Author Topic: Aussie with 3 kids - where do I start?  (Read 10998 times)

MIMPC

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Aussie with 3 kids - where do I start?
« on: October 10, 2013, 04:06:52 AM »
G'day all,

I have been reading the forums for a few months now and finally taking the courage to register and write in to seek advice and help with my finances. I will soon to be 43 in a month's time, and beginning to worry about retirement.

My wife and I take home about $138k (after tax) a year, and save 49% of our income (thanks to YNAB!). We do not have any debts, paid off the mortgage in the house we live in, have $150k sitting in a high interest savings account at about 4.5% per year, $16k in our daily transaction account, $25k in stocks, and $14k in mutual funds. We also an overseas property generating 7% rental yield per year valued at $446k with $154k left in the loan. I have about $90k in Super and my wife $24k.

I dream of retiring at 55-60 with an annual income of $60k but I doubt it will happen especially with my kids (eldest at 8 years old).

Thanks to MMM, I am now seriously thinking of investing my $150k in ETFs, and perhaps slowly start to consolidate my other positions (like selling off mutuals funds!). I hope this will help take the pressure off worrying about my investments (I need to get better with this) with frequent checks on how the Australian stock market is doing, and start to focus my time and energy on the kids instead.

I am thinking (rightly or wrongly) of making a start to invest the $150k we have in our high interest saving account and our subsequent monthly savings into either of the 2 options below:

Option 1 (adapted from futureadvisor.com)
13% Vanguard® Australian Shares Index ETF
7%   Vanguard® MSCI Australian Small Companies Index ETF
13% Vanguard® MSCI Australian Large Companies Index ETF
10% Vanguard® All-World ex-US Shares Index ETF
10% Vanguard® US Total Market Shares Index ETF
11% Emerging Market ETF available in Australia (Anyone?)
12% Vanguard® Australian Property Securities Index ETF
12% Vanguard® Australian Government Bond Index ETF
12% Vanguard® Australian Fixed Interest Index ETF

Option 2
20% Vanguard® Australian Shares Index ETF
20% Vanguard® Australian Shares High Yield ETF
17.5% Vanguard® All-World ex-US Shares Index ETF
17.5% Vanguard® US Total Market Shares Index ETF
25% Vanguard® Australian Government Bond Index ETF

Should I just stick with the simpler option (Option 2), or should I consider Option 1, or should I consider a different mix?

And with the options above, should I wait until the market is down before putting all the $150k into the ETFs, or should I progressively start investing the $150k now?


mr. T

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Re: Aussie with 3 kids - where do I start?
« Reply #1 on: October 10, 2013, 05:21:31 AM »
Hi MIMPC,

I assume you are a hands-off kind of investor. In that case, I think simpler is always better. So, I take option 2 as a starting-point.

Some remarks:
1- your proposal has a large bias towards Australia (40% of your total shares exposure, plus all bond exposure). Australia is heavily tilted towards mining, and mining depends on Chinese investment in fixed infrastructure. I would reduce exposure to Australia, even though it's your home market.
2- the amount of bonds really depends on your risk profile. I assume 25% bonds is about right for you.

So I would think of something like this:
25% Australian Government bonds
10% Australian shares index
40% US total market
25% world ex-US

The thought process behind this distribution:
- 25% bonds seems to agree with your risk appetite. The Australian government is pretty solid, so Australian bonds are just as good as any and it's in your currency, which is a good thing.
- 10% Australian shares is still a pretty big overexposure to the home-country.
- The US stock market is the biggest and most diverse market in the world.
- You still have a good exposure to "rest of the world".

Just my 2 cents of course.

happy

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Re: Aussie with 3 kids - where do I start?
« Reply #2 on: October 10, 2013, 06:38:15 AM »
I don't have the knowledge to advise you about your proposed allocations, but just some general thoughts:

If you want 60k income ( a little politely toned face punch:thats a bit more than would be considered mustachian) you will need $1.5mill. IF your rental throws of7%, I guess that is about 30k a year. If that 30k is net ( assuming you pay off the mortgage before retirement), then you only need another 30k a year (i.e. 750K). If I got the math correct you already have 319k. So you only need to double this more or less before retirement. Which in my view is very achievable especially with a 10-15 year time frame especially with your income and savings rate.

