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Learning, Sharing, and Teaching => Taxes => Australia Tax Discussion => Topic started by: MrsV on April 23, 2021, 07:01:08 PM

Title: Couple in late 40s - should the ETF strategy be different to younger couples?
Post by: MrsV on April 23, 2021, 07:01:08 PM
Hello again!

I'm wondering if anybody has any reading they'd recommend for a couple near 50 starting to get into ETFs? We have always been savers and we did buy an investment property 13 years ago. But are only now getting into ETFs ...

Our strategy when we were younger was more the route of paying the (big!) mortgage ASAP and maximising superannuation. We haven't built much outside of these two because, honestly, the idea of early retirement never struck us until recently!

Perhaps it is because we can't travel right now, but the fantasy of being able to spend half the year overseas each year in our mid to late 50s is only growing stronger each day so the motivation to get a portfolio going that we can use to bridge 5-6 years is strong.

I've read lots of great information, love all the threads on this forum (obviously!) and have been reading lots of blogs and books, but given our short time frame and age, I don't relate to it ALL as so much of the passive investment info is based around time in the market.

I'm wondering if anybody can recommend any reading for late starters? Say we wanted to bridge five years between ER and accessing super ... but we only had six years to get that ETF portfolio working. I imagine that strategy is very different to somebody in the 20s or even 30s. Or is it not? Does the magic simply lie in getting that money into the ETFs each month?

We are currently putting money into VAS, VDGR (chose this over VDHG as we had no bonds), and VGS. We put a few thousand at one stage into VAE. We certainly aren't looking to expand the ETS in our strategy. ☺️  But I hear lots of Australians talk about a portfolio that balances franked dividends with growth. I'm thinking VAS should stay in because of this.

Totally understand we all have to walk our own path and am not looking for advice, but wondering if there are late starters here that have any thoughts to share, or reading material to recommend? Thanks!
Title: Re: Couple in late 40s - should the ETF strategy be different to younger couples?
Post by: mjr on April 23, 2021, 08:09:53 PM
You'll need to tell us if your plan is save enough in the ETFs to throw off enough income for those 5-6 years, or whether you plan to draw those funds down to zero-ish in time for you to access your super.

I'm going to assume the former.

You have 6 years to build up assets outside of super.  While that's an OK period to invest in shares and expect a decent return, it's not too many years before that window starts to close and the volatility becomes an issue.  After 3 years, you're down to 3 years to go before you want to access the money and at that point you start to worry that a crash/correction could torpedo your investments and they may not recover in time. 

If you're not worried about that or you can delay retirement, then fine, chuck it all into ETFs.  You'll still have 12 years before you're 60 and that's more than enough time to warrant equities investments, but the dependence on the funds after 6 starts to cloud the issue.

I suspect that you're better off having a fairly conservative aseet allocation, say 50% ETFs and 50% cash/bonds/term deposits.  You'll need to crunch your own numbers as to whether or not you plan to draw down on the ETFs or rely on dividend income.

Your question isn't really about ETFs, by the way.  Your question is about rates of return and asset allocations needed to plan for the next 12 years.
Title: Re: Couple in late 40s - should the ETF strategy be different to younger couples?
Post by: cool7hand on April 25, 2021, 07:10:16 AM
Check out the portfolios here: As I recall, Golden Butterfly and All Seasons are two of the lower volatility portfolios, which sounds like they might fight your situation/goals.
Title: Re: Couple in late 40s - should the ETF strategy be different to younger couples?
Post by: K-ice on April 25, 2021, 10:11:34 AM
Even in The Simple Path to Wealth he keeps 75% equity in retirement.

I think the 4% rule is based on 50:50. But many young people are encouraged to have 100% stocks. In short, I think itís fair to have a different allocation as you age. I wouldnít go so far as bonds = age but some kind of diversification.

Iím around your age & settled on 15% bonds for me. Iím still more than 5 years away from RE and may adjust in the future.

You are also diversified in real estate & Iíll assume some kind of pension/social security will kick in at some point. I personally ignore those other sources & still keep my ETF portfolio at an allocation Iím comfortable with.
Title: Re: Couple in late 40s - should the ETF strategy be different to younger couples?
Post by: mjr on April 25, 2021, 01:23:45 PM
Even in The Simple Path to Wealth he keeps 75% equity in retirement.

True.  I myself have a similar allocation to equities and plan to leave it that way for the rest of my life.

But JL Collins and myself both have aim of inter-generational wealth.  If someome wants to live off their savings until death with the age pension as a safety net, then this is a risky proposition.

I'm concerned that Mrs V has jumped to asking about "ETF strategy" without having down the ground work.  ETFs are likely part of her solution, but only as a component of a plan and I think that the plan is missing.
Title: Re: Couple in late 40s - should the ETF strategy be different to younger couples?
Post by: MrsV on April 25, 2021, 10:45:40 PM
Thanks, guys - and I'll definitely look into that reading. I'm reading JL Collins atm too.

@mjr, you are right, we do need to nut down our strategy totally and are only still working through the process. We are waiting to hear about a salary change (for the better) for DH, and then we can formalise things with budgets and so forth. But our strategy does include Real Estate, with the goal being to have paid off one investment property close to the ER date. We are shovelling some money onto that mortgage while money is cheap (our family home is nearly paid off). We figure we can cash out of that and sell it for ER if needed, but ideally, we'd like to keep it as an investment property because we'd have the rent to get us through any downturns with the share market, so it feels like it rounds things out.

My husband and I feel differently about intergenerational wealth - I hope to at least leave the family home to the two kids (currently worth around 1.2 million). Still, he says we made our own way, and it is the last thing he is bringing into his financial plan. We will see how that goes, I guess ... no use arguing about the kids now!

Our superannuation, hopefully, will grow nicely in the next 13 years (that gets me to 60 and my husband to 62), with my balance currently at 650K and his around 250K. He will get contributions added every year, but as I'm in business for myself, I'm considering putting what I'd typically put into super into ETFs outside of super, only because my super balance is fairly healthy for my age, but our personal share account is not. I understand the tax benefits with superannuation, but I also want to access my money when I want and not when the government says I can. Even conservative calculations show that the balance of $650K should grow to be a decent amount (keeping in mind that figure is only my super, not my husband's ... the two accounts growing together will hopefully be a healthy balance in 13-14 years when we plan to start drawing down).

So, you are right, and we definitely have a lot of work to do to get to a final strategy, but I'm feeling okay about the real estate element with a family home nearly paid off and investment property with only half of its (conservative bank) valuation left to pay on the mortgage.

VDGR does have a 30% bond rate to it, and I believe VDHG only 10%.  I might switch our VDGR contributions to VDHG with the 10% bonds. My superannuation has a good chunk tied up conservatively - I've divided some into higher risk but have kept enough that if D-Day were to happen the structure should see us through.

Having said all of that, plan B is that ER doesn't happen smack bang on seven years and we Barista fire with my husband taking contracts in between our travel. And, if my online business keeps going as well as the way it currently is, we will keep that going, which will give us a small monthly income, and outsource more of the day to day running of it (easy to do with fulfilment centres, digital ad agencies to do the marketing etc ...) so we can travel.

Thanks again, everybody, and I'll read the and keep learning - a newbie still with ETFs but so wanting to read and absorb what we can so we can create our own plan we feel comfortable with!