to semi retire with a portfolio of shares, I can actually work with a higher safe withdrawal rate, due to the franking component.

From what I gather the concept of SWR is based on selling down a small portion of shares to fund lifestyle. I don't feel 100% comfortable with this so I'm going to base my retirement on pure dividends only (including tax benefits of franking credits) with a cash buffer for GFC-type events.

The benefit of the franking credits is dependent on your marginal tax rate. Assuming your taxable income is less than $20k (ie your creative gig and dividends), you'll get 100% of the franking credit back as a tax refund.

Title: Re: Australian Investing Thread
Post by: happy on April 26, 2015, 03:43:16 PM
My only thought is to have a margin of safety for your late 50s/60s. It can be more difficult to pick up work at this age. Otherwise it seems a good plan to me - I enjoy downshifting.
Title: Re: Australian Investing Thread
Post by: DrowsyBee on April 26, 2015, 05:36:59 PM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.
Title: Re: Australian Investing Thread
Post by: FFA on April 26, 2015, 06:26:20 PM
perhaps there is a margin of safety in that you are not taking credit for capital growth. You will still need some, eg 2% to cover inflation as per my above post, but this is very conservative based on history

If you are confident in your assumption that companies won't backtrack on div yields, then it seems to make some sense.

Just be mindful it's an aggressive asset allocation, and you really need to be committed to stay the course. If you are unlucky and have a GFC like event around the time you are planning to retire, then that is the big risk you face. Cast your mind back 7/8 years. Are you comfortable with this risk and is it worth it for the extra 1-1.5% SWR ? That's the question i'd be asking myself....
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on April 26, 2015, 06:55:34 PM
Thanks for the responses guys.

Slothman what you said was pretty much the strategy I outlined, I believe - just live off dividends and never sell.

Re: margin of safety. Using this, over the very long term I believe my margin of safety was pretty conservative - all I'm assuming is that the share portfolio grows in line with inflation over the long term. Historically they grown much more than that.

And yes this is my strategy to support me in semi retirement / the late stage of my career. When the time came for full retirement, which is still 30+ years away for me, I would look at changing the strategy to a more conservative allocation.

Also good point bringing up super. I think that would indeed provide a pretty good margin of safety. However due to being self employed now, studying for a long time before, and just working part time jobs here and there... my super is very minimal at this stage. I checked an account and it had actually gone to 0! I have to decide how I want to proceed with super being a self employed person. But I'm thinking I will try keep almost all of my portfolio outside of super, that way I can access it for my semi retirement plans, and just contribute a pretty small amount here and there and allow it to compound for a few decades before I hit the relevant age to access it.
Title: Re: Australian Investing Thread
Post by: bigchrisb on April 26, 2015, 08:06:56 PM
Slothman what you said was pretty much the strategy I outlined, I believe - just live off dividends and never sell.

Re: margin of safety. Using this, over the very long term I believe my margin of safety was pretty conservative - all I'm assuming is that the share portfolio grows in line with inflation over the long term. Historically they grown much more than that.

Basically my strategy too, with a couple more margins of safety.  I'm probably over-egging the safety however.
Core FIRE income: - live off 50% of passive income (dividends / net rents) from my investments outside of super.

Safety net 1: Reinvesting 50% of passive income (dividends/net rents) outside super.  If we hit financial turbulence, I'll erode some of this 50% to maintain my standard of living - i.e. maintain nominal income.  Will not start increasing FIRE income again until I'm back at 50%.

Safety net 2:  Assumption that dividends only increase with inflation.  Historically, they have done better than that.  If this continues, it will provide a real increase in FIRE income.

Safety net 3: Generate a bit of side income from some work that I find interesting, but not necessarily well paid.

Safety net 3: Super.  I've been contributing the full concessional contribution to my SMSF, and intend to keep doing so until I cease employment.  This will sit compounding in the background, and provide a boost if I need it come preservation age.

Safety net 4: Capital gain / capital sell down.  If the above three fail, I'm yet to touch any principal.  I can tap into this if needs be - hopefully it will never come to this.

Note - edited to try to come across less like bragging.   
Title: Re: Australian Investing Thread
Post by: DrowsyBee on April 26, 2015, 08:53:11 PM
I get so god damn jealous every time you post about your financial position, Chris.
Title: Re: Australian Investing Thread
Post by: Coach on April 26, 2015, 10:13:39 PM
Random question: how can the last price for any given stock be off-step? For example, $4.665. It suggests to me that last price (like opening and closing price) is a formula, not a figure. Perhaps an even volume of 4.66 and 4.67 were sold at the same time?
Title: Re: Australian Investing Thread
Post by: steveo on April 26, 2015, 11:24:22 PM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.

I definitely don't think so as I think we should all be including super in our assets for when we FIRE. If you aren't including it then I think you should be.
Title: Re: Australian Investing Thread
Post by: DrowsyBee on April 26, 2015, 11:54:11 PM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.

I definitely don't think so as I think we should all be including super in our assets for when we FIRE. If you aren't including it then I think you should be.

I disagree. I'm 25 and won't be able to access my superannuation for 35 years. If I were to take advantage of how superannuation is taxed and just put a bunch of money straight into super, my net worth might be a whole lot, but it sure as shit won't help me retire early. For the purposes of ER, I don't think I'll start considering it part of my net worth until I'm about 50 years old. I even think of it in some way as a large inheritance. It's something I kind of expect to come my way in the future, but I don't know how much it'll end up being or when I'll ever get it. I've seen so many changes to Super over my first 25 years of my life, and now I have to go through another 25 + 10 before I can touch it.

If I become Financially Independent and still work, I'll definitely contribute to super because there's a lot of benefit to it, but right now I don't see it as a part of my net worth.
Title: Re: Australian Investing Thread
Post by: potm on April 26, 2015, 11:57:27 PM
I'm aiming for a similar approach to Chris.
Achieve a passive income amount sufficient for me to live off about 50% of it and investing the other 50% and continue to max out of the concessional contribution cap in retirement.