If you are not going to retire before 55-60, then you should investigate the benefits of superannuation a bit more: at 60years of age (IF the rules don't change: depends how suspicious you are about this) the money will come out tax free. Since you are looking at a 60k income, this is significant because of the amount of tax. If you and you wife each contributed  the maximum taxable concessional amount of 25k a year (your employer will put in 9.25% and get you part way), then in 10 years, including your 319k in private investments, if you only acheived 5% return you would still have over $1 mill. If you only put in 25k a year between you, you'd still hit 800k. Make sure you have a low cost fund.

Final question ( please don't be offended): have you researched the  tax implications, costs etc of  moving your moneys into Vanguard ETFs?  The tax structures in Australia are less favourable to investing without the tax shelter of superannuation, so you are running a fairly tight margin  by the time you look at tax/ inflation/ fund costs.  High yielding fully franked dividend stocks seem to be the flavour of the month, but I don't have sufficient knowledge to  say anything more specific. Hopefully of the experienced Aussie stock investors here will  come by and weigh in on this thread for you..




MIMPC

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Re: Aussie with 3 kids - where do I start?
« Reply #3 on: October 10, 2013, 02:46:31 PM »
This really got me rethinking about balancing my investments locally and abroad. The only concern I have with investing in the US market is currency fluctuation, so perhaps further tweaking on the percentages.

Hi MIMPC,

I assume you are a hands-off kind of investor. In that case, I think simpler is always better. So, I take option 2 as a starting-point.

Some remarks:
1- your proposal has a large bias towards Australia (40% of your total shares exposure, plus all bond exposure). Australia is heavily tilted towards mining, and mining depends on Chinese investment in fixed infrastructure. I would reduce exposure to Australia, even though it's your home market.
2- the amount of bonds really depends on your risk profile. I assume 25% bonds is about right for you.

So I would think of something like this:
25% Australian Government bonds
10% Australian shares index
40% US total market
25% world ex-US

The thought process behind this distribution:
- 25% bonds seems to agree with your risk appetite. The Australian government is pretty solid, so Australian bonds are just as good as any and it's in your currency, which is a good thing.
- 10% Australian shares is still a pretty big overexposure to the home-country.
- The US stock market is the biggest and most diverse market in the world.
- You still have a good exposure to "rest of the world".

Just my 2 cents of course.

travelbug

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Re: Aussie with 3 kids - where do I start?
« Reply #4 on: October 10, 2013, 06:18:05 PM »
I wouldn't be too worried, if your goal is 60k pa you could even retire earlier if you wanted to.

You have 205k cash invested, not incuding super- I wont include this as you wont access it until later in life and it wont help you with ER.

I think putting that into dividend returning shares is a good idea.

You also have 70k nett a  year to play with. Do some compounding interest calculations on this on the ASIC website calculator at 6%. I would add to the share portfolio or are there any great tax offsets with your investment property? If not, pay that off too.

As happy stated, if you want 60k pa income and have 30kpa from your investment property and 205k already saved, you need 545k more, which is 7.7 years if you don't add the compounded dividend back into your principal.

Are you happy where you live? Can you downsize to retire early? Do you want to work until 55?

There are many factors that only you can decide on. Good luck.

MIMPC

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Re: Aussie with 3 kids - where do I start?
« Reply #5 on: October 11, 2013, 12:30:20 AM »
Thanks happy, $60k seems excessive, but I arrived at this rough figure based on the assumption that my 2 youngest children will be in Uni by then (IF) and we would want to be in the position to pay for their fees and expenses. I have been using YNAB now since Feb this year, and plan to review our expenditure at the end of the year to try and reduce our spend.

Thanks for the reminder about tax. Maybe I should re-consider salary sacrificing more and invest my super into Intl and US funds, while I invest my cash into high yield local dividend stocks. This way I can sell parts of it if I need the money to spend on school fees etc.. Only thing is I'm no expert in picking the right ones and therefore the choice of ETFs.

What are your thoughts/comments about SMSF?

