40's something have money - but need advice

[iloveanimals]

Hi All my husband and I are in our mid 40’s and we have worked extremely hard and saved like nothing else to finally get to a position where we have the following – please note NO INHERITANCE in the below – just us eating beans and rice for a while and working.  So here is what we have accumulated:

•   $1.1Mil in cash savings
•   Paid off our house – worth $1.3Mil
•   Paid off Invest unit – worth $500k – brings in about $1k per month after most costs except tax
•   Have about $350k together in super.

We are wanting to work out a plan that brings us an income stream of about $6k per month, however we are willing to work for the next 2-3 years. My husband earns about $100k and I earn about $50k.

We thought that we should place $550k from our cash savings into a rental property, keep $200k in cash  and the remaining  $350k we thought we would like to invest in either LIC’s or ETF’s .  Do you think this is the best way to get our $6k per month income stream that we are seeking so we can finally stop working? And yes it needs to be around $6k  - trust me so please don’t focus too much on how much more we can save because I can tell you there isn’t much more we can cut back on without living a life at all.  We live in Australia.

All suggestions appreciated. Thanks!

[bacchi]

1) Do you want to downsize to get some equity out of your home?

2) The rental income is pretty low -- $12,000/$500,000 is 2.4%. Depending on taxes when sold, you can do better in a REIT or even a value ETF.

Even without downsizing or selling the rental, you're very close.

[englyn]

Great work on the assets!
However, cash, what're you doing!! Your $s are couch potatoes instead of earning money for you.
Play around with cfiresim and find out the impact of keeping cash-heavy asset allocation on your success rate.
If you invested your assets better, you're already FI by the 4% rule.
I'm very against Australian residential property at the moment, in general, it's overpriced, illiquid and the yield is awful. Consider the 2.4% yield on your paid off unit against one figure I found for historical share market dividend yield of 4.9% - out of which you pay no property managers etc.
Your asset allocation is also already very unbalanced toward Aus residential property.

[steveo]

Hi All my husband and I are in our mid 40’s and we have worked our extremely hard and saved like nothing else to finally get to a position where we have the following – please note NO INHERITANCE in the below – just us eating beans and rice for a while and working.  So here is what we have accumulated:

•   $1.1Mil in cash savings
•   Paid off our house – worth $1.3Mil
•   Paid off Invest unit – worth $500k – brings in about $1k per month
•   Have about $350k together in super.

We are wanting to work out a plan that brings us an income stream of about $6k per month, however we are willing to work for the next 2-3 years. My husband earns about $100k and I earn about $50k.

We thought that we should place $550k from our cash savings into a rental property, keep $200k in cash  and the remaining  $350k we thought we would like to invest in either LIC’s or ETF’s .  Do you think this is the best way to get our $6k per month income stream that we are seeking so we can finally stop working? And yes it needs to be around $6k  - trust me so please don’t focus too much on how much more we can save because I can tell you there isn’t much more we can cut back on without living a life at all.  We live in Australia.

All suggestions appreciated. Thanks!

I have no idea how you have saved so much especially in the context of needing to spend about $70k per year. Do you have any kids ?

My take is that you should invest all the cash (or maybe keep a little in cash) in a vanguard wholesale managed fund. I would go for one of the diversified funds and probably one with a higher equity amount. Here is the link:- https://www.vanguardinvestments.com.au/retail/jsp/investments/wholesale?portId=8133

I think you need about 1.75 million according to the 4% rule if you can't cut back expenses but I would really look at that. We spend about $40k per year and we have 3 kids. We live in Sydney.

I wouldn't be buying any more property and I would even think about selling the investment unit. The yield on property in Australia is terrible and personally I don't think you should have so much allocated to property. Once you own your house you will typically have way too much property within your portfolio. You've got more than that and you are thinking of adding even more. It doesn't make sense to me.

If you sold the unit and put the cash into the fund I suggested you would have about $1.6 million in good quality investments. You could then just save up until you make your target amount.

Personally after that I would also look at a couple of things:-

1. Your spending. Honestly that sounds crazy to me especially with the money you earn and the amount you've saved.
2. Not aiming for a 4% WR. There is no reason in my opinion for you to have to reach that level. You could easily have a 5% WR. The pension kicks in at 67. A 5% WR means you have enough already.

Honestly I would sell the investment unit & chuck it all into the Vanguard fund that I provided the link too. I would at the same time quit work. I reckon you are set.

You can use cfiresim to check your chances of success but I honestly think you would be at 100%:- http://www.cfiresim.com/input.php.

[misterhorsey]

While I'm investing via the Vanguard Wholesale funds, I do so because I drip feed my savings into them out of my salary.

