Thanks for your response. The reasoning behind only buying the US total market (at least in the accumulation phase) is explained in jlcollinsnh 'Stock Series' of posts. The rationale is that the US total market is already significantly exposed to the international market that hedging that risk by buying international or ex-US markets is not worth it. Its broadly the same reasoning for only holding a total market rather than particular caps. The US estate taxes are a long ways off concern for me, maybe something I'll consider when I have a bit more invested. If Vanguard re-domiciled VTS to Australia that would be grouse is that likely? Would that be the function of a potential DRIP? Because at the moment paying tax on the dividend only to reinvest it and paying tax on it's earnings again seems suboptimal. Apologies for the delay in replying.
I don't understand when you say that you should diversify into the total US market instead of just large caps and that is the "same reasoning" to
not diversify further (internationally).
It is true that the US market is pretty well diversified, unlike the Australian market. The Australian market is massively concentrated in 2 sectors and 10 companies. However just because the US market is well diversified doesn't seem like a valid reason to avoid diversifying further.
Have you checked his international investors suggestions on the jlcollinsnh site?
If you were an American then the upside to this is that you have no currency upside risk with an all-US portfolio, which I suspect is what he may be referring to when saying it wasn't worth it to diversify internationally. If you are not an American, then this benefit is not there and I don't understand why you would leave out the other 43 countries that collectively make up the other half of the world by market cap when the long term returns have been much the same and you can get a diversification effect (lower volatility with same returns). Vanguard put out a paper on international diversification, and for the US they found the same return but with lower volatility for about 30% international exposure and anything between about 20 and 40% were still very close, which is why they recommend 20-40% international even for US investors.
Sorry, I don't mean to be banging on about it, and if you particularly want to go with US-only, you will be fine, I just don't see a reason that makes sense to me, but anyway, moving on.
Paying tax on dividends only to re-invest them - not sure there is much you can do about that, there are 2 things certain in life and all that.
One option may be to buy BKR shares because they re-invest it all and pay no dividends. But I don't much like tilting towards one company as it introduces key person risk and removes the entire philosophical argument of indexing.
I wonder what would be the result of signing up to a broker that allows purchases on international exchanges and buying an Irish domiciled "
accumulating" fund instead of a "distributing" fund on the LSE? The accumulating funds pay no dividends as they are reinvested but I'm not sure if by Aussie rules you still need to pay tax on it somehow or not, my guess is maybe not. The downside is that you have to pay a small exchange rate cost when buying and selling since it is not in AUD, but I hear Interactive Brokers charges a tiny fee and if you are buying for the long term and not trading it back and forth then should not be an issue.
I have no heard anyone on Aussie forums mention this before so I really have no idea how you would find that out, maybe ask your accountant?
Also don't forget that a non-distributing fund, by nature of not distributing means you will need to sell the capital for cash flow in retirement and you pay CGT on that, but yea if you can swing it, it looks like it would still have a significant benefit, although my gut says it may not be possible or I would have read about it everywhere.