Another thing to consider when using a dividend target is the payout level of your investments. It's very different if you're holding something like CSL compared to YMAX.
Title: Re: Australian Investing Thread
Post by: bigchrisb on April 27, 2015, 12:19:35 AM
And from the very long term to the very short term, anyone else enjoying watching the hedge funds getting creamed with the short squeeze on FMG?  Up 16% today, with a large portion at the end of the days trade.  Looks like a true short squeeze in place - I'm expecting to see a whole lot of short funds/punters getting margin calls over night.  Kind of enjoying watching the carnage of the speculators in a voyeuristic kind of way!

A good reminder of the reasons for staying diversified and long in our investments!


 
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on April 27, 2015, 01:07:36 AM
Great discussion, as always.

It seems a few people have similar goals to me. Using this as a strategy, the higher the dividend yield of your portfolio, the lower the actual amount of capital needs to be, and hence the time it takes to reach this amount (and FIRE) is reduced. This makes Australian high yielding shares seem much more appealing than international. However we then run into the problem of diversification.

This has been discussed at length here. I think most people concluded that somewhere between 25-50% international exposure would be enough. However 25% is obviously more appealing, since 75% Australian shares gives a much better dividend yield than 2%, and hence you don't need to amass as much capital. Even more so if you include some VHY instead of VAS.

How dangerous would it be to not have much international exposure? I know many SMSFs probably have extremely minimal international holdings. What is the risk really - that Australia enters a recession while the rest of the world's businesses do really well? I know in the other thread about mustachian philosophy in Australia, Dodge was advising that as Australians we should underweight Australia. However over the last hundred years or so the ASX has done well along the rest of the world, so along with the dividend yield, the home bias appears to be calling me!
Title: Re: Australian Investing Thread
Post by: steveo on April 27, 2015, 01:15:30 AM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.

I definitely don't think so as I think we should all be including super in our assets for when we FIRE. If you aren't including it then I think you should be.

I disagree. I'm 25 and won't be able to access my superannuation for 35 years. If I were to take advantage of how superannuation is taxed and just put a bunch of money straight into super, my net worth might be a whole lot, but it sure as shit won't help me retire early. For the purposes of ER, I don't think I'll start considering it part of my net worth until I'm about 50 years old. I even think of it in some way as a large inheritance. It's something I kind of expect to come my way in the future, but I don't know how much it'll end up being or when I'll ever get it. I've seen so many changes to Super over my first 25 years of my life, and now I have to go through another 25 + 10 before I can touch it.

If I become Financially Independent and still work, I'll definitely contribute to super because there's a lot of benefit to it, but right now I don't see it as a part of my net worth.

Maybe you can answer some questions to help clarify your approach.

1. Do you consider becoming FI means that you don't have to work for life ?
2. Do you believe that you will live past 60 ?

If the answer to both questions is yes then I think you have to include super. If the answer to the second question is no then super is probably meaningless for you and you shouldn't include it. If the answer to question 1 is no then I suppose you can cut it however you want too.
Title: Re: Australian Investing Thread
Post by: steveo on April 27, 2015, 01:20:55 AM
It seems a few people have similar goals to me. Using this as a strategy, the higher the dividend yield of your portfolio, the lower the actual amount of capital needs to be, and hence the time it takes to reach this amount (and FIRE) is reduced. This makes Australian high yielding shares seem much more appealing than international. However we then run into the problem of diversification.

This has been discussed at length here. I think most people concluded that somewhere between 25-50% international exposure would be enough. However 25% is obviously more appealing, since 75% Australian shares gives a much better dividend yield than 2%, and hence you don't need to amass as much capital. Even more so if you include some VHY instead of VAS.

How dangerous would it be to not have much international exposure? I know many SMSFs probably have extremely minimal international holdings. What is the risk really - that Australia enters a recession while the rest of the world's businesses do really well? I know in the other thread about mustachian philosophy in Australia, Dodge was advising that as Australians we should underweight Australia. However over the last hundred years or so the ASX has done well along the rest of the world, so along with the dividend yield, the home bias appears to be calling me!

I find this a really tough issue at this point. I lean towards a significant home bias due to the increased dividend yield and franking credits. I'm starting to think that the quickest and possibly safest path to FI is to utilise predominantly VAS and then post FI redistribute my assets more towards bonds and overseas shares.

Say I invested completely in VAS outside of super and then went for a cash back-up and then over the course of being retired put a little more into bonds and os shares. I think that this approach would be pretty robust. It might be more risky with regards to a lack of geographical diversification but the pay off for the lack of geographical diversification might mean getting to FI earlier.
Title: Re: Australian Investing Thread
Post by: terrier56 on April 27, 2015, 01:37:35 AM
Couldn't we consider Superannuation as a margin of safety for early retirees? If things do go bad, odds are we'll have a few extra hundred thousand to top up with when we reach preservation age, if need be.

I definitely don't think so as I think we should all be including super in our assets for when we FIRE. If you aren't including it then I think you should be.

I disagree. I'm 25 and won't be able to access my superannuation for 35 years. If I were to take advantage of how superannuation is taxed and just put a bunch of money straight into super, my net worth might be a whole lot, but it sure as shit won't help me retire early. For the purposes of ER, I don't think I'll start considering it part of my net worth until I'm about 50 years old. I even think of it in some way as a large inheritance. It's something I kind of expect to come my way in the future, but I don't know how much it'll end up being or when I'll ever get it. I've seen so many changes to Super over my first 25 years of my life, and now I have to go through another 25 + 10 before I can touch it.

If I become Financially Independent and still work, I'll definitely contribute to super because there's a lot of benefit to it, but right now I don't see it as a part of my net worth.

Maybe you can answer some questions to help clarify your approach.

1. Do you consider becoming FI means that you don't have to work for life ?
2. Do you believe that you will live past 60 ?

If the answer to both questions is yes then I think you have to include super. If the answer to the second question is no then super is probably meaningless for you and you shouldn't include it. If the answer to question 1 is no then I suppose you can cut it however you want too.

I think the main concern is if you are drawing down on 4% of total (Stash + Super) will this cause your stash to expire before you reach preservation age.

This is a legitimate question and one that effects me. I have runs some numbers and come up with this.

The stash to super ratio is the key.