However, if you've got a lump sum to invest, and you don't mind manually rebalancing every now and then, and you don't wish to make small contributions over time, it may make more sense to determine an asset allocation, and then buy them one go through ETFs - as they are generally lower cost.

If you can't think of what allocation you want to go for, look at the vanguard funds for inspiration.

This is a lower cost/higher management approach than the fund that Steveo has suggested.  One can spend a lot of time trying to determine which approach is optimal. However, either approach is better than cash. 

I'm very impressed with your savings rate as well. Sounds like you both were on track from the very beginning. Well done! 

While I won't query your need for $72k per annum, I'm definitely curious about whether you anticipate your post FIRE expenditure to be greater than your expenditure during your working life. Or is this approximately your current expenditure, something that you're comfortable with, and the savings have been created out of capital growth of your investments.  I think the crux of this question is that if you've managed to enjoy life on such a high savings rate, would it possible to continue to enjoy life at the same rate and just quit work right now (unless of course you enjoy your work).

My questions aren't really aimed at getting you to rethink your own situation. Rather I'm inspired by your progress and am looking for insights to  help improve the way I determine my own strategy to FIRE.

[K-ice]

•   $1.1Mil in cash savings
•   Paid off our house – worth $1.3Mil
•   Paid off Invest unit – worth $500k – brings in about $1k per month after most costs except tax
•   Have about $350k together in super.

We are wanting to work out a plan that brings us an income stream of about $6k per month, however we are willing to work for the next 2-3 years. My husband earns about $100k and I earn about $50k.

And yes it needs to be around $6k  -

ll suggestions appreciated. Thanks!

The rental brings in $1000 so your investments only need to bring in $5000 right?

x * 4% = $5000*12  so x = $1.5M

You currently have $1.1 + 0.35 = $1.45M  so you are very, very close to the 4% rule.

You make $150 K per year and spend $70K so you have another $80K to invest.  Keep working for 2-3 years and you will have another $160-240K.  For a total of almost $1.7M.

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 started investing in Vanguard with a much smaller amount last year. Like less than 10% of what you have but it was all of my cash.  It was a very flat year (0.6%), nothing close to 4% so be prepared for that. At one point my Vanguard index fund lost 8.5%, from August 2015 to February 2016. Did I sell? NO, Was I freaking out? A little.

I am investing in the Canadian Couch Potato Assertive.
http://canadiancouchpotato.com/wp-content/uploads/2016/01/CCP-Model-Portfolios-Vanguard-2015.pdf

I know there is an Aussie investment thread where people can help you with your allocation. 

Maybe invest $100K every month for some dollar cost averaging security as you get your feet wet.  Although study after study says lump sum is the best most of the time.

You are very conservative so I would keep 2 years spending or $140K cash. That way you wont need to sell investments at a loss if the market takes a 2 year dip.  What is the longest dip the market has taken?

http://investing.covestor.com/2014/08/often-investors-expect-5-market-corrections

^^ this is kind of helpful. I would be freaking out if my $1M investments took a 20% dip but these dips only last on average 338 days. So it should recover within a year. Your ER fund should be enough to sustain you until the market bounces back.

At the end of one year all your cash, except the ER fund, will be invested. You can then watch how it grows for the next two years of working until you pull the FIRE plug.  Keep contributing about 1/2 of your salary each month (~$6600) into the Vanguard stash so you are not left with lump sum paralysis.

I would not want another rental as it is not "passive" enough if you really want to retire & the RoR is not that high.

I hope that helps. Keep reading and educating yourself so you feel better about your investment decision.

[jjandjab]

I agree with one of the earlier posters, but need to expand a bit - I don't get the math here at all...

Assuming you've been married and working for let's say 20 years at 150k brings us to 3 million in gross earnings  - and that would be if you were making those salaries all along and not getting raises as you go. Maybe you;ve been working since before then, maybe no college/university?

Yet your net worth, by what you've shared, is over 3 million and yet you spend over 70k per year, but eat rice and beans? Did either of you make a lot of money earlier in life or have some great investments?

Unless you are absolutely tied to your very expensive home, why not sell the 1.3 million home and you will then have 2.4 million in cash and still have an "investment" property to live in (this is of course thinking it is something you like and not a distant vacation home). Or sell them both and you are up to 2.9 million in cash, although you'd have to find a place to live or rent.

Letting 1.1 million sit in cash - whoa, that is beyond conservative. Even putting it in a short-term bond fund should get you a few percent per year without much risk...

And earning only 12k per year on a 500k property. Unless there is wild house value appreciation where you live, that would be much better off invested.

It seems with even a traditional conservative investment plan of 20-30% stocks and the rest bonds and selling one of both properties you could already be FIREd.

And what is a "super"with 350k? I'm assuming an Australian term...

