Author Topic: 40's something have money - but need advice  (Read 20852 times)

steveo

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Re: 40's something have money - but need advice
« Reply #50 on: August 29, 2016, 03:48:10 AM »

If you choose to do some research I would start with this article and specifically all the videos listed within the article:- http://monevator.com/this-former-hedge-fund-manager-reveals-how-you-can-invest-for-life-in-five-quick-videos/#comments

You could go and read through the Bogleheads forums but there are lots of options.

Personally I have a simple 3 fund ETF aproach outside of super. I have 50% VAS (Australian stocks), 25%VGS (International stocks) & 25% VAF (Australian Bonds). You could do that and you'd be fine. I think we will change our approach to 40% VAS, 40% VGS & 20% Bonds. If the markets drop I'd go 50/50 VAS/VGS. You could take this option based upon your risk profile. Just figure out how much you want in Bonds and split the difference between international and Aussie. You could also not even bother with Aussie. All of these options will work out great for you.

Thanks Steveo - again great simple advice. What are your thoughts on Vanguard Wholesale Funds vs ETF's? I called Vanguard and they really could't give pro's and cons - just said that one was through Stock Broker and the other through them - which works out better for direct increments over time. What I was trying to find out was outgoing costs and performance differences.

I use the ETF's but because you have over $100k I think the wholesale fund option is better for you if you choose to get an all in one fund. I honestly think that will make it so easy for you.

Just work out how you feel about volatility and then invest and sit back for life.

steveo

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Re: 40's something have money - but need advice
« Reply #51 on: August 29, 2016, 03:49:12 AM »
I think the OP is a good candidate for a fee for service financial advisor.  Someone who doesn't earn commission, and not someone who earns a % of assets under management. But someone who might be able to draw a plan for their investments, based on their risk profile, that balances the follow criteria:  flexibility, security, returns, tax effectiveness.  But, do these people exist, and does anyone know one?

Thanks Misterhorsey - yes we have been to several financial planners, some cost us and some did not. But I can assure you  I have learnt so much more from my own research and via this forum. The costs for all of them were crazy - and really all that they were going to do was exactly what the LIC's like Mitlon/AFI do or what Index Funds do. So not worth it at all unless you really don't care about incurring that kind of loss.

I don't like financial planners because I honestly feel it's an easy thing to do yourself.

iloveanimals

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Re: 40's something have money - but need advice
« Reply #52 on: August 29, 2016, 05:55:50 PM »

If you choose to do some research I would start with this article and specifically all the videos listed within the article:- http://monevator.com/this-former-hedge-fund-manager-reveals-how-you-can-invest-for-life-in-five-quick-videos/#comments

You could go and read through the Bogleheads forums but there are lots of options.

Personally I have a simple 3 fund ETF aproach outside of super. I have 50% VAS (Australian stocks), 25%VGS (International stocks) & 25% VAF (Australian Bonds). You could do that and you'd be fine. I think we will change our approach to 40% VAS, 40% VGS & 20% Bonds. If the markets drop I'd go 50/50 VAS/VGS. You could take this option based upon your risk profile. Just figure out how much you want in Bonds and split the difference between international and Aussie. You could also not even bother with Aussie. All of these options will work out great for you.

Thanks Steveo - again great simple advice. What are your thoughts on Vanguard Wholesale Funds vs ETF's? I called Vanguard and they really could't give pro's and cons - just said that one was through Stock Broker and the other through them - which works out better for direct increments over time. What I was trying to find out was outgoing costs and performance differences.

I use the ETF's but because you have over $100k I think the wholesale fund option is better for you if you choose to get an all in one fund. I honestly think that will make it so easy for you.

Just work out how you feel about volatility and then invest and sit back for life.

Thanks for that re-assurance Steveo. All of you on this forum amaze me. You give so much of your time and expertise / experience. I can't tell you how grateful  I am.  Thanks!

iloveanimals

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Re: 40's something have money - but need advice
« Reply #53 on: August 29, 2016, 06:03:02 PM »
For those of you in Australia – what do you think of buying property in super? I have heard very mixed reviews of if it is a good investment or not? I thought that this might be a way of keeping our toe in the investment property market, without impacting our current savings – allowing us to put more into shares.

iloveanimals

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Re: 40's something have money - but need advice
« Reply #54 on: August 29, 2016, 06:04:24 PM »

If you choose to do some research I would start with this article and specifically all the videos listed within the article:- http://monevator.com/this-former-hedge-fund-manager-reveals-how-you-can-invest-for-life-in-five-quick-videos/#comments

You could go and read through the Bogleheads forums but there are lots of options.

Personally I have a simple 3 fund ETF aproach outside of super. I have 50% VAS (Australian stocks), 25%VGS (International stocks) & 25% VAF (Australian Bonds). You could do that and you'd be fine. I think we will change our approach to 40% VAS, 40% VGS & 20% Bonds. If the markets drop I'd go 50/50 VAS/VGS. You could take this option based upon your risk profile. Just figure out how much you want in Bonds and split the difference between international and Aussie. You could also not even bother with Aussie. All of these options will work out great for you.

Thanks Steveo - again great simple advice. What are your thoughts on Vanguard Wholesale Funds vs ETF's? I called Vanguard and they really could't give pro's and cons - just said that one was through Stock Broker and the other through them - which works out better for direct increments over time. What I was trying to find out was outgoing costs and performance differences.

iloveanimals, this is a thread I started over a year ago about etf v funds. I haven't reread it since, and I suspect I may have promised to do a follow up and haven't bothered, but it may include some interesting info about this topic. Steveo and others contributed to the answers there as well!!

http://forum.mrmoneymustache.com/investor-alley/australia-vanguard-etfs-v-lifestyle-strategy-fund/msg587044/#msg587044

Thanks Misterhorsey, at this stage all information is gold to me :)

urbanista

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Re: 40's something have money - but need advice
« Reply #55 on: August 29, 2016, 07:12:07 PM »
For those of you in Australia – what do you think of buying property in super? I have heard very mixed reviews of if it is a good investment or not? I thought that this might be a way of keeping our toe in the investment property market, without impacting our current savings – allowing us to put more into shares.

Super is just a vehicle to reduce taxes. If you think another IP is a good investment, then it is a good investment outside or inside super.

Remember, self managed super is expensive. ATO annual fee, accountant annual fee etc add up to at least 2K each year, and you can only leverage so much (can't borrow 80%).

iloveanimals

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Re: 40's something have money - but need advice
« Reply #56 on: August 29, 2016, 08:32:41 PM »
For those of you in Australia – what do you think of buying property in super? I have heard very mixed reviews of if it is a good investment or not? I thought that this might be a way of keeping our toe in the investment property market, without impacting our current savings – allowing us to put more into shares.

Super is just a vehicle to reduce taxes. If you think another IP is a good investment, then it is a good investment outside or inside super.

Remember, self managed super is expensive. ATO annual fee, accountant annual fee etc add up to at least 2K each year, and you can only leverage so much (can't borrow 80%).

Thanks Urbinista - that's what I was thinking - too many fee's and charges and not at your finger tips to leverage from.

Albatross

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Re: 40's something have money - but need advice
« Reply #57 on: August 29, 2016, 08:55:27 PM »
Yes, thanks for the additional information - certainly makes more sense that you have done other things and been saving for closer to 30 years.

And very interesting about home prices over in Australia - I am always fascinated by the financial picture in various countries. I guess I would have pictured the biggest cities being somewhat pricey, but not the degree to which you describe.

I'm based in Hong Kong and USD1.3m would get you a 2 or 3 bedroom apartment in an 'okay' location, i.e around 800sq feet. I am aiming for an apartment worth about USD800k here - which will be around 450sq feet and in a less convenient location. It's crazy here.

iloveanimals

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Re: 40's something have money - but need advice
« Reply #58 on: August 29, 2016, 10:11:05 PM »
Ok so going to show you all something and want to know if you think it’s too messy a strategy to invest $400k:

* Vanguard Australian Government Bond Index Fund $10,000.00

* Vanguard International Fixed Interest Index Fund Hedged $10,000.00

* Vanguard International Credit Securities Index Fund Hedged $10,000.00

* Vanguard Australian Property Securities Index Fund $10,000.00
 
* Vanguard International Property Securities Index Fund $10,000.00

* Vanguard International Property Securities Index Fund Hedged $10,000.00
 
* Vanguard Australian Shares Index Fund $10,000.00
 
* Vanguard Emerging Markets Shares Index Fund  $10,000.00
 
* Vanguard Global Infrastructure Index Fund  $10,000.00
 
* Vanguard Global Infrastructure Index Fund  Hedged  $10,000.00
 
* Vanguard Conservative Index Fund - $50,000.00

* Vanguard Balanced Index Fund - $100,000.00

* Vanguard Growth Index Fund -$100,000.00

* Vanguard High Growth Index Fund - $50,000.00

Total = $400k

Do you think it's too spread out? Maybe best to narrow it down to just - Balanced, Growth, Conservative and High Growth funds?