Retire at 30 and you need a minimum stash to super ratio of 3.02 (Investment accounts outside of super > 3.02*super)
35 - 2.32
40 - 1.74
45 - 1.25
50 - 0.86
55 - 0.54

If you get to these amounts then you are out of the woods when it comes to not drawing your stash dry.
Title: Re: Australian Investing Thread
Post by: happy on April 27, 2015, 03:55:28 AM
I'm not sure about your calculations for the high end of the range Terrier56.  If you are 55 you need 5 years worth of money til 60, but then after 60 you might need 25,30,40 years worth. Not sure how your pre 60 money needs to be as much as half your super money for that difference. I'm thinking more like .25/maybe .3, back of envelope calculation.

Currently I'm running 50:50 Aussie:international shares in my super fund. This year I'm planning to change to SMSF…think I've learnt enough to feel up to the job. I'm appreciating the conversation about this. My desired proportion of  Aussie dividend shares is one thing I'm considering.  At the moment I don't even know what  makes up "Aussie shares" with any accuracy. The other annoying thing is that I can't readily tell how much return I'm getting in dollar terms unless I calculate it, because the fund tells me x is returning y%PA, and does not clarify the amount in $terms with regard to capital gain/dividend yield on my statement.  I can do the math to calculate return, but not see what it is made up of.

edit last 2 sentences to more clearly reflect the issue
Title: Re: Australian Investing Thread
Post by: DrowsyBee on April 27, 2015, 05:59:08 AM
Maybe you can answer some questions to help clarify your approach.

1. Do you consider becoming FI means that you don't have to work for life ?
2. Do you believe that you will live past 60 ?

If the answer to both questions is yes then I think you have to include super. If the answer to the second question is no then super is probably meaningless for you and you shouldn't include it. If the answer to question 1 is no then I suppose you can cut it however you want too.

1. Yes
2. Yes

The thing that gets me is exactly what Terrier56 said. For myself, I want to be able to do things like eventually buy a house and have access to my investments. It would be unwise to put as much as possible into super, but I need a stash that lasts, for instance, the years between 40/45-60. Maybe it requires a lot of running the maths. This brings me to the next post.

I think the main concern is if you are drawing down on 4% of total (Stash + Super) will this cause your stash to expire before you reach preservation age.

This is a legitimate question and one that effects me. I have runs some numbers and come up with this.

The stash to super ratio is the key.

Retire at 30 and you need a minimum stash to super ratio of 3.02 (Investment accounts outside of super > 3.02*super)
35 - 2.32
40 - 1.74
45 - 1.25
50 - 0.86
55 - 0.54

If you get to these amounts then you are out of the woods when it comes to not drawing your stash dry.

So, say I need $500,000 to retire at 45 with $20,000 a year, this would mean I need the total stash + super to equal $500,000. Then I'd need >$325,000 in investments and $250,000 in super?
Title: Re: Australian Investing Thread
Post by: happy on April 27, 2015, 06:07:43 AM
Except that 325 +250 is 575k i.e. @4%WR = 23k/yr, but @3.5% its pretty close to 20k. But as far as the math goes, yes thats the way I read terriers post.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on April 27, 2015, 06:09:08 AM
It seems a few people have similar goals to me. Using this as a strategy, the higher the dividend yield of your portfolio, the lower the actual amount of capital needs to be, and hence the time it takes to reach this amount (and FIRE) is reduced. This makes Australian high yielding shares seem much more appealing than international. However we then run into the problem of diversification.

This has been discussed at length here. I think most people concluded that somewhere between 25-50% international exposure would be enough. However 25% is obviously more appealing, since 75% Australian shares gives a much better dividend yield than 2%, and hence you don't need to amass as much capital. Even more so if you include some VHY instead of VAS.

How dangerous would it be to not have much international exposure? I know many SMSFs probably have extremely minimal international holdings. What is the risk really - that Australia enters a recession while the rest of the world's businesses do really well? I know in the other thread about mustachian philosophy in Australia, Dodge was advising that as Australians we should underweight Australia. However over the last hundred years or so the ASX has done well along the rest of the world, so along with the dividend yield, the home bias appears to be calling me!

I find this a really tough issue at this point. I lean towards a significant home bias due to the increased dividend yield and franking credits. I'm starting to think that the quickest and possibly safest path to FI is to utilise predominantly VAS and then post FI redistribute my assets more towards bonds and overseas shares.

Say I invested completely in VAS outside of super and then went for a cash back-up and then over the course of being retired put a little more into bonds and os shares. I think that this approach would be pretty robust. It might be more risky with regards to a lack of geographical diversification but the pay off for the lack of geographical diversification might mean getting to FI earlier.

I'm in the same spot.  I love australia's high dividend yields + franking.  It makes my FIRE target lower.

ASX will be fine, surely nothing bad will happen.   : |
Title: .
Post by: This_Is_My_Username on April 27, 2015, 06:18:48 AM
see the attachment for an easy calculation of inside/outside super. 

here is an example: from the attachment.
At age 40, you spend 32,094 per year.  So your FIRE number is  802,353. 

You could have 802,353 outside super and you are FIRE.

But instead you could also have   457,819 Outside, and 374,485 Inside super.  This is easier to acquire than 802,353 outside super.

Plagiarised from Notch
Title: Re: Australian Investing Thread
Post by: steveo on April 27, 2015, 07:03:52 AM
For myself, I want to be able to do things like eventually buy a house and have access to my investments. It would be unwise to put as much as possible into super, but I need a stash that lasts, for instance, the years between 40/45-60. Maybe it requires a lot of running the maths. This brings me to the next post.
.....
So, say I need $500,000 to retire at 45 with $20,000 a year, this would mean I need the total stash + super to equal $500,000. Then I'd need >$325,000 in investments and $250,000 in super?

The point is that your total stash remains the same. You just need a certain amount outside of super.

This is easier to acquire than 802,353 outside super.

Yep. This is a key point. You may as well use super. You just can't have all your money in there.
Title: Re: .
Post by: steveo on April 27, 2015, 07:05:39 AM
I'm in the same spot.  I love australia's high dividend yields + franking.  It makes my FIRE target lower.

ASX will be fine, surely nothing bad will happen.   : |

There is an advantage isn't there. As for something bad happening to the ASX it could definitely happen. The question is though what is the chance of the ASX going bad whilst the rest of the world is fine. I think that is pretty unlikely.
Title: Re: Australian Investing Thread
Post by: FFA on April 27, 2015, 07:28:25 AM
a few different angles here.

on the issue of super, I approached it like drowsybee. retiring pre-40, I exclude super from my NW and treat it as safety margin. Conservative, but that's in my nature.

on the issue of dividend investing and asset allocation. I do agree the high asx yield and franking credits make it attractive to home bias, the difficult part is by how much.... however i'd caution against allocating based on dividend yield alone to bring forward FIRE dates. Need to consider overall returns, ie. capital growth, as well as exchange rate risk, diversification, etc. Yes we have discussed this at length already!