I don't have the knowledge to advise you about your proposed allocations, but just some general thoughts:

If you want 60k income ( a little politely toned face punch:thats a bit more than would be considered mustachian) you will need $1.5mill. IF your rental throws of7%, I guess that is about 30k a year. If that 30k is net ( assuming you pay off the mortgage before retirement), then you only need another 30k a year (i.e. 750K). If I got the math correct you already have 319k. So you only need to double this more or less before retirement. Which in my view is very achievable especially with a 10-15 year time frame especially with your income and savings rate.

If you are not going to retire before 55-60, then you should investigate the benefits of superannuation a bit more: at 60years of age (IF the rules don't change: depends how suspicious you are about this) the money will come out tax free. Since you are looking at a 60k income, this is significant because of the amount of tax. If you and you wife each contributed  the maximum taxable concessional amount of 25k a year (your employer will put in 9.25% and get you part way), then in 10 years, including your 319k in private investments, if you only acheived 5% return you would still have over $1 mill. If you only put in 25k a year between you, you'd still hit 800k. Make sure you have a low cost fund.

Final question ( please don't be offended): have you researched the  tax implications, costs etc of  moving your moneys into Vanguard ETFs?  The tax structures in Australia are less favourable to investing without the tax shelter of superannuation, so you are running a fairly tight margin  by the time you look at tax/ inflation/ fund costs.  High yielding fully franked dividend stocks seem to be the flavour of the month, but I don't have sufficient knowledge to  say anything more specific. Hopefully of the experienced Aussie stock investors here will  come by and weigh in on this thread for you..

MIMPC

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Re: Aussie with 3 kids - where do I start?
« Reply #6 on: October 11, 2013, 12:45:19 AM »
There are unfortunately no tax offsets with my overseas investment property, and perhaps high dividend shares is the way to go especially fully-franked ones. 6% is pretty good I must say if I can achieve that. Problem is knowing which ones to buy, hence I thought after reading MMM, EFTs might be the way to go - but thinking perhaps not esp. after reading what happy mentioned about taxes on profit down under.

I wouldn't be too worried, if your goal is 60k pa you could even retire earlier if you wanted to.

You have 205k cash invested, not incuding super- I wont include this as you wont access it until later in life and it wont help you with ER.

I think putting that into dividend returning shares is a good idea.

You also have 70k nett a  year to play with. Do some compounding interest calculations on this on the ASIC website calculator at 6%. I would add to the share portfolio or are there any great tax offsets with your investment property? If not, pay that off too.

As happy stated, if you want 60k pa income and have 30kpa from your investment property and 205k already saved, you need 545k more, which is 7.7 years if you don't add the compounded dividend back into your principal.

Are you happy where you live? Can you downsize to retire early? Do you want to work until 55?

There are many factors that only you can decide on. Good luck.

marty998

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Re: Aussie with 3 kids - where do I start?
« Reply #7 on: October 11, 2013, 01:03:12 AM »
sorry, editing because computer is buggy...

I'll politely disagree with the comments from our friend in the Netherlands. The Australian stockmarket is not heavily tilted towards Mining. It is 50% financials (banks, insurance and REITS).

So the real risk is credit markets, not chinese iron ore prices. BHP, WPL and RIO already have the expected bad news in commodities priced in, potentially it is the time to buy those 3.

Just make a non-concessional contribution to your super fund in the name of the whoever will be retiring first (you can fight with your wife over that). You are capped at $150k for this, however you can bring forward the next 2 years and dump $450k in at once if you choose. Just don't go over otherwise the tax rates are punative.

As happy posted, salary sacrifice up to your $25k limit. Once you (or your spouse) turns 55, start drawing down a transition to retirement pension and recontribute it to Super (google the strategy).

Choice of super funds is another matter. I don't buy into the SMSF craze. A low cost industry fund is generally the most hassle free (such as REST, Australian Super, HESTA or First State. They will do better than any other vehicle in the industry.

$60k will likely be a minimum in 10-15 years time for a family of 5. COL in Aus only ever goes up, no matter how mustachian you are, especially if you have kids that will take school fees, sport, clothes, iCrap etc.