Also I couldn't get a straight answer out of a Vanguard representative over the phone - but given that we will have cash savings left over of $700k - which we want to keep in the safest cash holding for emergencies and to have money on hand to by an investment property. How safe  are these funds : Vanguard Cash Reserve Fund, Vanguard Cash Plus Fund, Vanguard Australian Fixed Interest Index Fund? I had a look at returns and they are similar to banks- but couldn't work out if they are really safe - meaning they won't lose their value and can be accessed at any time without costing too much in fee's. I currently have a UBANK account with no fee's - but paying under 2%.


misterhorsey

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Re: 40's something have money - but need advice
« Reply #59 on: August 29, 2016, 10:26:41 PM »
There's quite a bit of duplication there.

If you look at the breakdown of each of the wholesale funds in the factsheets you'll find they already include a mixture of funds.  The whole point of the wholesale funds is to save you the hassle of managing individual funds and to automatically balance your investments. You are paying a slight premium for this convenience, so it doesn't really make sense to buy the individual funds separately - unless you have a specific goal of allocating capital to a particular asset class.

https://www.vanguardinvestments.com.au/retail/jsp/investments/wholesale?portId=8134##overview-tab

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vhif.pdf?20160824|160000

I think there's only so much to be gained by diversification after a point.  All of these funds are already made of significantly diversified investments.  So by spreading it so thin, you're giving yourself more work at tax time without any real advantage.

misterhorsey

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Re: 40's something have money - but need advice
« Reply #60 on: August 29, 2016, 10:30:20 PM »
Australian - Melbourne property price snapshot.

Recently renovated studio warehouse conversion in Fitzroy - asking $759k. Previous price guide was $800k+ but it passed in at auction. 2 toilets and showers. No bedroom.....door.

http://www.nelsonalexander.com.au/property/381137/15144-george-street-fitzroy/

This is in my street so if anyone on this forum loses their mind and goes and buys it, please drop by for a cup of tea!


iloveanimals

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Re: 40's something have money - but need advice
« Reply #61 on: August 30, 2016, 12:53:21 AM »
There's quite a bit of duplication there.

If you look at the breakdown of each of the wholesale funds in the factsheets you'll find they already include a mixture of funds.  The whole point of the wholesale funds is to save you the hassle of managing individual funds and to automatically balance your investments. You are paying a slight premium for this convenience, so it doesn't really make sense to buy the individual funds separately - unless you have a specific goal of allocating capital to a particular asset class.

https://www.vanguardinvestments.com.au/retail/jsp/investments/wholesale?portId=8134##overview-tab

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vhif.pdf?20160824|160000

I think there's only so much to be gained by diversification after a point.  All of these funds are already made of significantly diversified investments.  So by spreading it so thin, you're giving yourself more work at tax time without any real advantage.

I think you have convinced me to put $250k into Vanguard Growth as it covers most things I have outlined. Then after that we would  like to devote $50k into Ethical Investing (still trying to figure what is best here????). Then take a breathe see how we feel then probably put more into Vangaurd Growth / or Balanced. Gosh this has my nerves on high alert! But also happy to finally be doing something simple and straight forward. Any last words of wisdom??? Thanks again for all your help!

steveo

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Re: 40's something have money - but need advice
« Reply #62 on: August 30, 2016, 01:46:29 AM »
There's quite a bit of duplication there.

If you look at the breakdown of each of the wholesale funds in the factsheets you'll find they already include a mixture of funds.  The whole point of the wholesale funds is to save you the hassle of managing individual funds and to automatically balance your investments. You are paying a slight premium for this convenience, so it doesn't really make sense to buy the individual funds separately - unless you have a specific goal of allocating capital to a particular asset class.

https://www.vanguardinvestments.com.au/retail/jsp/investments/wholesale?portId=8134##overview-tab

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vhif.pdf?20160824|160000

I think there's only so much to be gained by diversification after a point.  All of these funds are already made of significantly diversified investments.  So by spreading it so thin, you're giving yourself more work at tax time without any real advantage.

I think you have convinced me to put $250k into Vanguard Growth as it covers most things I have outlined. Then after that we would  like to devote $50k into Ethical Investing (still trying to figure what is best here????). Then take a breathe see how we feel then probably put more into Vangaurd Growth / or Balanced. Gosh this has my nerves on high alert! But also happy to finally be doing something simple and straight forward. Any last words of wisdom??? Thanks again for all your help!

I think the simple Vanguard Growth option is perfect. I even think the balanced fund is fine. I think you need to invest a lot more into those options but $250k is a start.

Good Luck !

Trevor Reznik

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Re: 40's something have money - but need advice
« Reply #63 on: August 30, 2016, 04:58:21 AM »
There's quite a bit of duplication there.

If you look at the breakdown of each of the wholesale funds in the factsheets you'll find they already include a mixture of funds.  The whole point of the wholesale funds is to save you the hassle of managing individual funds and to automatically balance your investments. You are paying a slight premium for this convenience, so it doesn't really make sense to buy the individual funds separately - unless you have a specific goal of allocating capital to a particular asset class.

https://www.vanguardinvestments.com.au/retail/jsp/investments/wholesale?portId=8134##overview-tab

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vhif.pdf?20160824|160000

I think there's only so much to be gained by diversification after a point.  All of these funds are already made of significantly diversified investments.  So by spreading it so thin, you're giving yourself more work at tax time without any real advantage.

I think you have convinced me to put $250k into Vanguard Growth as it covers most things I have outlined. Then after that we would  like to devote $50k into Ethical Investing (still trying to figure what is best here????). Then take a breathe see how we feel then probably put more into Vangaurd Growth / or Balanced. Gosh this has my nerves on high alert! But also happy to finally be doing something simple and straight forward. Any last words of wisdom??? Thanks again for all your help!

I hope you are mentally capable of seeing this investment out through thick and thin.  Being nervous as hell, just wait until you commit the money and then watching the price movements and reading the daily scaremongering about the latest Brexit, Grexit etc scare.  And whatever you do don't tell any conservative friends or relatives what you're doing, you will probably get told you're 'completely crazy' and are about to 'lose all your money!'.

misterhorsey

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Re: 40's something have money - but need advice
« Reply #64 on: August 30, 2016, 05:33:43 AM »
Great stuff.  Glad you've made a decision, and I think a good one.

Still, shares and index funds have one advantage over property. You don't really need to go all out in one go.  All the theory suggests its best to invest a lump sum all in one go.  But there's no need to rush it, really.

If you're feeling nervous, put in the first 100k in the growth fund. Sit with it for a bit. Watch it and see how you feel. It's going to go up and down by incremental amounts every day.  Unlike a ETF, which you can track the price of every minute on the ASX, the funds only publish a daily unit price....the next day.  So you are one step removed from the exact valuation.

Then put in another $25k in each week.

This can be stressful at first - but you get used to it. Then you likely become slightly indifferent.

If you think about your investments in super - they've probably been in similar investments all this time. So its something you've done for years, but perhaps not actually turned your mind to it. Investing in indexes is as boring as super.

This isn't perhaps the best approach in respect of getting the best return, but I also think its important to feel comfortable with your choice. And this is one way of managing the unfamiliarity.