I noticed sunsuper recently came out with some revised asset allocations for their diversified mixes and have increased ratio of international:asx.
Title: Re: Australian Investing Thread
Post by: slothman on April 27, 2015, 12:07:28 PM
on the issue of super, I approached it like drowsybee. retiring pre-40, I exclude super from my NW and treat it as safety margin. Conservative, but that's in my nature.

I'm more of a realist. Preservation age will likely get raised to something like 65 with a whole bunch of new access restrictions added in. I too am looking to be FIRE pre-40, and as such exclude super from my NW.

I'll have a very strong home bias due to higher yields and franking credits but will still have an allocation (likely 25-30%) of unhedged international shares for diversification and rebalance yearly if it falls out of target allocation range.

Have a look at page 12 for risk/return of various allocations.
https://static.vgcontent.info/crp/intl/auw/docs/resources/plain-talk-guides/ptg_realisticexpectations.pdf?20150422|114500

Have a look at the table on page 4 for which asset class performed the best over previous years:
https://www.vanguardinvestments.com.au/adviser/adv/campaign/index_chart.pdf

Also it's great to see that major international markets don't have a strong correlation with Australia, e.g. USA/UK/Japan. see figure 1 :
https://static.vgcontent.info/crp/intl/auw/docs/literature/research/the-role-of-global-equities-for-australian-investors-brief.pdf

International/US shares have outperformed Australian shares from about 2012-2014. Would've been great to ride that boom and sell some of the gains during the yearly rebalance to divert some funds towards Aussie shares that have been lagging (but still produce good yields).
Title: Re: .
Post by: happy on April 27, 2015, 03:21:17 PM
see the attachment for an easy calculation of inside/outside super. 

here is an example: from the attachment.
At age 40, you spend 32,094 per year.  So your FIRE number is  802,353. 

You could have 802,353 outside super and you are FIRE.

But instead you could also have   457,819 Outside, and 374,485 Inside super.  This is easier to acquire than 802,353 outside super.

Plagiarised from Notch
Thanks TIMU, this makes more sense to me.
Title: Re: Australian Investing Thread
Post by: dungoofed on April 27, 2015, 04:22:46 PM
Grim question, do you guys include your share of your parents' estate in any of your FIRE calculations?

I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.
Title: Re: Australian Investing Thread
Post by: DrowsyBee on April 27, 2015, 04:28:31 PM
Except that 325 +250 is 575k i.e. @4%WR = 23k/yr, but @3.5% its pretty close to 20k. But as far as the math goes, yes thats the way I read terriers post.
Thanks. My calculation was done in bed and I couldn't be bothered to find anything closer to $500k at that ratio. All right, this is starting to make sense.

see the attachment for an easy calculation of inside/outside super. 
here is an example: from the attachment.
At age 40, you spend 32,094 per year.  So your FIRE number is  802,353. 
You could have 802,353 outside super and you are FIRE.
But instead you could also have   457,819 Outside, and 374,485 Inside super.  This is easier to acquire than 802,353 outside super.
Plagiarised from Notch
Wow, thanks for this. I might have to tinker with this spreadsheet for a while to find some different figures, etc. But this is great.


The point is that your total stash remains the same. You just need a certain amount outside of super.
This is easier to acquire than 802,353 outside super.
Yep. This is a key point. You may as well use super. You just can't have all your money in there.
Ok, for the most part I now consider you right, Steveo, and I'm definitely thinking of contributing money to super, as I've always understood the part about accumulating wealth in super rather than out of. However, there is still the uncertainty of the preservation age. Definitely going to put some working on this subject into my journal now.

But, for those familiar, this is my month where I'm not checking anything to do with my current net worth. So I'm putting this on hold for two days. Good talk.
Title: Re: Australian Investing Thread
Post by: DrowsyBee on April 27, 2015, 04:42:13 PM
Grim question, do you guys include your share of your parents' estate in any of your FIRE calculations?

I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.
Nope. Impossible to predict timing or amount. I want my philosophy towards FIRE to be of my own doing, and while it would definitely boost numbers, I don't want to think of myself as having relied on someones estate to get there. The only thing I can think I would add regarding early retirement and the passing of parents would be that, if I haven't already, something like that would certainly trigger early retirement, if I'm not there yet.
Title: Re: Australian Investing Thread
Post by: FFA on April 27, 2015, 05:31:30 PM
International/US shares have outperformed Australian shares from about 2012-2014. Would've been great to ride that boom and sell some of the gains during the yearly rebalance to divert some funds towards Aussie shares that have been lagging (but still produce good yields).
a big driver is the AUD falling back to earth, giving international shares (unhedged) a huge tailwind in recent years. It might have some way to fall further yet, but I would expect the majority of the move is done now. Therefore less FX assistance to international going forwards.

Dungoofed, parent's estate : nope. Logically it might make sense to incorporate, but yeah it's grim and unpleasant. Another one I just throw in the safety margin...
Title: Re: Australian Investing Thread
Post by: bigchrisb on April 27, 2015, 05:43:40 PM
Grim question, do you guys include your share of your parents' estate in any of your FIRE calculations?

I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.

I don't.  My parents are comfortable in their retirement, and naturally frugal.  At the moment I'm trying to encourage them to enjoy more of their funds - both my sister and I are able to take care of ourselves.  Never the less, there will likely be some form of inheritance at some stage.  My intent is to have that invested and passed through to the next generation.  I don't need it, and if I counted it in my FIRE metrics, I'd probably be lazier than I am.   

Interested to see others viewpoints.
Title: Re: Australian Investing Thread
Post by: potm on April 27, 2015, 06:07:01 PM
In the long run Australian shares have not outperformed international shares so I would be hesitant to use that as a basis for a higher withdrawal rate.
The higher payout ratio is not by itself an advantage, the franking tax treatment is though.