I live on the absolute bare bones minimum (including mortgage) and my expenses for a single person are $18k a year. If I had to rent it would be $32k a year. For a family with kids after COL inflation over a decade, you gotta be realistic. When the kids go, then $60k will be more than enough, but until be conservative and add a bit more.

MIMPC, you and your spouse are doing well for yourselves and your family. Don't buy new cars, don't spend on frivolities, always look for better deals on the big ticket items and you will be fine. My parents reached similar goals that you currently have and you have more time and more money with which to accomplish it. Set goals, stick to a plan and let time and compounding do the rest.

cheers
« Last Edit: October 11, 2013, 01:32:15 AM by marty998 »

steveo

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Re: Aussie with 3 kids - where do I start?
« Reply #8 on: October 11, 2013, 04:38:23 AM »
I'm not going to offer advice because I am in a similar situation however I'll raise some points:-

1. Do you really want to retire at 55-60 ? I want to retire at 50 but my income goal is lower. I think myself and my wife can survive on 25k per year. My youngest child will be 12 and my elder two 20 and 22. I am budgeting though for about a million in income producing assets including super which will give me significant buffer. I'm 40 now and I am aiming to be FI by about 50. I think I may have to work for a couple years longer though.
2. I am not sure about investing overseas. You might be able to hide the income and pay no tax but that is risky. Assuming you pay tax I think that there will be no tax benefits on OS income.
3. How good are ETF's compared to direct shares. ETF's provide greater diversification however you do pay an annual fee. I know this is low but it can be non-existent if you own the shares outright.

happy

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Re: Aussie with 3 kids - where do I start?
« Reply #9 on: October 11, 2013, 06:03:59 AM »
Quote
Thanks happy, $60k seems excessive, but I arrived at this rough figure based on the assumption that my 2 youngest children will be in Uni by then (IF) and we would want to be in the position to pay for their fees and expenses.

I have teens  age 15 and 18 and certainly can vouch for the fact that late teens are v expensive. 18 year old is doing the HSC so its hard to get too fierce about him earning money.  From what I can glean there is now no financial incentive to pay off HECS debt in advance of graduating. There used to be a discount in the order of 10-15% but this is no more, and HECS repayment does not kick in until they earn over $51 k.  And then is scaled starting at 4% www.ato.gov.au/Rates/HELP-repayment-thresholds-and-rates/‎.  So really paying ones offsprings  uni fees are an affluent middle class tradition rather than a necessity. More of concern is living costs whilst they are studying....it might depend on where you live and where they are studying: if they study locally and stay home this is the cheapest option, but if they have to pay rent say in Sydney, then trying to study and work to support themselves WRT rent will be difficult. There seems to be an abundance of  scholarships , cadetships etc to assist, although obviously not everyone will be successful.

I tried searching for this thread but failed: I think Limeandpepper posted a link to data regarding av living costs for families in Australia....and once you get dependent/independent young adults post school you hit the highest cost: on average approx. $2000k per week. Once they really leave living costs plummet for a couple.  So no harm in budgeting a bit generously through that age group.

Otherwise ,  you are getting 4.5% on Cash basis for your 150k. American's would die for that. I'm NOT saying DON'T do the vanguards necessarily, I'm just saying do your research first. If you're not sure, then don't splash that 150k around, since 4.5% with virtually no risk, is not bad at all. If I had 150k to splash outside super, I'd be learning about setting up appropriate structures for tax minimization ( see Big Chris B's post about this) and then do the math on fully franked dividends vs Vanguard index funds. Personally I think its important for you to decide at least approximately, when you want to retire. If at 60, currently, dump it all into super. 55...well you only need to plan for 5 years, so you could just save up 5 years living costs, put it in  your high interest cash account and Bob's your Uncle. Then post 60 your super cuts in tax free if you did your sums correctly.  But if you want to RE, then longevity of portfolio really becomes important.