(One other thing that I've done to manage CGT calculations for when I draw down in the future is purposely buying small groups of units.  For example, if I have $10k instead of buying $10ks worth, I'll buy 4 allocations of $2.5ks worth - either in the same day or consecutive days) The reason I do this is I've invested in lots that are also in amounts I'm likely to withdraw.  It would, I hope, make the calculations of CGT a bit easier to manage in the future. Buy and sell lots of 1,000 units at $x per unit. Rather than buying 50,000 units at $y price, then having to calculate CGT at different sale prices. )


As for ethical investing, ethical funds can be quite expensive and the actual ethical screens can be a bit disappointing in their effectivness. One option is to consider investing for the best return (lowest fees) and then using the savings you make to contribute to a direct donation to an organisation that advocates for the animal/environmental/social justice causes.  This is arguably a more effective way of allocating your resources to effect the greatest change.  i.e. do you refuse to buy woolworths shares because they sell caged eggs? Or do you donate to Animals Australia to support advocacy to end the sale of caged eggs.  I think advocacy in this instance is more effective. Not buying shares in a company is not necessarily going to make them change their behaviour.

urbanista

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Re: 40's something have money - but need advice
« Reply #65 on: August 30, 2016, 04:06:55 PM »
I would not invest in ethical funds. I work for one of those companies and can see how they simply game the system to appear to be 'ethical'. If you want to make a difference in the world with your money, consider donating money to a charity that you trust (donations are tax deductible) or even better, retire and volunteer :)

urbanista

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Re: 40's something have money - but need advice
« Reply #66 on: August 30, 2016, 05:13:59 PM »
Ok so going to show you all something and want to know if you think it’s too messy a strategy to invest $400k:

* Vanguard Australian Government Bond Index Fund $10,000.00

* Vanguard International Fixed Interest Index Fund Hedged $10,000.00

* Vanguard International Credit Securities Index Fund Hedged $10,000.00

* Vanguard Australian Property Securities Index Fund $10,000.00
 
* Vanguard International Property Securities Index Fund $10,000.00

* Vanguard International Property Securities Index Fund Hedged $10,000.00
 
* Vanguard Australian Shares Index Fund $10,000.00
 
* Vanguard Emerging Markets Shares Index Fund  $10,000.00
 
* Vanguard Global Infrastructure Index Fund  $10,000.00
 
* Vanguard Global Infrastructure Index Fund  Hedged  $10,000.00
 
* Vanguard Conservative Index Fund - $50,000.00

* Vanguard Balanced Index Fund - $100,000.00

* Vanguard Growth Index Fund -$100,000.00

* Vanguard High Growth Index Fund - $50,000.00

Total = $400k

Do you think it's too spread out? Maybe best to narrow it down to just - Balanced, Growth, Conservative and High Growth funds?

Ok, where do I start :)  The above is no good.

First of all, if you do the above, will Vanguard allow wholesale funds for the above funds? Because if you have to buy retail funds, then forget about it. Retail funds are expensive (0.90%) vs. wholesale(0.36% fees), and it you absolutely want the above investment splits, you should buy ETFs in proportion (0.15-0.40% fees). Otherwise you are throwing about 0.60% = 400K*0.6% = $2,400 each year for absolutely no go reason.

Now, lets' say Vanguard will allow wholesale funds.

What is your goal in term of asset allocation?

To win the investment game, the theory of index investing says that an investor should do two things:
1. Live below your means (LBYM) and invest the difference (well done on that); and
2. Choose the asset allocation (AA) you are comfortable with and stick to it.

Second is even more important than saving large amount of money.

Now, what does it mean?

"to choose the AA" means you need to chose between shares and fixed interest (bonds). The higher the % of shares, the riskier the portfolio, but (in theory) allow higher return. In general, one should never go below 50% shares well into the retirement.

The one book that you need is "The Bogleheads Guide to Investing". Get if from the library or at thevery least read here:
https://www.bogleheads.org/wiki/Asset_allocation

However, the most important thing is to be comfortable with your AA and stick to it. This means do not sell because you got scared (like I did in 2008 selling all my portfolio because I had stupid AA of 50% REITs/50% shares/0 bonds) and rebalance on regular time intervals.

The great advance of Vanguard diversified funds is that they do rebalance for you. If you start buying all sorts of other funds, you have to rebalance yourself which (I reckon) you will not. It takes experience and strong character to sell bonds and buy shares when ASX has dropped 20% for the year and everyone is screaming that the sky is falling.

Everyone loves to rebalance when shares go up, but it takes guts to rebalance when they go down.

What is your plan when:
- ASX drops 10% (it absolutely will)
- ASX drops 20% (it will )
- ASX drops 55% (like it did in 2008-2009-2010?)

I know what I will do. Nothing. I will sit on my hands, collect my dividends, use my cash reserves if dividends are cut by more then 40% and generally do nothing. That's my strategy, that I find very easy to stick to. Because Vanguard will rebalance for me automatically.

So, for your 400K - choose your AA first (XX% growth, i.e. shares)/XX% fixed interest.

Then pick a funds that will align with that AA the best.

Vanguard Conservative is 30/70:
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vcif.pdf?20160824|160000

Vanguard Balanced is 50/50:
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vbif.pdf?20160824|160000

Vanguard Growth is 70/30:
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vgif.pdf?20160824|160000

Vanguard High Growth is 90/10:
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vhif.pdf?20160824|160000

All the above funds invest in exactly the same way, just different proportion of shares and bonds. I would pick just one fund and stick to it.

misterhorsey

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Re: 40's something have money - but need advice
« Reply #67 on: August 30, 2016, 06:25:07 PM »
The great advance of Vanguard diversified funds is that they do rebalance for you. If you start buying all sorts of other funds, you have to rebalance yourself which (I reckon) you will not. It takes experience and strong character to sell bonds and buy shares when ASX has dropped 20% for the year and everyone is screaming that the sky is falling.

Everyone loves to rebalance when shares go up, but it takes guts to rebalance when they go down.

What is your plan when:
- ASX drops 10% (it absolutely will)
- ASX drops 20% (it will )
- ASX drops 55% (like it did in 2008-2009-2010?)

I know what I will do. Nothing. I will sit on my hands, collect my dividends, use my cash reserves if dividends are cut by more then 40% and generally do nothing. That's my strategy, that I find very easy to stick to. Because Vanguard will rebalance for me automatically.

I think this is key.  Everyone thinks they will be able to implement a strategy, but when the roof falls down, and so do their pants, and the tide goes out, etc etc, you aren't in the best position to make rational decisions! This is why I've gone the vanguard fund route via the wholesale fund (with a sub 500K balance)  It's a relatively small price to pay for the automatic rebalancing.


misterhorsey

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Re: 40's something have money - but need advice
« Reply #68 on: August 30, 2016, 06:27:20 PM »
I would not invest in ethical funds. I work for one of those companies and can see how they simply game the system to appear to be 'ethical'. If you want to make a difference in the world with your money, consider donating money to a charity that you trust (donations are tax deductible) or even better, retire and volunteer :)

Would love to hear you elaborate on this in another thread, or if you know of any other critiques of ethical funds out on the web, please share.

A lot of my hippie friends are singing the praises of 'Future Super' at the moment, but they charge 2% MER and it seems to simply have a negative screen.  It sounds like greenwashing to me.  All the money that could go as a donation to worthy causes is simply going to the ethical fund manager's margin.

steveo

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Re: 40's something have money - but need advice
« Reply #69 on: August 30, 2016, 07:31:21 PM »
The great advance of Vanguard diversified funds is that they do rebalance for you. If you start buying all sorts of other funds, you have to rebalance yourself which (I reckon) you will not. It takes experience and strong character to sell bonds and buy shares when ASX has dropped 20% for the year and everyone is screaming that the sky is falling.

Everyone loves to rebalance when shares go up, but it takes guts to rebalance when they go down.

What is your plan when:
- ASX drops 10% (it absolutely will)
- ASX drops 20% (it will )
- ASX drops 55% (like it did in 2008-2009-2010?)

I know what I will do. Nothing. I will sit on my hands, collect my dividends, use my cash reserves if dividends are cut by more then 40% and generally do nothing. That's my strategy, that I find very easy to stick to. Because Vanguard will rebalance for me automatically.

I think this is key.  Everyone thinks they will be able to implement a strategy, but when the roof falls down, and so do their pants, and the tide goes out, etc etc, you aren't in the best position to make rational decisions! This is why I've gone the vanguard fund route via the wholesale fund (with a sub 500K balance)  It's a relatively small price to pay for the automatic rebalancing.

These are really good points. I love the diversified wholesale fund option because you do nothing. Just withdraw how much you can each year.

The point about what to do when the market moves is also really important. You need a plan for that. If the market drops 50% what will you do ? What if it drops 20% ?