With salary sacrificing into super, from what I've seen, it takes about two weeks from my pay date until the contribution hits my super account. From what I understand the concensional limit counts on when the money actually enters the super fund. This can potentially make it tricky to max out super contributions exactly each year. Anyone have any experiences?
Title: Re: Australian Investing Thread
Post by: FFA on April 27, 2015, 06:25:49 PM
Quote
I said at the beginning that the ‘search for yield’ continues. There is a line of discussion that tackles this issue from a cyclical point of view, thinking about how the balance sheet measures taken by the major central banks are affecting markets, the extent and nature of cross-border spillovers, what happens when the US Federal Reserve starts to tighten policy at some point and so on. I’ve spoken about such things elsewhere and have nothing to add today.
There is another conversation, however, that tends to take place at a lower volume, but which definitely needs to be had. That conversation is about what all this means for the retirement income system over the longer run. The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low? This is a global question. Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot. Those seeking to make that purchase now – that is, those on the brink of leaving the workforce – are in a much worse position than those who made it a decade ago. They have to accept a lot more risk to generate the expected flow of future income they want.     
The problem must be acute in Europe, where sovereign yields in some countries are negative for significant durations. But it is also potentially a non-trivial issue in our own country. In a conference about wealth, this might be a worthy topic of discussion
- Glenn stevens in a speech today
Title: Re: Australian Investing Thread
Post by: potm on April 27, 2015, 10:42:14 PM
Funny that he notes those seeking to buy a stream of income are only those on the brink of retirement!
In fact they'll be the greatest beneficiaries of inflated asset prices if they had been buying over the course of their careers.
Higher asset prices hurt those who still have a lot of accumulating to do the most as well as those who have just stayed in cash and are trying to retire on interest from cash.
Title: Re: Australian Investing Thread
Post by: happy on April 27, 2015, 10:55:27 PM
No to including any possible inheritance. Yes to grim and unpleasant. Could be very little and I don't know when. I like to look after myself, and if there is a little something, I'll invest it to pass on to my offspring at some point.
Title: Re: Australian Investing Thread
Post by: terrier56 on April 27, 2015, 11:52:35 PM
Quote
I said at the beginning that the ‘search for yield’ continues. There is a line of discussion that tackles this issue from a cyclical point of view, thinking about how the balance sheet measures taken by the major central banks are affecting markets, the extent and nature of cross-border spillovers, what happens when the US Federal Reserve starts to tighten policy at some point and so on. I’ve spoken about such things elsewhere and have nothing to add today.
There is another conversation, however, that tends to take place at a lower volume, but which definitely needs to be had. That conversation is about what all this means for the retirement income system over the longer run. The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low? This is a global question. Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot. Those seeking to make that purchase now – that is, those on the brink of leaving the workforce – are in a much worse position than those who made it a decade ago. They have to accept a lot more risk to generate the expected flow of future income they want.     
The problem must be acute in Europe, where sovereign yields in some countries are negative for significant durations. But it is also potentially a non-trivial issue in our own country. In a conference about wealth, this might be a worthy topic of discussion

I think it's funny that the only thing that is considered to support retirees are low risk low return assets. I guess it's right if they can't simply go back to work like some of us will be able to..
- Glenn stevens in a speech today
Title: Re: Australian Investing Thread
Post by: dungoofed on April 28, 2015, 12:26:08 AM
Ok it looks like most people on this thread would not be relying on an inheritance one day like some of the horror stories you hear. I was trying to think if there were any counter-intuitive ways to think about it.

For example, I don't think I'd ever buy REITS or property because like many baby-boomers in Australia my parents (and therefore me too, by proxy) have sufficient exposure.

Also, while there are certain features of superannuation that make it more predictable (until it's not - heh), the way you think about an inheritance has some overlap with the way you think about superannuation. One is the "sudden windfall" aspect of both. For some people the amount bequeathed would be much larger than what they expect to be able to have in super at preservation age. This money has the ability to make a massive difference in your life, especially among the MMM/ERE crowd.

I guess like super, it probably will influence certain decisions but ultimately no absolute decisions can be made based on the amount tied up in either.
Title: .
Post by: This_Is_My_Username on April 28, 2015, 02:48:40 AM
I'll be retired long before my prents die.  And I'm not going to take an earlier more agressive/risky FIRE date in the hope that my parents die soon.

It could be taken into account if there was more certainty, e.g. an  annual 'gifting' plan from the parents.

Title: Re: Australian Investing Thread
Post by: steveo on April 28, 2015, 04:57:11 AM
No to including any possible inheritance. Yes to grim and unpleasant. Could be very little and I don't know when. I like to look after myself, and if there is a little something, I'll invest it to pass on to my offspring at some point.

I don't include inheritance but my in-laws would have like $20 million easy to be split amongst 4 kids. My parents would have say $2-3 million amongst 3 kids. If I include it I'd be reverse mortgaging and partying right now.

It could all though disappear so I don't trust it one little bit.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on April 28, 2015, 10:33:34 PM
Talking of dividend yields, can anyone explain why the hedged version of Vanguard's International Shares have paid out such a higher proportion of dividends vs the unhedged? I thought international shares paid out much less dividends than Australian shares. Is it to something do with the hedging, that some of the return gets converted to income?

Vanguard international shares numbers since inception:

Hedged
Gross: 6.04 Distribution: 5.67 Growth: -0.58

Unhedged
Gross: 4.24 Distribution: 1.25 Growth: 2.06

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/viisf.pdf?20150428|091500
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vihisf.pdf?20150428|091500
Title: Re: Australian Investing Thread
Post by: superannuationfreak on April 28, 2015, 11:26:41 PM
Talking of dividend yields, can anyone explain why the hedged version of Vanguard's International Shares have paid out such a higher proportion of dividends vs the unhedged? I thought international shares paid out much less dividends than Australian shares. Is it to something do with the hedging, that some of the return gets converted to income?

Yes, the hedging of the hedged funds is done using currency derivatives and such gains in the fund are (in my experience) usually taxed as ordinary income.  As mentioned earlier in the thread, currency hedged international shares are best held in Super.
Title: Re: Australian Investing Thread
Post by: dungoofed on April 29, 2015, 05:23:50 PM
On the Go Curry Cracker site here:

http://www.gocurrycracker.com/go-curry-cracker-2014-taxes/

he talks about two things, and I want to know whether there is something similar in Australia.