RE: SMSF.. if you want  specific control of your super investment and how its structured, SMSF is better. But it takes some work. If you want the hands-free version, don't do SMSF.

mr. T

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Re: Aussie with 3 kids - where do I start?
« Reply #10 on: October 11, 2013, 08:23:38 AM »
@MIMPC: Yes, currency exposure will always be a point, especially if you are in a (relatively) small currency area. I am in the eurozone myself, and while the eurozone is huge, it's also a taxation nightmare. All continental European countries have different (and often high) taxations on transactions, dividends etc and reclaiming them is a big task (if possible). So I personally don't invest in continental Europe and have a pretty big exposure to GBP and USD. I tend to not worry too much about that. I see no reason why USD and GBP should in the long run be inferior to Euro. I'm not an expert in Australian peculiarities, but I doubt that the Australian $ is fundamentally a lot stronger then the USD (in the long run).  On top of that, most S&P500 size companies are world-wide operations that provide some level of built-in currency hedging by their international operations.

Of course, if you are in an area with a consistently weak (or very strong) currency, currency risk becomes a major issue. You know that better than me.

My suggestion was meant like a rough idea. Please play with the percentages till you get something that suits you.

@Marty: OK, so I stand corrected. But it doesn't really change the point I think. My point is that investing such a huge amount of your money in the Australian exchange creates a big tilt towards a specific sector. In this case financials. I'm not that familiar with Australian financials, but I sure wouldn't be happy at all being hugely overexposed to European financials. We have seen how easy it is for a sector to collapse (internet and tech in 2001, finance and banking in 2008). If you want to be hands-off, you have to diversify over sectors. Investing 40% of your capital in an index that is 50% in one sector (regardless which specific sector), doesn't help. So I think MIMPC should consider decreasing the weighting of Australian index trackers. It's ultimately up to him at which percentage he ends up. As mentioned before, currency issues play their part too in this consideration.

And yes, I know Rio, BHP and the like are cheap at the moment. I'm a buyer of BHP myself (the London shares). But I was talking asset allocation, not market timing.

MIMPC

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Re: Aussie with 3 kids - where do I start?
« Reply #11 on: October 12, 2013, 08:47:46 PM »
stevo: I would want to retire as early as possible as I'm not enjoying work at the moment - being stuck at the wheel. I need to do the math but think anything earlier than 55 would be a huge achievement; perhaps a goal! With that said, I don't see myself ever stopping work entirely, but being FI early enough to move on to some non-profit org engagements with little or no pay.

marty998 : Thanks for the encouragements. I've not seriously looked at salary sacrificing to super or even non-concessional contributions to date. At 43, it's about time I reckon! I'm with Australian Super at the moment, and there is also a Member Direct feature which allows some control (purchase of stocks/ETFs), but think it's $15/month in fees. Need to research more to see if this suits what I'm doing. Definitely a consider prior to even thinking about SMSF.

happy: Thanks for the tips/pointers. I've got lots to go on at the moment and have started reading bigchrisb posts. I fear to think about how the kids will be spending when they are in their teens. That's why everyone keeps telling me to enjoy it while I have it now cos it'll just get 'harder' :p. I've got a detailed breakdown of the household expenses including fees, etc etc. worked out for the next 20 years and used a 3% inflation forecast, but time to tweak this a little and get some real insight to what's the come especially education costs. Will also need to start researching more of HECS, but glad to learn HECS debt is deferred.

mr. T:  Thanks for the prod on asset allocation.

steveo

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Re: Aussie with 3 kids - where do I start?
« Reply #12 on: October 13, 2013, 12:32:42 AM »
stevo: I would want to retire as early as possible as I'm not enjoying work at the moment - being stuck at the wheel. I need to do the math but think anything earlier than 55 would be a huge achievement; perhaps a goal! With that said, I don't see myself ever stopping work entirely, but being FI early enough to move on to some non-profit org engagements with little or no pay.

Can you decrease your retirement income goals. I think 25 grand for 2 people is enough to live on in Australia if you own your own home and I think that provides some buffer. Australia is expensive however I think the biggest cost is your home. 25 grand at a 4% withdrawal rate is 625,000 in income producing assets. Personally I am aiming for that level with a higher level of buffer. At the moment we spend about 40,000 but I have 3 kids. There is no way myself and my wife spend that much without the kids.
« Last Edit: October 13, 2013, 01:47:28 AM by steveo »

the lorax

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Re: Aussie with 3 kids - where do I start?
« Reply #13 on: October 13, 2013, 12:55:22 AM »
iShares also do low cost ETFs btw, and they have an emerging markets fund, although the fees are higher for that one.