I think I am a fairly risky investor but I want some money in cash and bonds to give me some buffer. I don't intend to sell out of shares if the market goes up because it can lead to tax implications. I will withdraw from those assets though in that situation. I still have to work though what to do if the market drops 20%-50%. Do I rebalance ? Do I hold on and not spend shares ?

misterhorsey

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Re: 40's something have money - but need advice
« Reply #70 on: August 30, 2016, 08:16:45 PM »
Just remember that we all did live through the market dropping 50%.  My super balance dropped by a massive amount. I didn't do anything, mainly because I wasn't watching it and i didn't care.  I do have a friend who tries to jump from one asset class to another within his super but I think it's a fools errand, least in the way he's doing it.


iloveanimals

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Re: 40's something have money - but need advice
« Reply #71 on: August 30, 2016, 08:31:54 PM »
Great stuff.  Glad you've made a decision, and I think a good one.

Still, shares and index funds have one advantage over property. You don't really need to go all out in one go.  All the theory suggests its best to invest a lump sum all in one go.  But there's no need to rush it, really.

If you're feeling nervous, put in the first 100k in the growth fund. Sit with it for a bit. Watch it and see how you feel. It's going to go up and down by incremental amounts every day.  Unlike a ETF, which you can track the price of every minute on the ASX, the funds only publish a daily unit price....the next day.  So you are one step removed from the exact valuation.

Then put in another $25k in each week.

This can be stressful at first - but you get used to it. Then you likely become slightly indifferent.

If you think about your investments in super - they've probably been in similar investments all this time. So its something you've done for years, but perhaps not actually turned your mind to it. Investing in indexes is as boring as super.

This isn't perhaps the best approach in respect of getting the best return, but I also think its important to feel comfortable with your choice. And this is one way of managing the unfamiliarity.


(One other thing that I've done to manage CGT calculations for when I draw down in the future is purposely buying small groups of units.  For example, if I have $10k instead of buying $10ks worth, I'll buy 4 allocations of $2.5ks worth - either in the same day or consecutive days) The reason I do this is I've invested in lots that are also in amounts I'm likely to withdraw.  It would, I hope, make the calculations of CGT a bit easier to manage in the future. Buy and sell lots of 1,000 units at $x per unit. Rather than buying 50,000 units at $y price, then having to calculate CGT at different sale prices. )


As for ethical investing, ethical funds can be quite expensive and the actual ethical screens can be a bit disappointing in their effectivness. One option is to consider investing for the best return (lowest fees) and then using the savings you make to contribute to a direct donation to an organisation that advocates for the animal/environmental/social justice causes.  This is arguably a more effective way of allocating your resources to effect the greatest change.  i.e. do you refuse to buy woolworths shares because they sell caged eggs? Or do you donate to Animals Australia to support advocacy to end the sale of caged eggs.  I think advocacy in this instance is more effective. Not buying shares in a company is not necessarily going to make them change their behaviour.

Thanks yet again for this level of detail. You and a few other's in this forum really should get paid for this:) Your idea of donations is something we already do, and we were hoping to contribute more to social justice issues (animals especially)...but I take your point about what the real effectiveness of the companies that are under the "ethical banner"....maybe one day it will be much better...every little push counts. I asked Vanguard if they have considered this and apparently they have a quite a bit of push from their New Zealand customers...so who knows!

In regards to rushing in - yes I agree we will take it a little slower to test the nerves - but we are committed for the long term, we hope min of 10 years, but hopefully for life. My Husband is though questioning if LIC's ,  namely AFI, is better than Vanguard, purely for the 100% fully franked dividends and their history. I find it hard to argue his point. He bases this on mainly the Barefoot Investor strongly encouraging this among others.  I have sold it to him that Vanguard is likely to collapse..I think I just made that up :) So any supporting arguments for Vanguard vs AFI?

Oh thanks for the detailed breakdown re: CGT!

iloveanimals

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Re: 40's something have money - but need advice
« Reply #72 on: August 30, 2016, 08:40:25 PM »
Ok so going to show you all something and want to know if you think it’s too messy a strategy to invest $400k:

* Vanguard Australian Government Bond Index Fund $10,000.00

* Vanguard International Fixed Interest Index Fund Hedged $10,000.00

* Vanguard International Credit Securities Index Fund Hedged $10,000.00

* Vanguard Australian Property Securities Index Fund $10,000.00
 
* Vanguard International Property Securities Index Fund $10,000.00

* Vanguard International Property Securities Index Fund Hedged $10,000.00
 
* Vanguard Australian Shares Index Fund $10,000.00
 
* Vanguard Emerging Markets Shares Index Fund  $10,000.00
 
* Vanguard Global Infrastructure Index Fund  $10,000.00
 
* Vanguard Global Infrastructure Index Fund  Hedged  $10,000.00
 
* Vanguard Conservative Index Fund - $50,000.00

* Vanguard Balanced Index Fund - $100,000.00

* Vanguard Growth Index Fund -$100,000.00

* Vanguard High Growth Index Fund - $50,000.00

Total = $400k

Do you think it's too spread out? Maybe best to narrow it down to just - Balanced, Growth, Conservative and High Growth funds?

Ok, where do I start :)  The above is no good.

First of all, if you do the above, will Vanguard allow wholesale funds for the above funds? Because if you have to buy retail funds, then forget about it. Retail funds are expensive (0.90%) vs. wholesale(0.36% fees), and it you absolutely want the above investment splits, you should buy ETFs in proportion (0.15-0.40% fees). Otherwise you are throwing about 0.60% = 400K*0.6% = $2,400 each year for absolutely no go reason.

Now, lets' say Vanguard will allow wholesale funds.

What is your goal in term of asset allocation?

To win the investment game, the theory of index investing says that an investor should do two things:
1. Live below your means (LBYM) and invest the difference (well done on that); and
2. Choose the asset allocation (AA) you are comfortable with and stick to it.

Second is even more important than saving large amount of money.

Now, what does it mean?

"to choose the AA" means you need to chose between shares and fixed interest (bonds). The higher the % of shares, the riskier the portfolio, but (in theory) allow higher return. In general, one should never go below 50% shares well into the retirement.

The one book that you need is "The Bogleheads Guide to Investing". Get if from the library or at thevery least read here:
https://www.bogleheads.org/wiki/Asset_allocation

However, the most important thing is to be comfortable with your AA and stick to it. This means do not sell because you got scared (like I did in 2008 selling all my portfolio because I had stupid AA of 50% REITs/50% shares/0 bonds) and rebalance on regular time intervals.

The great advance of Vanguard diversified funds is that they do rebalance for you. If you start buying all sorts of other funds, you have to rebalance yourself which (I reckon) you will not. It takes experience and strong character to sell bonds and buy shares when ASX has dropped 20% for the year and everyone is screaming that the sky is falling.

Everyone loves to rebalance when shares go up, but it takes guts to rebalance when they go down.

What is your plan when:
- ASX drops 10% (it absolutely will)
- ASX drops 20% (it will )
- ASX drops 55% (like it did in 2008-2009-2010?)

I know what I will do. Nothing. I will sit on my hands, collect my dividends, use my cash reserves if dividends are cut by more then 40% and generally do nothing. That's my strategy, that I find very easy to stick to. Because Vanguard will rebalance for me automatically.

So, for your 400K - choose your AA first (XX% growth, i.e. shares)/XX% fixed interest.

Then pick a funds that will align with that AA the best.

Vanguard Conservative is 30/70:
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vcif.pdf?20160824|160000

Vanguard Balanced is 50/50:
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vbif.pdf?20160824|160000

Vanguard Growth is 70/30:
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vgif.pdf?20160824|160000

Vanguard High Growth is 90/10:
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vhif.pdf?20160824|160000

All the above funds invest in exactly the same way, just different proportion of shares and bonds. I would pick just one fund and stick to it.

Great advice! I love hearing your ideas, especially based on your experiences.  I think we have narrowed it down to Vanguard Growth is 70/30 or Vanguard Balanced is 50/50 - at one point we though should we have a split between the both of them...not sure if that is another silly idea - as most people on here have suggested just choose one and stick to it. Although I mentioned an in an earlier reply that my husband is not completely sold on Vanguard he is really wanting to buy AFI because of the 100% fully franked dividends. So I have yet to come up with a satisfactory argument against it....so if you know of any - would be appreciated. Thanks again for all your time to read over this and take everything I have posted so seriously. 

iloveanimals

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Re: 40's something have money - but need advice
« Reply #73 on: August 30, 2016, 08:47:41 PM »
The great advance of Vanguard diversified funds is that they do rebalance for you. If you start buying all sorts of other funds, you have to rebalance yourself which (I reckon) you will not. It takes experience and strong character to sell bonds and buy shares when ASX has dropped 20% for the year and everyone is screaming that the sky is falling.