1) Moving money from Traditional Roth to Roth IRA ("Roth Conversion"). This would be similar to taking money out of Super before preservation age and being taxed on it now, except because your marginal tax rate is zero you don't pay any tax.

2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.

My first thought is that these two tweaks are specific to the US and that capital gains in Australia are never taxed at marginal tax rates, but would be keen to have this confirmed.
Title: Re: Australian Investing Thread
Post by: This_Is_My_Username on April 30, 2015, 12:24:56 AM
Quote
1) Moving money from Traditional Roth to Roth IRA ("Roth Conversion"). This would be similar to taking money out of Super before preservation age and being taxed on it now, except because your marginal tax rate is zero you don't pay any tax.

2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.



(1) is impossible for australians, except in exceptional circumstances.  see here:
http://www.superguide.com.au/accessing-superannuation/accessing-super-early/legal-reasons-to-cash-your-super


(2) That is a wash sale and is illegal in Australia.  Also, if it was legal, CGT would be payable. 
http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20087/NAT/ATO/00001
Title: Re: Australian Investing Thread
Post by: FFA on April 30, 2015, 12:37:30 AM
Regarding CG harvesting, I noticed it on bogleheads and decided it's too much hassle to worry about for me.

T_I_M_U, I thought there might be other ways to apply it, if you were so inclined. e.g. sell VAS (to realise CG, if needed) and buy IOZ instead. Also means you need to be comfortable swapping IOZ instead of VAS, as they are similar but not the same. Anyway as I said at the start, is it really worth the bother after brokerage, admin, time ?

[ edit to strikeout after reading the ato link more closely ]
Title: Re: Australian Investing Thread
Post by: dungoofed on April 30, 2015, 12:43:57 AM
Thanks & thanks.
Title: Re: Australian Investing Thread
Post by: superannuationfreak on April 30, 2015, 06:04:06 AM
Regarding CG harvesting

The main way tax gain harvesting can be useful is if you have a very low income tax year, for example if taking time off for travel, study or family.

One thing we don't get from tax loss harvesting that the US does is they can deduct 3000p.a. in capital losses from their ordinary income. We can only offset against capital gains. It can be useful for rebalancing I guess (which I'd still often prefer to do in super), but generally I'd like those capital gains to keep compounding before I pay tax on them.
Title: Re: Australian Investing Thread
Post by: FFA on April 30, 2015, 07:31:20 AM
Thats a good point about low income years.

rebalancing, yeah best done in super and also by reallocating new funds to losers so you avoid selling anything
Title: Re: Australian Investing Thread
Post by: nonsequitur on April 30, 2015, 10:27:23 PM
Quote

2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.



(2) That is a wash sale and is illegal in Australia.  Also, if it was legal, CGT would be payable. 
http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20087/NAT/ATO/00001

I looked at the link in (2) and it seems to be only illegal in the case of a loss.  In the ATO ruling TR 2008/1,

Quote
8. The class of persons to which this Ruling applies are all taxpayers that obtain a taxation benefit in the form of:

(i)
  a capital loss; or
(ii)
  an allowable deduction,
in connection with a wash sale.
.

Avoiding capital gains is not a capital loss.  But maybe there's something in the actual Act (which I haven't read), which contradicts this.  Also, it's important to note that the ATO wash-sale examples rely on judgment of intent to determine a wash sale.  In the US, re-purchasing the same asset after 30 days eliminates the wash sale condition.
Title: Re: Australian Investing Thread
Post by: deborah on April 30, 2015, 11:19:01 PM
Actually it is considered illegal in both cases by the ATO.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on May 01, 2015, 12:47:03 AM
Found this article quite interesting. The table at the bottom about how a fall in house prices of around 20% would affect other asset classes, i found especially interesting. Drives home the case for investing internationally, if such an event where to materialise

"Impact of house price falls on other assets"
https://www.nabtrade.com.au/insights-and-ideas/insights/news/2015/04/impact_of_house_pric
Title: Re: Australian Investing Thread
Post by: misterhorsey on May 01, 2015, 03:28:11 AM
Found this article quite interesting. The table at the bottom about how a fall in house prices of around 20% would affect other asset classes, i found especially interesting. Drives home the case for investing internationally, if such an event where to materialise

"Impact of house price falls on other assets"
https://www.nabtrade.com.au/insights-and-ideas/insights/news/2015/04/impact_of_house_pric

My gut feeling is that there will be some kind of negative correction for property in real terms, over time. Nominal prices may stay the same for an extended period.  My justification is that it will simply be an eventual reversion to the mean, aided by eventual increase in interest rates to a more normal setting - eventually.

This has motivated me to lock in some profits on my (relatively small) direct holdings in banks and shift more of my investments offshore via the vanguard wholesale high growth fund, which includes some 40% international shares.

Will I be right about the property market? Who knows? 

Is my strategy to diversify away from Australia a good strategy?  I think it is.  So even if my initial rationale could be like soothsaying and ultimately misguided, I think it is motivating me to make some sensible decisions re: diversification.

Title: Re: Australian Investing Thread
Post by: DrowsyBee on May 01, 2015, 11:49:43 PM
Semi-Off topic question but since this is the Australia section...

Does everyone here have accountants to do their taxes and whatnot? If so, how much does it generally cost?

I'm thinking about using one this year to help with dealing with franking credits and to give me pointers for future tax returns. Is this something they do?
Title: Re: Australian Investing Thread
Post by: marty998 on May 02, 2015, 01:51:57 AM
I hope you don't go to an accountant just for franking credits :) They are quite easy to "deal" with.

Your dividend statements for each payment will show the components - franked, unfranked and franking credits.

In the dividend section of etax just input those components in and it will work it all out for you.

The franking credits are added to your cash dividend income and form part of your "total income". After deductions you get your taxable income which you are taxed on.

The franking credit is then offset against your total tax payable (much like your PAYG tax on salary).

Nuttin' to it!
Title: Re: Australian Investing Thread
Post by: DrowsyBee on May 02, 2015, 03:11:10 AM
The franking credits are definitely something I can work out, as I had a parent working at the ATO for an extraordinary amount of time I've always known how to do my taxes to the best of my ability.