MIMPC

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Re: Aussie with 3 kids - where do I start?
« Reply #14 on: October 13, 2013, 04:34:05 AM »
Can you decrease your retirement income goals. I think 25 grand for 2 people is enough to live on in Australia if you own your own home and I think that provides some buffer. Australia is expensive however I think the biggest cost is your home. 25 grand at a 4% withdrawal rate is 625,000 in income producing assets. Personally I am aiming for that level with a higher level of buffer. At the moment we spend about 40,000 but I have 3 kids. There is no way myself and my wife spend that much without the kids.

Yes, $60k is with kids in mind (inc. inflation) but once they leave the nest, we'll be roughly looking at about $32k. I aim to try and bring this down. We spend about $74k per year (3 kids too) at the moment, with $33k going to childcare (out of pocket).

MammaStash

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Re: Aussie with 3 kids - where do I start?
« Reply #15 on: October 13, 2013, 05:36:21 AM »

 I've got a detailed breakdown of the household expenses including fees, etc etc. worked out for the next 20 years and used a 3% inflation forecast

WOW! I'm using YNAB too so I can see how this is probably not that difficult. Is 3% the right inflation for Australia?

Thanks for this thread... I'm still reading through the comments since I'm trying to get my head around the various translations from MMM USA to 'stachin in Aus!


steveo

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Re: Aussie with 3 kids - where do I start?
« Reply #16 on: October 13, 2013, 03:28:15 PM »
Yes, $60k is with kids in mind (inc. inflation) but once they leave the nest, we'll be roughly looking at about $32k. I aim to try and bring this down. We spend about $74k per year (3 kids too) at the moment, with $33k going to childcare (out of pocket).

This says to me that you are really spending $41k and that is with 3 kids. Personally I don't count daycare costs because it is something that is not on-going.

I also don't see why you need to cater for inflation. Assuming you reach your current income goal and you have invested reasonably well inflation shouldn't be a problem because your investments should match or beat inflation.

MIMPC

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Re: Aussie with 3 kids - where do I start?
« Reply #17 on: October 13, 2013, 07:16:39 PM »
The official RBA (Reserve Bank of Australia for non-aussies) inflation rate is 2.4%. I use 3% as an average because I am seeing my expenses such as utilities, school fees, insurance premiums etc. gone up  by that much this year or in some cases even more.


WOW! I'm using YNAB too so I can see how this is probably not that difficult. Is 3% the right inflation for Australia?

Thanks for this thread... I'm still reading through the comments since I'm trying to get my head around the various translations from MMM USA to 'stachin in Aus!

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« Reply #18 on: October 13, 2013, 08:32:18 PM »
Others have mentioned investing differently and cutting costs. 

so, here is some aussie specific advice:  because "Preservation Age" is relatively close (17 or 12 years?), investing through super is significantly more advantageous than investing outside super.

Here is an example:

Assume You and your wife both earn $100k pretax.  Also the employer gives you an additional 9.25% = $9250 in to your super.

Option A: Invest 15,750 of salary after tax outside super.  Tax = 38.5%.  You will invest 9,686 in to an ETF.  A fully franked rate of return of 6% = $510 after tax.

Option B: Invest 15,750 of salary pre-tax in to super.  Tax = 15%.  Your super fund will invest 13,387.  A fully franked rate of return of 6% = $975 after tax.


Both you and your wife should contribute $25k each in to super, each year.

steveo

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« Reply #19 on: October 13, 2013, 10:52:22 PM »
Both you and your wife should contribute $25k each in to super, each year.

I think that this is a given but I'm not doing it just yet. I want to pay off the house first.

One question that I have for anyone is should you invest in index funds/etf's or direct shares. The direct shares will not have an ongoing management fee. Would the savings be significant enough to consider that approach over a more diversified approach.

This_Is_My_Username

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« Reply #20 on: October 13, 2013, 11:23:43 PM »
Both you and your wife should contribute $25k each in to super, each year.