Everyone loves to rebalance when shares go up, but it takes guts to rebalance when they go down.

What is your plan when:
- ASX drops 10% (it absolutely will)
- ASX drops 20% (it will )
- ASX drops 55% (like it did in 2008-2009-2010?)

I know what I will do. Nothing. I will sit on my hands, collect my dividends, use my cash reserves if dividends are cut by more then 40% and generally do nothing. That's my strategy, that I find very easy to stick to. Because Vanguard will rebalance for me automatically.

I think this is key.  Everyone thinks they will be able to implement a strategy, but when the roof falls down, and so do their pants, and the tide goes out, etc etc, you aren't in the best position to make rational decisions! This is why I've gone the vanguard fund route via the wholesale fund (with a sub 500K balance)  It's a relatively small price to pay for the automatic rebalancing.

These are really good points. I love the diversified wholesale fund option because you do nothing. Just withdraw how much you can each year.

The point about what to do when the market moves is also really important. You need a plan for that. If the market drops 50% what will you do ? What if it drops 20% ?

I think I am a fairly risky investor but I want some money in cash and bonds to give me some buffer. I don't intend to sell out of shares if the market goes up because it can lead to tax implications. I will withdraw from those assets though in that situation. I still have to work though what to do if the market drops 20%-50%. Do I rebalance ? Do I hold on and not spend shares ?

Hi Steveo - yes we have had this discussion and since we intend to keep $200k in cash for emergencies - we think that we should be ok for a turn down in the market  - this should get us through a couple of years if the worst happens and we don't have jobs. We anticipate (based on reading material) that even if there is a crash in the market - we still should be getting some returns (even if just half) and that the market starts to come back to life after about 24 months. Obviously we have to hope that we don't have anything to extreme happen to us which would force us sell during at bad time in the market, but not sure if anyone can really work around that, except having an even larger cash buffer. Cheers.

iloveanimals

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Re: 40's something have money - but need advice
« Reply #74 on: August 30, 2016, 08:50:48 PM »
There's quite a bit of duplication there.

If you look at the breakdown of each of the wholesale funds in the factsheets you'll find they already include a mixture of funds.  The whole point of the wholesale funds is to save you the hassle of managing individual funds and to automatically balance your investments. You are paying a slight premium for this convenience, so it doesn't really make sense to buy the individual funds separately - unless you have a specific goal of allocating capital to a particular asset class.

https://www.vanguardinvestments.com.au/retail/jsp/investments/wholesale?portId=8134##overview-tab

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vhif.pdf?20160824|160000

I think there's only so much to be gained by diversification after a point.  All of these funds are already made of significantly diversified investments.  So by spreading it so thin, you're giving yourself more work at tax time without any real advantage.

I think you have convinced me to put $250k into Vanguard Growth as it covers most things I have outlined. Then after that we would  like to devote $50k into Ethical Investing (still trying to figure what is best here????). Then take a breathe see how we feel then probably put more into Vangaurd Growth / or Balanced. Gosh this has my nerves on high alert! But also happy to finally be doing something simple and straight forward. Any last words of wisdom??? Thanks again for all your help!

I hope you are mentally capable of seeing this investment out through thick and thin.  Being nervous as hell, just wait until you commit the money and then watching the price movements and reading the daily scaremongering about the latest Brexit, Grexit etc scare.  And whatever you do don't tell any conservative friends or relatives what you're doing, you will probably get told you're 'completely crazy' and are about to 'lose all your money!'.

Hi Trevor - I think we are - all our research has told us - just hang in there, especially in a bad market. So we are going to treat this like property where through thick and thin you try not to sell for at least 10 years. We are also going to store a cash reserve so we don't get tempted to touch the funds. 

englyn

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Re: 40's something have money - but need advice
« Reply #75 on: August 30, 2016, 08:52:31 PM »
I have ARG as well as VAS, heavily influenced by the barefoot investor and ARG's excellent history on very low fees. Argo and AFI seem much the same.
I've been buying VAS instead of ARG, for the last year or two, while ARG's NTA has been lower than their share price. I'd switch again immediately when NTA>share price. Currently AFI's NTA>share price as shown on their website, but the NTA is at 31Jul and its actual current value might have changed, so I'm not leaping up with excitement about that.
In short, por que no los dos?

iloveanimals

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Re: 40's something have money - but need advice
« Reply #76 on: August 30, 2016, 09:42:24 PM »
I was just filling in the Vanguard paper work and just came across the question was about whether to Reinvest  distributions or Credit bank account?...I think for the short term that we would Reinvest  distribution, as we won't need the money until we retire or work part time - however does anyone see a problem with this?

steveo

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Re: 40's something have money - but need advice
« Reply #77 on: August 30, 2016, 09:55:37 PM »
I was just filling in the Vanguard paper work and just came across the question was about whether to Reinvest  distributions or Credit bank account?...I think for the short term that we would Reinvest  distribution, as we won't need the money until we retire or work part time - however does anyone see a problem with this?

I reckon it's fine.

misterhorsey

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Re: 40's something have money - but need advice
« Reply #78 on: August 30, 2016, 10:38:14 PM »
Oh, one more thing that you should know, as it was a surprise for me.

But each half yearly distribution out of a fund may contain some capital gains that arise out of shares within the fund being bought and sold.  I didn't expect this and its a pain.   This of course depends on the fund itself. 

It's great news if you're sitting on some capital losses to offset them against, but otherwise its an annoyance and it does impact on your overall returns.

So ultimately you end up paying capital gains tax for the sale of shares that you don't have any real control over.

They do provide you with an itemised statement so you don't have to calculate anything. It's not a huge amount but its big enough to be annoying.

I'm not sure that there's anyway around this.  It's perhaps just the cost of having a fund. Someone else may be able to share some insights into this.


iloveanimals

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Re: 40's something have money - but need advice
« Reply #79 on: August 30, 2016, 11:59:43 PM »
I have ARG as well as VAS, heavily influenced by the barefoot investor and ARG's excellent history on very low fees. Argo and AFI seem much the same.
I've been buying VAS instead of ARG, for the last year or two, while ARG's NTA has been lower than their share price. I'd switch again immediately when NTA>share price. Currently AFI's NTA>share price as shown on their website, but the NTA is at 31Jul and its actual current value might have changed, so I'm not leaping up with excitement about that.
In short, por que no los dos?

Yeah that's kinda of what we were thinking - but not sure  - any thoughts out there? Would you have half AFI & half Vanguard???

iloveanimals

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Re: 40's something have money - but need advice
« Reply #80 on: August 31, 2016, 12:03:12 AM »
Oh, one more thing that you should know, as it was a surprise for me.

But each half yearly distribution out of a fund may contain some capital gains that arise out of shares within the fund being bought and sold.  I didn't expect this and its a pain.   This of course depends on the fund itself. 

It's great news if you're sitting on some capital losses to offset them against, but otherwise its an annoyance and it does impact on your overall returns.

So ultimately you end up paying capital gains tax for the sale of shares that you don't have any real control over.

They do provide you with an itemised statement so you don't have to calculate anything. It's not a huge amount but its big enough to be annoying.

I'm not sure that there's anyway around this.  It's perhaps just the cost of having a fund. Someone else may be able to share some insights into this.

That is very good to know! We weren't really expecting CGT unless we sell. So goes against our overall strategy somewhat. I wonder if this will provide my husband with more ammunition to go with AFI.....:) 

misterhorsey

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Re: 40's something have money - but need advice
« Reply #81 on: August 31, 2016, 12:24:41 AM »
Sorry didn't meant to put a spanner in the works.  It's not shedloads of CGT, but it's still a little bit - and it was unexpected.  I wonder if vanguard tell people over the phone how much CGT liability was incurred for each unit for each fund each year?

On the other hand, the vanguard funds have international exposure.  This is one of my main attractions.  If Australia goes down its own dark decade long hole of indebtedness, then I'll have international exposure to keep me afloat.

