Aussie mustachian; investing advice please

[travelbug]

Hi

as we are not in the USA Roths and 401ks etc do not apply to us.

We are going to retire in July and have real estate and a business which we take a wage from, and which we may eventually sell, to give us our income.

We also will have around 600k+ to invest and I want to leave it fairly liquid, so I am think about blue chip shares or a high interest savings account. We will also be adding to this weekly as we go, or adding a lump sum bi-annually.

Just wondering what you would suggest.

Thanks

[bigchrisb]

Hi, a fellow Aussie here.  There are a few posts on this topic, and a search of those is probably a worthwhile activity.

The Australian system depends a lot on your situation - particularly with respect to superannuation and other investment structures.

I'll list what I've done, which I think works for my situation.  What works for you might be very different though!.
My situation:
Age 30.  Business owner.  Single. No dependents. Income ~200k/year.  Expenses ~$35k/year. Net worth, about $900k.

My goal:
- My business is very active, so I want my investments to be reasonably passive.  My goal is to have enough income from these, (in the form of dividends/rents as opposed to capital drawdown) to cover three times my expenses.

My structure:
- Use tax advantaged accounts.  I fully salary sacrifice to super ($25k/year at my age). I think of this money as funding my old age - under the current rules, I can't access it till 60.  I'm reconciled to the fact that it will probably be 70 by the time I get there.
- Stream income sensibly.  The business is structured through a family trust.  I pay myself 80k/year (up to the corporate tax rate) personally, then the rest gets paid to a holding company (taxed at 30%).  The holding company keeps the franking credits, which means that I can effectively defer this income to a future, lower income period of my life.
- Invest the money in my company for the long term.  This is all blue chip shares, buy and hold, automatic reinvestment of dividends.
- Surplus income in my own name, either invest in my name (leveraged), or in the family trust's name (un-leveraged). 
My intent is for passive investments in each of super, the investment company, and the family trust / my personal name to cover my expenses. That allows for plenty of cover for future inflation/lifestyle growth, and all are with different entities/institutions, so should provide some cover should any one blow up.

My investments:
- Australian shares. 50% is Australian ASX listed shares and REITS
- 20% is in rest of world stocks, through an exchange traded fund (VEU).  Its the lowest cost way I could find to get exposure to these.
- 10% is in US stocks, through exchange traded funds IVV and VTS.  Again, Australian listed low cost funds.
- 20% is Australian LICs (AFI, ARG, BKI, CIN, MLT), which are listed, closed end investment funds.  I started buying these in preference to individual stocks, as most were trading at less than the stocks they own (i.e. you get more stock exposure for your dollar), and they had expenses lower than exchange traded funds.

That's what I've chosen to do, and what works for me.

When you say liquid, do you mean can easily be converted to cash (which includes all those exchange options), or something that has low risk of loss of value (which would rule out shares)?

[travelbug]

Thankyou for your detailed reply, I really appreciate it. Alot.

We have a similar set up but do not sacrifice into super, we also take dividends as wages and therefore cap our tax bracket at 30% regardless of our salaries.

We also have a reasonable share portfolio and I have invested in shares since I was 18, I am now 37, so understand the market to a degree. Having said that we have mainly invested in "minnows", or high risk high gain shares, mainly in the mining sector. You can lose about 3 out of 5, but when you win you win big. My dad and other older friends have done this for many years and we generally listen to their advice on that.

Blue chip shares is what I have been looking at, but if I can be so rude, what is your rough dividend from those and do you think it's better than a straight 5% from a term deposit? On average?

We will be living on around 25% of our income stream from July as we are travelling but when we settle down somewhere (if we do!) that will decrease a bit.

So I want to invest a fair whack annually and still be able to run it from where we are in the world easily. I want low risk, reasonable return and not high maintenance for around 18 months and then we will reaassess.

Again, thanks for your input. Lots to think about.

[bigchrisb]

No problem!

My listed portfolio is about $723k at today's prices.  Annually, it yields about $30k, plus franking credits and foreign tax offsets of $10k - i.e. a net yield of 4.1% and a pre-tax yield of 5.5%.  There are a few thousand worth of tax deferred or capital gain distributions from the REITS, which lower the tax payable a bit, and boosts the effective pre tax yield another ~0.1%.

So, I figure with just letting this sit there, I'm getting an equivalent pre-tax yield of 5.6%. Both dividends and stock prices may rise or may fall (I certainly hope both rise in the long term!), but even if there was no dividend or capital growth over a 20 year period, the yield is still better than term deposits.  The usual past performance / future performance mantra, but traditionally dividends have grown slightly faster than inflation, so there is some upside there.

I'm 30, and have been playing with shares since my teens.  However, over time, I've come to the conclusion that for me, I'm better off spending my time on my core business, and treating the investment as passive buy and hold.

If you are truly globally mobile, maybe its worth considering basing your investments in a more favorable tax jurisdiction?  I started looking at setting up a holding company to invest in Singapore - you still pay Australian taxes when you repatriate the profits, but you can have it compounding at a much lower tax rate during the investment phase.  I haven't followed up this idea with enough research, but its certainly on the "to do" list.   

[bigchrisb]

I should add something about the international shares.

The yield from this portfolio would be a lot higher if it didn't have 20% rest of world (3% yield) and 10% US shares (2% yield).  However, I like having some currency diversification in my income, and this gives me about A$5,500 a year in income from global assets (and based in global currencies).  I figure that is about equivalent to what I spend each year on international travel, so in effect I no longer care about changes in the Australian dollar exchange rate for this travel.  With the AUD so high (or should that actually read international currencies artificially low?), it seemed like a good period in Australian history to undertake this currency diversification.

New money I'm saving at the moment is going in to international stocks and debt reduction.

[travelbug]

Awesome, thanks alot.

We will have no base, except our income from our business and investments will be taxed in AUD as they are both in Australia but capped at 30% which isn't too bad considering...

We have also concentrated on our business as an asset to build a great income stream and now we are going to try to put managers in and deal remotely. Fingers crossed!

I hadn't thought about investing overseas (Singapore) but would we be taxed taking large amounts out of Australia? The lump sum will be  800k+ from a house sale and I want to have access to that in case we want to purchase more RE or shares somewhere.

Interesting. Lots to think about.

I am 37 and DH is 40, so we have a lot more life ahead of us, also with 2 small children in tow it ups the ante a bit...