I think that this is a given but I'm not doing it just yet. I want to pay off the house first.

One question that I have for anyone is should you invest in index funds/etf's or direct shares. The direct shares will not have an ongoing management fee. Would the savings be significant enough to consider that approach over a more diversified approach.

I'm considering this also.  The question boils down to: 

Is the "Mum & Dad Portfolio" better in the long run than an australian ETF, with ~0.2% annual expenses.  I'm leaning towards no.

"Mum & Dad Portfolio" = Telstra, Comm Bank, ANZ, NAB, AMP, BHP, Wesfarmers, Woolworths, Quantas, and Woodside.

==

Or do you intend to buy all 200 companies in the ASX200, in proportion with market capitalisation?.  Minimum purchase is $500, and the 200th largest company has 0.0144% of the market, so you would need $3.5m.

steveo

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« Reply #21 on: October 14, 2013, 01:47:56 AM »
I'm considering this also.  The question boils down to: 

Is the "Mum & Dad Portfolio" better in the long run than an australian ETF, with ~0.2% annual expenses.  I'm leaning towards no.

"Mum & Dad Portfolio" = Telstra, Comm Bank, ANZ, NAB, AMP, BHP, Wesfarmers, Woolworths, Quantas, and Woodside.

==

Or do you intend to buy all 200 companies in the ASX200, in proportion with market capitalisation?.  Minimum purchase is $500, and the 200th largest company has 0.0144% of the market, so you would need $3.5m.

I think the decision is between the "Mum & Dad Portfolio" with maybe some slight differences and an australian ETF. I don't think you can buy every company. The thing is the ETF option is going to made up predominantly of the "Mum & Dad Portfolio".

I'm just not sure. I'd add that I believe in some form of asset allocation although I haven't figured out what I think is appropriate. Commodities to me for instance need to be somewhere in your portfolio. I can't see anyway of creating a decent portfolio without using ETF's for these type of purchases.

MammaStash

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Re: Aussie with 3 kids - where do I start?
« Reply #22 on: October 14, 2013, 03:37:00 AM »
The official RBA (Reserve Bank of Australia for non-aussies) inflation rate is 2.4%. I use 3% as an average because I am seeing my expenses such as utilities, school fees, insurance premiums etc. gone up  by that much this year or in some cases even more.

Thanks MIMPC. I'm going to go with 3% too but as I do my projections I'll also factor in some of the specific big kids costs I can foresee.

Is am so glad I read this thread... I checked my super and the advisor has left it all in cash! I think that was last years strategy when things were wobbly! Massive face punch for me because it's fees are outstripping the interest :/

I think my super wrap allows investment in the vanguard funds so I'll see about getting it moved over to a mix if them.

I'm really going to have to work on the mustachian habit a lot! Can't have more lapses like that.

MIMPC

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Re: .
« Reply #23 on: October 21, 2013, 04:46:41 AM »
Others have mentioned investing differently and cutting costs. 

so, here is some aussie specific advice:  because "Preservation Age" is relatively close (17 or 12 years?), investing through super is significantly more advantageous than investing outside super.

Here is an example:

Assume You and your wife both earn $100k pretax.  Also the employer gives you an additional 9.25% = $9250 in to your super.

Option A: Invest 15,750 of salary after tax outside super.  Tax = 38.5%.  You will invest 9,686 in to an ETF.  A fully franked rate of return of 6% = $510 after tax.

Option B: Invest 15,750 of salary pre-tax in to super.  Tax = 15%.  Your super fund will invest 13,387.  A fully franked rate of return of 6% = $975 after tax.


Both you and your wife should contribute $25k each in to super, each year.