Looking at AFI's key investments, I'm not sure I see the appeal. It's a big chunk of ASX20 and some smaller caps.  Why not just go VAS? Admittedly, I haven't looked at it carefully.

http://www.afi.com.au/List-of-Investments.aspx

The fact that Australia is 2% of the world economy is a strong incentive for me to have investments overseas. The fact that I live in Australia means that I have a strong home bias still.
 

bigchrisb

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Re: 40's something have money - but need advice
« Reply #82 on: August 31, 2016, 12:55:38 AM »
I hold both ETFs and LICs.  Both index ETFs and the traditional LICs (such as AFIC, Argo, Milton, BKI, Carlton etc) give you a low cost, low turnover diversified exposure to Australian shares.  Both have pros and cons.

The main ones for me are:
- NTA / share price.  With ETFs, you always get what you pay for as the price tracks the underlying asset value.  With LICs you may get more or less depending on the premium/discount.  If they are trading at a discount, I'd always take $1.05 exposure to the underlying assets for $1.00.  When trading at a premium, its hard to justify paying $1.00 for $.95 of assets.
- MER.  Historically, the expense ratio on the LICs was lower than the ETFs.  Its about the same now between Vanguard and the big LICs.
- Tax treatment.  LICs are a company, ETFs are a trust.  This changes the tax treatment a bit.  Your tax rate can impact if this is a good thing or a bad thing,
- Again, depending on your tax rate, it may make sense to get distributions as bonus shares rather than reinvested dividends with LICs like AFI. 
- Portfolio turnover is really low in both.
- Active management.  I know its sacrilege around here, but the big LICs have a long term track record of slightly outperforming the index after fees.
- Discounted DRP and share purchase plans with the LICs
- Capital gains treatment.  A LIC is closed ended whereas an ETF is open ended.  The trading of others can result in CGT impacts for you with an open ended fund, but not with a closed ended fund.  As I'm intending to hold forever, I prefer to avoid this tax drag. Its also not been a big issue with ETFs to date, as they have generally been growing funds under management.  If they have a period of significant redemption, I suspect this would get worse (happy to be proven wrong on this).

Because of the above I have a slight preference for the LICs over the ETFs.  But its slight, if the premium to NTA is more than about 1% I'm a buyer of VAS rather than AFI/MLT/ARG/BKI/CIN etc. 

urbanista

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Re: 40's something have money - but need advice
« Reply #83 on: August 31, 2016, 03:59:27 AM »
bigchrisb, what is your view on leverage?

We have an access to 3.8% home loan now (1M, 5 years interest only), I am tempted to take it and invest in VAS and LICs. With the dividends 5.5% (?) including franking, it feels like a no brainer. Margin loan with no margin calls is too good to be true.
« Last Edit: August 31, 2016, 09:10:48 PM by urbanista »

bigchrisb

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Re: 40's something have money - but need advice
« Reply #84 on: August 31, 2016, 05:00:08 AM »
I use leverage, both as a margin loan  (4.15%) and as a loan against my house (3.73%).  Its had some hairy moments (it magnifies losses as well as gains),  but I have been able to ride it out and am ahead.  Having a healthy income has helped while doing this.

Just make sure that you get the loan structure right to get deductibility in the eyes of the ATO. I did this by splitting my loan, paying out the split (not offset), and then redrawing from  the split to buy shares.  Keep one loan for investment only and the other for PPOR only.  If you mix the two the record keeping gets very messy very quickly!

I agree about the arbitrage available - a 2% spread between grossed up yields and cost of borrowing works for me.  I don't believe that we will average 2% a year capital losses over the long term. 

I'm also cautious about how much total debt I'm prepared to take on (about $1m is my limit), in case interest rates rose significantly.  Same gamble if levering up into property.

BFGirl

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Re: 40's something have money - but need advice
« Reply #85 on: August 31, 2016, 11:35:23 AM »

I think the scariest thing is that you NEED to invest your $1.1M and you are not yet investors.

Has anyone else out there invested that much in such a short period of time? What made you convinced it was the right thing to do?


I invested about 1M that was in cash in the last couple of years.  It was scary and I did it over about a year's time frame. All of my research indicated that I needed to invest in something other than cash, or I would lose to inflation.  I am still pretty conservative and am very heavy with bonds.  My main goal is to keep up with inflation.  With the help of a financial advisor, I came to an asset allocation that I was comfortable with and have stuck with that plan rebalancing quarterly.  I'll probably get rid of the financial advisor in the next year or so because I am becoming much more comfortable with the idea of handling these assets on my own.   On August 25 (24th?) last year I watched my investments fall like a rock.  I held the course and I am back where I was before and am up about 45K for the year.

iloveanimals

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Re: 40's something have money - but need advice
« Reply #86 on: August 31, 2016, 08:12:38 PM »
Thanks everyone for responses. As mentioned my husband and I are at a cross roads between LIC's like AFI/Milton and Vanguard - mainly because we only want dividends or shares returned to us to generate income, and don't really want the CGT that has been mentioned by Misterhorsey ( I have yet to call Vanguard to get an idea of what funds this impacts).   My research suggests that from a "safety" point of view Vanguard is very safe. Here is one link that helped me out a lot :

http://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked/

However I can't work out how safe LIC's like Milton / AFI / ARG are. On the face of it  - it looks safe. But I still can't get my head around if those companies can go under? I mean, I am sure they can right? But can't seem to find anything that suggests that. I guess from our perspective we are wanting something that will last the test of time - without the worry that they may collapse - even if it is in 30 years. 
Can anyone help clarify? Thanks.

urbanista

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Re: 40's something have money - but need advice
« Reply #87 on: August 31, 2016, 09:19:13 PM »
However I can't work out how safe LIC's like Milton / AFI / ARG are. On the face of it  - it looks safe. But I still can't get my head around if those companies can go under? I mean, I am sure they can right? But can't seem to find anything that suggests that. I guess from our perspective we are wanting something that will last the test of time - without the worry that they may collapse - even if it is in 30 years. 
Can anyone help clarify? Thanks.

Unfortunately, can't help on this. I have the same issue: I don't understand the risk of the company itself going belly up. What if the managers steal investors money? Being from an Eastern European country, I have seen many managers to take investors money and run.

In terms of capital gains from Vanguard, I really isn't very much. I estimate less than 10% of the distributions were capital gains. Also, most of capital gains are 50% discounted.

An index fund only sells some shares when the proportion is changed, and the sale is small, just to correct the proportion.

iloveanimals

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Re: 40's something have money - but need advice
« Reply #88 on: August 31, 2016, 09:46:02 PM »
However I can't work out how safe LIC's like Milton / AFI / ARG are. On the face of it  - it looks safe. But I still can't get my head around if those companies can go under? I mean, I am sure they can right? But can't seem to find anything that suggests that. I guess from our perspective we are wanting something that will last the test of time - without the worry that they may collapse - even if it is in 30 years. 
Can anyone help clarify? Thanks.

Unfortunately, can't help on this. I have the same issue: I don't understand the risk of the company itself going belly up. What if the managers steal investors money? Being from an Eastern European country, I have seen many managers to take investors money and run.

In terms of capital gains from Vanguard, I really isn't very much. I estimate less than 10% of the distributions were capital gains. Also, most of capital gains are 50% discounted.

An index fund only sells some shares when the proportion is changed, and the sale is small, just to correct the proportion.

Thanks for responding - good to know your experience with CG. In regards to trying to find out more about LIC's - I called Milton and they also sometimes pass on CG if they turn over a profit - but haven't been for awhile so no CG passed onto members. I asked them about this question of safety - to which I didn't really get much of a response to! So no effort applied here to help a new investor like myself. Also I asked why I should invest in Milton over Vanguard and the guy actually responded with " I don't know much about Vanguard at all"...then went onto quote me MER figures and suggested the Vanguard for sure would be higher than theirs. How idiotic!  He should be in the business of understanding exactly what Vanguard offers and how it compares against Milton. Terrible!! Next on my list is to talk to AFI. 

misterhorsey

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Re: 40's something have money - but need advice
« Reply #89 on: August 31, 2016, 10:55:44 PM »
Be sure to consider what Bigchris pointed out about Net Asset Value (NAV).  LIC's tend to be priced either at a discount or a premium to the actual value of the underlying assets. This provides a good opportunity to buy when at a discount.