The main thing is I don't know what I don't know.
Title: Re: Australian Investing Thread
Post by: bigchrisb on May 02, 2015, 04:08:00 AM
I use an accountant.  However, each year I've done my returns prior to taking them to the accountant.  Most years I've also come up with a list of ideas and strategies I'd like to implement.  Most of the things I come up with are within the tax law, some cross the line.  I pay my accountant to tell me when I'm getting too close to the line, and to keep myself legal/compliant.  To be fair, my accountant has also contributed a few significant ideas and concepts too.

Between my own returns, my trust, company, and SMSF, I spend a few thousand a year with him.  Its certainly not cheap, but I feel I get value from it for now.

Title: Re: Australian Investing Thread
Post by: marty998 on May 02, 2015, 05:08:58 AM
I use an accountant.  However, each year I've done my returns prior to taking them to the accountant.  Most years I've also come up with a list of ideas and strategies I'd like to implement.  Most of the things I come up with are within the tax law, some cross the line.  I pay my accountant to tell me when I'm getting too close to the line, and to keep myself legal/compliant.  To be fair, my accountant has also contributed a few significant ideas and concepts too.

Between my own returns, my trust, company, and SMSF, I spend a few thousand a year with him.  Its certainly not cheap, but I feel I get value from it for now.


Only a few thousand? So I guess that means you're not one of those 75 people who have total incomes over a million and have reduced their taxable incomes to nil with the "cost of managing tax affairs" deduction?   :)


The main thing is I don't know what I don't know.


If you've only got "individual" tax affairs, then there's enough info on the ATO website to get you through. Add in a Company, Trust, business etc and yeah there's a need to start getting experts involved.

Gotta find an accountant who is good at structuring your tax affairs, and not one who is just happy to sort out tax returns after the fact.

Most people only talk to their accountants in July-October. The right time to do it is April-June, because there's never a lot of scope to back-date transactions into a prior financial year.

Title: Re: Australian Investing Thread
Post by: JamesSyd on May 02, 2015, 09:22:58 PM
A fun read from the Sydney morning Herald:

http://www.smh.com.au/nsw/the-creeping-danger-of-australian-households-love-affair-with-credit-20150501-1mx5a5.html
Title: Re: Australian Investing Thread
Post by: misterhorsey on May 03, 2015, 12:50:08 AM
A fun read from the Sydney morning Herald:

http://www.smh.com.au/nsw/the-creeping-danger-of-australian-households-love-affair-with-credit-20150501-1mx5a5.html

Woah
Title: Re: Australian Investing Thread
Post by: steveo on May 03, 2015, 02:09:05 AM
Those figures are a little funny. I don't believe that is the average in Sydney. That is for people who are financially stressed and I think its predominantly because of the low income.
Title: Re: Australian Investing Thread
Post by: JamesSyd on May 03, 2015, 02:24:03 AM
Those figures are a little funny. I don't believe that is the average in Sydney. That is for people who are financially stressed and I think its predominantly because of the low income.

Yeah, I agree. I thought the income was on the low side in that example slideshow thing.

Although the more meaningful numbers are probably from the Wesley Report: Facing Financial Stress:
"The proportion of technically insolvent households had increased from three in 10 to almost four in 10 between 2010 and 2014"

I'm not exactly sure what they mean by "technically insolvent," but I assume it means household net income is less than expenses. That is kind of scary, 40%!
Title: Re: Australian Investing Thread
Post by: steveo on May 03, 2015, 02:32:42 AM
Those figures are a little funny. I don't believe that is the average in Sydney. That is for people who are financially stressed and I think its predominantly because of the low income.

Yeah, I agree. I thought the income was on the low side in that example slideshow thing.

Although the more meaningful numbers are probably from the Wesley Report: Facing Financial Stress:
"The proportion of technically insolvent households had increased from three in 10 to almost four in 10 between 2010 and 2014"

I'm not exactly sure what they mean by "technically insolvent," but I assume it means household net income is less than expenses. That is kind of scary, 40%!

I don't like those figures or the article because it doesn't explain the situation in the right detail so it becomes meaningless. If it stated this is the average scenario from families that are coming to use for assistance then it makes sense.
Title: Re: Australian Investing Thread
Post by: marty998 on May 04, 2015, 01:53:53 AM
Ordinary result from Westpac today... flat profit as compared to prior period.

Too early to say the good times are over but it seems like a pretty odd result given the run-up in investor loans (WBC getting the lions' share of them). I can't seem to work it out - analyst pack of 140 pages said nothing basically.... lots of pretty graphs, no real explanation why there was no profit growth.

ANZ and NAB to report this week, are the good times over?
Title: Re: Australian Investing Thread
Post by: potm on May 04, 2015, 02:06:08 AM
I haven't looked at WBC's result but have a pretty good explanation. New CEO. Gotta leave some room for growth in the future.
First result is a freeby, wasn't your fault.
Title: Re: Australian Investing Thread
Post by: bigchrisb on May 04, 2015, 02:07:16 AM
Yep, New CEO is also my WBC theory
Title: Re: Australian Investing Thread
Post by: marty998 on May 04, 2015, 04:54:40 AM
LOL you would hope these type of earnings management don't need happen in this day and age.

Contrast it with CBA when Ian Narev took over... profits went up more
Title: Re: Australian Investing Thread
Post by: Eamesy on May 04, 2015, 05:44:25 AM
Hi Guys, Just posting to follow the thread.
Title: Re: Australian Investing Thread
Post by: AustralianMustachio on May 04, 2015, 06:01:48 AM
I haven't looked at WBC's result but have a pretty good explanation. New CEO. Gotta leave some room for growth in the future.
First result is a freeby, wasn't your fault.

Are you guys suggesting he deliberately delivered a bad result to begin with, in order to give himself some breathing space later?

Wow
Title: Re: Australian Investing Thread
Post by: DrowsyBee on May 04, 2015, 06:15:03 AM
I would.
Title: Re: Australian Investing Thread
Post by: dungoofed on May 04, 2015, 08:06:58 AM
Google "big bathing" @AustralianMustachio
Title: Re: Australian Investing Thread
Post by: potm on May 04, 2015, 11:37:40 PM
Interest down, Aud up! What is going on. Was the market expecting more?
Sharemarket initially spiked up then quickly did a u-turn.