Thanks for re-affirming this. Thanks to you and others on the thread, I adjusted my super contribution last week which will see me take out the max $25k by end June 2014 (incl. employer 9.25%); will be convincing the wife to do the same soon.

happy

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Re: Aussie with 3 kids - where do I start?
« Reply #24 on: October 21, 2013, 05:41:05 AM »
Just to clarify the preservation age is gradually increasing, so your preservation age will be 60: http://www.ato.gov.au/Individuals/Super/Accessing-your-super-benefits/When-you-can-access-your-super/

Keep your eye on the super rules as they seem to subtly change each year.  Compulsory super will mean that Aussies will gradually have more money in super. With the passing of time the govt is likely to gradually reduce tax incentives.  Personally I think we have another decade or two before the compulsory 12% starts to pool (12% of an average salary for 40years would replace the Old age pension, so by then, there is much less incentive for the govt to provide tax shelters for additional investment).  Super is definitely something that gets tinkered with: these 2 govt websites should be accurate:
http://www.ato.gov.au/Super/
http://moneysmart.gov.au

AdrianM

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Re: Aussie with 3 kids - where do I start?
« Reply #25 on: October 22, 2013, 05:20:07 PM »

 I've got a detailed breakdown of the household expenses including fees, etc etc. worked out for the next 20 years and used a 3% inflation forecast

WOW! I'm using YNAB too so I can see how this is probably not that difficult. Is 3% the right inflation for Australia?

Thanks for this thread... I'm still reading through the comments since I'm trying to get my head around the various translations from MMM USA to 'stachin in Aus!

What I have found and am using.

Craigslist = Gumtree http://www.gumtree.com.au/

Mint or Personal Capital = ANZ Money Manager http://www.anz.com.au/personal/ways-bank/tools-services/money-manager/
This is a free service and you don't need to be a ANZ customer to use it.

This_Is_My_Username

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« Reply #26 on: October 22, 2013, 07:36:41 PM »
happy,

I definitely agree, super is becoming slightly less generous (tax-wise) each year, with tiny cumulative changes adding up over time.

The changes can't be too drastic, or votes will be lost.

This is a concern in the longer term.  However in MIMPC's case, this risk is smaller than the huge tax benefits that he will receive.

AdrianM

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Re: .
« Reply #27 on: October 22, 2013, 10:06:45 PM »
happy,

I definitely agree, super is becoming slightly less generous (tax-wise) each year, with tiny cumulative changes adding up over time.

The changes can't be too drastic, or votes will be lost.

This is a concern in the longer term.  However in MIMPC's case, this risk is smaller than the huge tax benefits that he will receive.

While we all make assumptions about what the future will be like.

Risk, is always going to be an area of major assumptions. It tends to be full of black swans and turkey thinking.
So in saying the risks are small that in 12 years time not much will have changed, I believe is Turkey thinking.
You have left no room for a black swan event.

Our government will quite happily change the rules. Remember democracy is mob rule.
They only have to convince 6% of us that it is a good idea. (6% is the swing voters) you don't have to convince the party faithful,
they will vote for their party no mater what.

I would instead suggest that MIMPC focus on developing habits that reduce dependency on financial assets.
As a family they take home $138k and save 49% meaning they are spending $70k a year.

But again I don't know him or his family from a bar of soap so I make assumptions.

Some reading around risk and antifagility
Black Swans
http://www.amazon.com/The-Black-Swan-Improbable-Robustness/dp/081297381X
Antifagile
http://www.amazon.com/Antifragile-Things-That-Gain-Disorder/dp/1400067820


Anatidae V

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Re: Aussie with 3 kids - where do I start?
« Reply #28 on: October 22, 2013, 10:46:10 PM »
This thread has certainly given me some perspective... I feel pretty solid with my plan of splitting any investments between a house deposit and some choice of indexed investments outside my super fund, I'm much too far away from accessing super... The US seems to have some pretty cushy sounding non-taxed things to stick investments into.

MIMPC

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Re: .
« Reply #29 on: October 23, 2013, 08:43:46 PM »
Yes unfortunately, but if we exclude childcare and before school care costs then it is actually $35.9k per year. Always room to improve :-).

I would instead suggest that MIMPC focus on developing habits that reduce dependency on financial assets.
As a family they take home $138k and save 49% meaning they are spending $70k a year.

But again I don't know him or his family from a bar of soap so I make assumptions.

Some reading around risk and antifagility
Black Swans
http://www.amazon.com/The-Black-Swan-Improbable-Robustness/dp/081297381X
Antifagile
http://www.amazon.com/Antifragile-Things-That-Gain-Disorder/dp/1400067820