So even if you've decided to go with an LIC, it wouldn't make much sense to buy it if the price is at a premium to the underlying value.

I think most LICs publish regular updates on their NAVs.

I actually have units in Contango Microcap, which is a small cap LIC .  I was seduced by their past performance.  I also wanted some domestic small cap exposure but didn't want to take the risk myself.  At the moment the performance of CTN and VAS is running neck and neck based on my entry points, but at one point VAS was up 20% and CTN was flat (at one stage 5% of the fund was invested in Slater and Gordon....).  They were selling at a nice discount to their share price for ages, but inevitably no-one wanted any. Soon as the price marched up, volumes increased.


urbanista

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Re: 40's something have money - but need advice
« Reply #90 on: September 01, 2016, 02:21:17 AM »
Misterhorsey, my view is that the fund investing in small companies should have higher returns than VAS (on average over the long term), otherwise it is not worth it. Small companies are higher risk than large companies.

misterhorsey

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Re: 40's something have money - but need advice
« Reply #91 on: September 01, 2016, 06:09:30 AM »
Yes I agree urbanista, at the moment contango is up 20% afterafter dividends reinvested and after a year and a half, whereas my VAS is up the same amount after 3 years. It's really difficult to compare. The volatility is quite high and on six months who knows where they'll be. I promise to update this thread in twenty years...

CTN does pay very good dividends tho.

iloveanimals

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Re: 40's something have money - but need advice
« Reply #92 on: September 01, 2016, 07:59:03 PM »
Be sure to consider what Bigchris pointed out about Net Asset Value (NAV).  LIC's tend to be priced either at a discount or a premium to the actual value of the underlying assets. This provides a good opportunity to buy when at a discount.

So even if you've decided to go with an LIC, it wouldn't make much sense to buy it if the price is at a premium to the underlying value.

I think most LICs publish regular updates on their NAVs.

I actually have units in Contango Microcap, which is a small cap LIC .  I was seduced by their past performance.  I also wanted some domestic small cap exposure but didn't want to take the risk myself.  At the moment the performance of CTN and VAS is running neck and neck based on my entry points, but at one point VAS was up 20% and CTN was flat (at one stage 5% of the fund was invested in Slater and Gordon....).  They were selling at a nice discount to their share price for ages, but inevitably no-one wanted any. Soon as the price marched up, volumes increased.

Thanks. Just still trying to work out how safe LIC's are.

financialfreedomsloth

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Re: 40's something have money - but need advice
« Reply #93 on: September 02, 2016, 02:17:08 AM »
For you Australians, I would als try to limit my exposure tot he Australian market. I personally love Australia and want to visit it at least one in my life time but the fact is there is only 25 million of you and the economy is not that big when you look at it from a global perspective (also a lot of farming, mining, usually not growth industries …).
Belgium is a bit of the same, small country, small economy. My exposure to its economy via stocks is tiny. The reason there is:

I own a house in Belgium, the value of that is in part linked to the economy here.
My cash is, quit sensibly in euro, which is in part linked to the economic performance of Belgium (but unfortunately also Greece, Spain, Italy, …).

Those two things together are 1/3th of my net worth and is linked to the Belgian/euro economy. I am more than happy to have the remainder of my net worth linked to the rest of the world.

So for iloveanimals, with a fully paid house + a fully paid rental house I would not be investing that much in an Australian oriented fund.

Also agreeing with about everybody else here that the huge amount in cash almost physically hurts me to read about it. I have parents who display a similar behavior and so realize that for a lot of people investing is a big and scary step to take but please get informed and put that money to work!

Also agreeing that the return on the rental property is too low. There are strong, dependable stocks with a long history of paying stable dividends that have a net pay out ratio that is higher than that!! My advise there is to sell the house and invest the proceeds in a nice dividend paying fund. or sell the main house, downsize to the rental one and put the money from the main house to work.

K-ice

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Re: 40's something have money - but need advice
« Reply #94 on: September 02, 2016, 02:08:32 PM »
Oh, one more thing that you should know, as it was a surprise for me.

But each half yearly distribution out of a fund may contain some capital gains that arise out of shares within the fund being bought and sold.  I didn't expect this and its a pain.   This of course depends on the fund itself. 

It's great news if you're sitting on some capital losses to offset them against, but otherwise its an annoyance and it does impact on your overall returns.

So ultimately you end up paying capital gains tax for the sale of shares that you don't have any real control over.

They do provide you with an itemised statement so you don't have to calculate anything. It's not a huge amount but its big enough to be annoying.

I'm not sure that there's anyway around this.  It's perhaps just the cost of having a fund. Someone else may be able to share some insights into this.

That is very good to know! We weren't really expecting CGT unless we sell. So goes against our overall strategy somewhat. I wonder if this will provide my husband with more ammunition to go with AFI.....:)

I just want to echo this. Sorry I do not know all the Aussie account acronyms but regardless of the investment if it is not in a tax sheltered or tax deferred account you will need to pay tax on your investment income.  These may be in the form of dividends or capital gains. It seams kind of odd since you didn't physically sell anything and you set the reinvest of your dividends on auto-pilot to purchase more shares.   

You can do some quick estimates.  $200K making 4% a year (that's high for just dividends & small CGT rebalance) is $8,000.  That will be your "income" that is automatically reinvested so you never really see it.   Tax is usually favorable on investments, in Canada if your tax rate was 40% you would only pay 20% on capital gains and less on Canadian dividends.  Let's just say you need to pay 20% tax on $8,000 so $1,600 is owed at the end of the year.

This is a "Mustacian People Problem". Nothing you can't handle but just be prepared for it.  At the same time you should max out all of your tax advantaged accounts. 

You could probably google "asset location Australia" to learn a bit more about what to invest in what type of account.  Note this is different from asset allocation.

Brief in Canada I want:

Canadian dividend stocks in a regular account. (Because there is some tax deal)
US dividend stocks in my tax deferred retirement account. (Because there is some tax deal)
Bonds in the same tax deferred retirement account. (Because they don't make much money anyway so I'll pay that small tax later)
Whatever Stocks I think will make the most money in my Tax Free Account (Because I will pay no tax ever on these gains or dividend.)

There is some debate about what exactly to put where, as I am sure there is in Australia. But if you have any room in your tax deferred accounts, think about what you should be putting in them.

Again, I can't offer specific Australian advice, but what you put where is important for tax savings especially if you are dealing with large amounts of money, as you are.

You need to set out your plan for allocation first (%stocks vs % bonds etc), which you are doing right now, then decide what type of account will hold these funds so you pay the least tax possible. 







iloveanimals

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Re: 40's something have money - but need advice
« Reply #95 on: September 02, 2016, 11:46:59 PM »
Oh, one more thing that you should know, as it was a surprise for me.

But each half yearly distribution out of a fund may contain some capital gains that arise out of shares within the fund being bought and sold.  I didn't expect this and its a pain.   This of course depends on the fund itself. 

It's great news if you're sitting on some capital losses to offset them against, but otherwise its an annoyance and it does impact on your overall returns.

So ultimately you end up paying capital gains tax for the sale of shares that you don't have any real control over.

They do provide you with an itemised statement so you don't have to calculate anything. It's not a huge amount but its big enough to be annoying.

I'm not sure that there's anyway around this.  It's perhaps just the cost of having a fund. Someone else may be able to share some insights into this.

That is very good to know! We weren't really expecting CGT unless we sell. So goes against our overall strategy somewhat. I wonder if this will provide my husband with more ammunition to go with AFI.....:)

I just want to echo this. Sorry I do not know all the Aussie account acronyms but regardless of the investment if it is not in a tax sheltered or tax deferred account you will need to pay tax on your investment income.  These may be in the form of dividends or capital gains. It seams kind of odd since you didn't physically sell anything and you set the reinvest of your dividends on auto-pilot to purchase more shares.   

You can do some quick estimates.  $200K making 4% a year (that's high for just dividends & small CGT rebalance) is $8,000.  That will be your "income" that is automatically reinvested so you never really see it.   Tax is usually favorable on investments, in Canada if your tax rate was 40% you would only pay 20% on capital gains and less on Canadian dividends.  Let's just say you need to pay 20% tax on $8,000 so $1,600 is owed at the end of the year.

This is a "Mustacian People Problem". Nothing you can't handle but just be prepared for it.  At the same time you should max out all of your tax advantaged accounts. 