I'm happy about it though, lower interest on my loan as well as more spending power on my money.
Title: Re: Australian Investing Thread
Post by: bigchrisb on May 04, 2015, 11:59:31 PM
Yep, I'm also somewhat perplexed - interest rate down, stocks down, currency up.  Not the standard reaction!

While this is curious, its not going to change my strategy - the saving on interest will just get tipped into the stash (debt paydown).

What I don't understand is how wide the yield differential is between stocks and home loans at the moment.  I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%.  Add in the franking credits, and its just over 6%.  So, borrowing money to invest in stocks nets 2% positive income.  I can't see how that is sustainable - either prices will be bid up to close that gap, or Mr Market is expecting a) dividends to fall, b) interest rates to rise, or c) pricing in a high likelihood of capital loss.

I'm fully intending on sticking with the DRP/BSPs, and knocking down my debt load with my savings.
Title: Re: Australian Investing Thread
Post by: potm on May 05, 2015, 01:44:42 AM
The statement didn't have these words:

Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings.

Most likely the reason for the reversal on the sharemarket and aud. We'll probably be on 2% for a while now.
Title: Re: Australian Investing Thread
Post by: marty998 on May 05, 2015, 04:59:17 AM
Yeah I don't believe there is any appetite for the Reserve to go below 2%.

Cash rate with a 1 in front of it is probably more likely to scare the punters (oh no the economy really is collapsing) rather than stimulate them to spend more.

Title: Re: Australian Investing Thread
Post by: JamesSyd on May 05, 2015, 05:39:51 AM
Yep, I'm also somewhat perplexed - interest rate down, stocks down, currency up.  Not the standard reaction!

While this is curious, its not going to change my strategy - the saving on interest will just get tipped into the stash (debt paydown).

What I don't understand is how wide the yield differential is between stocks and home loans at the moment.  I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%.  Add in the franking credits, and its just over 6%.  So, borrowing money to invest in stocks nets 2% positive income.  I can't see how that is sustainable - either prices will be bid up to close that gap, or Mr Market is expecting a) dividends to fall, b) interest rates to rise, or c) pricing in a high likelihood of capital loss.

I'm fully intending on sticking with the DRP/BSPs, and knocking down my debt load with my savings.

I think a) and c) are pretty much the same thing. If corporate profits fall one or both will happen.
Do you have any historical numbers of the difference between a mortgage rate and stock market yield? I'd be interested to see, should be somewhat related to equity risk premium.
To me the difference doesn't seem that attractive atm. I would not want to take the risk of borrowing money at 4% for a very flakey 2% extra yield given the state of the economy and how shaky things are starting to feel. But I'm probably just paranoid.
Title: Re: Australian Investing Thread
Post by: slothman on May 05, 2015, 05:54:43 AM
What I don't understand is how wide the yield differential is between stocks and home loans at the moment.  I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%. 

Hi bigchrisb, I'll be borrowing at 4.16% after the cut. Your 4.04% is dang impressive!

Just wondering where you got the 4.4% dividend from, because according to the "Average P/E ratios and average dividend yield" on the following link
http://www.afrsmartinvestor.com.au/share-tables/

All Ords appear to be yielding < 4%. Additionally, the large LICs such as AFI/ARG/MLT are also < 4% net yields. I agree with you point about current yields and mortgage rates though. Still positive cashflow after taking into account franking credits.

Seems like everyone is using the easy money to bid up property prices. Whereas I've been releasing equity from my property portfolio to invest into shares...seems as though I'm swimming against the tide. Could be a good thing, or I could get wiped out. Fingers crossed I'm onto a good thing!

edit: make that 4.21% after the cut! greedy CBA only passing on 0.20% of the RBA cut
Title: Re: Australian Investing Thread
Post by: FFA on May 05, 2015, 07:42:47 AM
the ultra low (or negative in some countries) rate environment globally is causing a lot of distortion. historical low rates, historical high asset prices ( shares, bonds, resid property, comm property, you name it), pumped up dividend ratios made to order for yield hungry investors.

Maybe its a good thing rba now signals 2 might be a bottom, if not i fear the asset bubbles steadily building everywhere and ever wider income inequality.

Personally im holding a decent cash balance despite interest being a pittance. I could be wrong, but i expect some market wobbles in the next year or two as this unconventional monetary policy inevitably unwinds....
Title: Re: Australian Investing Thread
Post by: dungoofed on May 05, 2015, 10:33:09 AM
Yep, I'm also somewhat perplexed - interest rate down, stocks down, currency up.  Not the standard reaction!

While this is curious, its not going to change my strategy - the saving on interest will just get tipped into the stash (debt paydown).

What I don't understand is how wide the yield differential is between stocks and home loans at the moment.  I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%.  Add in the franking credits, and its just over 6%.  So, borrowing money to invest in stocks nets 2% positive income.  I can't see how that is sustainable - either prices will be bid up to close that gap, or Mr Market is expecting a) dividends to fall, b) interest rates to rise, or c) pricing in a high likelihood of capital loss.

I'm fully intending on sticking with the DRP/BSPs, and knocking down my debt load with my savings.

I think a) and c) are pretty much the same thing. If corporate profits fall one or both will happen.
Do you have any historical numbers of the difference between a mortgage rate and stock market yield? I'd be interested to see, should be somewhat related to equity risk premium.
To me the difference doesn't seem that attractive atm. I would not want to take the risk of borrowing money at 4% for a very flakey 2% extra yield given the state of the economy and how shaky things are starting to feel. But I'm probably just paranoid.

I think this is another example of how the government has fucked themselves with franking credits. 6% is almost three times what 10 year bonds are yielding!

Title: Re: Australian Investing Thread
Post by: idjces on May 05, 2015, 12:29:05 PM
Ordinary result from Westpac today... flat profit as compared to prior period.

Too early to say the good times are over but it seems like a pretty odd result given the run-up in investor loans (WBC getting the lions' share of them). I can't seem to work it out - analyst pack of 140 pages said nothing basically.... lots of pretty graphs, no real explanation why there was no profit growth.

ANZ and NAB to report this week, are the good times over?

I was expecting the good times to be over for the big 4, in the reports 6 months ago. Mortgage rates and interest margins being slashed, huge sums of money being handed out in sign up bonuses and interest free periods, unemployment soaring. The banks having to issue shares at a discount and then some. ANZ was the only one to meet those low expectations, befo