Ok so going to show you all something and want to know if you think its 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_allocationHowever, 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.