You could probably google "asset location Australia" to learn a bit more about what to invest in what type of account.  Note this is different from asset allocation.

Brief in Canada I want:

Canadian dividend stocks in a regular account. (Because there is some tax deal)
US dividend stocks in my tax deferred retirement account. (Because there is some tax deal)
Bonds in the same tax deferred retirement account. (Because they don't make much money anyway so I'll pay that small tax later)
Whatever Stocks I think will make the most money in my Tax Free Account (Because I will pay no tax ever on these gains or dividend.)

There is some debate about what exactly to put where, as I am sure there is in Australia. But if you have any room in your tax deferred accounts, think about what you should be putting in them.

Again, I can't offer specific Australian advice, but what you put where is important for tax savings especially if you are dealing with large amounts of money, as you are.

You need to set out your plan for allocation first (%stocks vs % bonds etc), which you are doing right now, then decide what type of account will hold these funds so you pay the least tax possible.

Thanks this is wonderful insight. Not sure if there are any Australian investors on this forum that have done this with their dividends?

iloveanimals

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Re: 40's something have money - but need advice
« Reply #96 on: September 02, 2016, 11:58:13 PM »
For you Australians, I would als try to limit my exposure tot he Australian market. I personally love Australia and want to visit it at least one in my life time but the fact is there is only 25 million of you and the economy is not that big when you look at it from a global perspective (also a lot of farming, mining, usually not growth industries …).
Belgium is a bit of the same, small country, small economy. My exposure to its economy via stocks is tiny. The reason there is:

I own a house in Belgium, the value of that is in part linked to the economy here.
My cash is, quit sensibly in euro, which is in part linked to the economic performance of Belgium (but unfortunately also Greece, Spain, Italy, …).

Those two things together are 1/3th of my net worth and is linked to the Belgian/euro economy. I am more than happy to have the remainder of my net worth linked to the rest of the world.

So for iloveanimals, with a fully paid house + a fully paid rental house I would not be investing that much in an Australian oriented fund.

Also agreeing with about everybody else here that the huge amount in cash almost physically hurts me to read about it. I have parents who display a similar behavior and so realize that for a lot of people investing is a big and scary step to take but please get informed and put that money to work!

Also agreeing that the return on the rental property is too low. There are strong, dependable stocks with a long history of paying stable dividends that have a net pay out ratio that is higher than that!! My advise there is to sell the house and invest the proceeds in a nice dividend paying fund. or sell the main house, downsize to the rental one and put the money from the main house to work.

Thanks for your response. I have highlighted your important point. Yes we have come to the realisation that we have literally been too fearful of losing money so it has stopped us from progressing. I think we have come to the conclusion that the Vanguard Balanced Fund is probably the best option for us.

iloveanimals

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Re: 40's something have money - but need advice
« Reply #97 on: September 03, 2016, 12:20:48 AM »
So the latest update:

We have done the maths and have to come to the conclusion that we should not buy another investment property, so we now believe that maybe we should place $900k into Vanguard Balanced Fund or split across Vanguard Growth & Balanced funds. Comments on this forum suggest that a lump payment of the $900k would be best, as opposed to putting in say $200k every few months. Can someone explain why that would be the case?   

We think LIC company's like AFI and Milton are not as safe as Vanguard, simply because Vanguard is not a company structure. Anyone with thoughts on this? In addition, there is fully franked dividends in Vanguard like the LIC's, however we are trying to work out which of the diversified Vanguard funds (Balanced or Growth) actually pays the highest fully franked dividends.

We think that we are armed with so much more knowledge that we can take on the risk factors of placing most our savings into a Vanguard fund. We have based this on past history and think that if another recession should hit we have 2 years worth of cash in the bank to ride out tough times. After 2 years, we hope that there will still be dividends coming in to help us out and by about 5 years after that we can enjoy better times again. Only downside would be if we eat into our savings fund and then have no reserves for the next recession cycles that will follow for the next 30 - 50 years of our life. What to do then?

Over to you guru's to shoot holes through our thinking - we are especially in need of direction of the LIC's. We can't get our head round their level of safety. Thanks all!

« Last Edit: September 03, 2016, 12:22:54 AM by iloveanimals »

K-ice

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Re: 40's something have money - but need advice
« Reply #98 on: September 03, 2016, 08:10:33 AM »
So the latest update:

....Comments on this forum suggest that a lump payment of the $900k would be best, as opposed to putting in say $200k every few months. Can someone explain why that would be the case?   


So here is a link so you can read about lump sum vs dollar cost averaging DCA.

The brief reason why it works is because history shows your money will make more money over time. Therefore the more time it is invested the better.  But it is only better 66% of the time.

There is no question regular investing from your paycheck is better than squirreling away a big lump sum to invest later.

But now you are faced with a big lump sum that you want to invest.

Even some experts (see article) are hesitant to invest big lump sums.

http://www.theglobeandmail.com/globe-investor/investment-ideas/lump-sum-investing-vs-dollar-cost-averaging-the-nitty-gritty/article20707395/?service=mobile

66% versus 33% you will have to decide.

In your shoes I think I would put $100K in right now. $100K in next month and every month until it's invested. If it goes up keep investing but you might be kicking yourself because you didn't invest it all at once. But you will be happy to see it is going up and you know you made the right choice.

If the market goes down your heart will sink but keep investing because you are now buying the stocks "on sale". You will still be glad only $200 or $400K has gone down, not the entire $900K.

If you get really scared after 2-4 consecutive down months you may want to hold out on investing another lump sum. (This is market timing which is bad but you are not just investing 30% of your paycheck. You are investing a huge chunk you took years to build.)  But do not sell low. It would be good to still invest a small amount from your paycheck during this time.

There are 4 scenarios.

1) Lump sum --> market up --> big yeah, no regrets
2) Lump sum --> market down --> big boo, major regrets
3) DCA --> market up --> yeah, minor regret you didn't invest faster.
4) DCA --> market down --> boo, slight relief, you can take a break.

Double check your feelings, but I would be VERY upset with scenario 2 vs 4. And I wouldn't be that much more happy with 1 over 3. Based on that & the fact that the chances are only 66% not 80 or 90% I would choose DCA instead of lump sum with such an important chunk of cash.


iloveanimals

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Re: 40's something have money - but need advice
« Reply #99 on: September 03, 2016, 11:54:22 PM »
So the latest update:

....Comments on this forum suggest that a lump payment of the $900k would be best, as opposed to putting in say $200k every few months. Can someone explain why that would be the case?   


So here is a link so you can read about lump sum vs dollar cost averaging DCA.

The brief reason why it works is because history shows your money will make more money over time. Therefore the more time it is invested the better.  But it is only better 66% of the time.

There is no question regular investing from your paycheck is better than squirreling away a big lump sum to invest later.

But now you are faced with a big lump sum that you want to invest.

Even some experts (see article) are hesitant to invest big lump sums.

http://www.theglobeandmail.com/globe-investor/investment-ideas/lump-sum-investing-vs-dollar-cost-averaging-the-nitty-gritty/article20707395/?service=mobile

66% versus 33% you will have to decide.

In your shoes I think I would put $100K in right now. $100K in next month and every month until it's invested. If it goes up keep investing but you might be kicking yourself because you didn't invest it all at once. But you will be happy to see it is going up and you know you made the right choice.

If the market goes down your heart will sink but keep investing because you are now buying the stocks "on sale". You will still be glad only $200 or $400K has gone down, not the entire $900K.

If you get really scared after 2-4 consecutive down months you may want to hold out on investing another lump sum. (This is market timing which is bad but you are not just investing 30% of your paycheck. You are investing a huge chunk you took years to build.)  But do not sell low. It would be good to still invest a small amount from your paycheck during this time.

There are 4 scenarios.

1) Lump sum --> market up --> big yeah, no regrets
2) Lump sum --> market down --> big boo, major regrets
3) DCA --> market up --> yeah, minor regret you didn't invest faster.
4) DCA --> market down --> boo, slight relief, you can take a break.

Double check your feelings, but I would be VERY upset with scenario 2 vs 4. And I wouldn't be that much more happy with 1 over 3. Based on that & the fact that the chances are only 66% not 80 or 90% I would choose DCA instead of lump sum with such an important chunk of cash.

Thanks K-Ice - that was a very interesting read. We now think we will put in $600k. Thanks again.