Anyway, most curious as to the rest of the story here.

[iloveanimals]

Thanks to everyone so far with recommendations. I think you are all curious about the savings, so to clarify we both started working and saving since we were 16 and also bought and sold properties along the way that turned over excellent profits. You also sound very interested in our expenditure - this is based on allowing for ongoing house repairs we require, and maybe a nice holiday once per year or so.

I think for us ATM we would like to lock away our cash in something safe and slowly start to make our way into shares. We would be devastated if we lost our life savings when we are so close to retiring - finally!

For those of you overseas - SUPER is Australian government enforced retirement fund.

Has anyone read the book "Get Rich Slow" by Clifton Thornton? He suggests to build your portfolio slowly by buying 1000 shares from 10 companies from the top 20 stocks on the Australian Market, then as they drop out of the top 20 to then sell that one that dropped out and then replace with the company that made it into the top 20. He does say to ensure that stocks are diversified across sectors. Any thoughts on this approach?

[steveo]

Has anyone read the book "Get Rich Slow" by Clifton Thornton? He suggests to build your portfolio slowly by buying 1000 shares from 10 companies from the top 20 stocks on the Australian Market, then as they drop out of the top 20 to then sell that one that dropped out and then replace with the company that made it into the top 20. He does say to ensure that stocks are diversified across sectors. Any thoughts on this approach?

I think it's stupid. I honestly think the best approach for you is to use the option that I provided above which was the vanguard fund. You will not lose all your savings. You can put it in and forget about it. In fact you would be better off to just put it in and forget about it.

The other alternative is to do some research but I don't think that you will do any better than taking the simplest option that I have listed above.

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.

The thing is I think that all of this tinkering that I do (others do a lot more than what I do) isn't going to outperform you just chucking all your money into a Vanguard diversified wholesale fund. If you do that I think you will definitely outperform your housing portfolio and you will outperform 99% of all investors. I would have done this but I started with less than $100k to invest and I probably like to tinker as well.

There are heaps of other options to figure out investing. Everyone has an opinion however low cost diversified index funds will beat basically every other option out there. It's also simple and easy.

[Fresh Bread]

You have probably bought and sold during at least 2 x crazy property growth periods in Australia so I can see how you could do so well in property. Good for you for socking it away and not just spending it or putting it into your residence (we are guilty of that).

On paper you could retire now if you sold up, cashed in a little bit of equity. So could we though, so I know how hard that is. Assuming you don't sell up, I would steer clear of another property since the returns are just too low in Australia. Your current one is even worse than ours which I thought was bad enough! Unless you invest in a granny flat in your yard, then the return is v high - that's what we are doing shortly.

Like everyone above says, if you invest your cash, you are very nearly there, how awesome! I reckon you can shave $5k off the expenses and get even closer. We are aiming for $60k plus a bit of tax and that includes $3k for house improvements and a future car and $9k on travel. We can sit in a holding pattern with just $15k and live on $40k so it's worth looking at what you actually need in case of poorly performing years which might help you with any jitters. Good luck!

[misterhorsey]

Unless you are absolutely tied to your very expensive home, why not sell the 1.3 million home and you will then have 2.4 million in cash and still have an "investment" property to live in (this is of course thinking it is something you like and not a distant vacation home). Or sell them both and you are up to 2.9 million in cash, although you'd have to find a place to live or rent.

Just a note for US readers, a 1.1million home isn't 'very expensive', not in Sydney or Melbourne, relative to the current prices for housing. It's not cheap. But its likely to be comfortoable, presumably in a nice area, but not necessarily. 

[misterhorsey]

Has anyone read the book "Get Rich Slow" by Clifton Thornton? He suggests to build your portfolio slowly by buying 1000 shares from 10 companies from the top 20 stocks on the Australian Market, then as they drop out of the top 20 to then sell that one that dropped out and then replace with the company that made it into the top 20. He does say to ensure that stocks are diversified across sectors. Any thoughts on this approach?

I think it's stupid. I honestly think the best approach for you is to use the option that I provided above which was the vanguard fund. You will not lose all your savings. You can put it in and forget about it. In fact you would be better off to just put it in and forget about it.

I agree with Steveo, however I'd add that you need to be comfortable with volatility.  You may not 'lose all your savings' but its quite possible it could underperform other assets over the long run.  The average 7% returns of the sharemarket are made up of depressing years of underperformance interrupted by stellar years of growth. This is not a problem if you're accumulating over the years as your purchase costs average out but if you want to lock off your savings and stop earning a salary, it could be psychologically quite confronting to see it drop (even if you have faith that it will return).

I think one of the hardest things to deal with in index investing is dealing with the psychological aspects.  Risk is not something unique to the sharemarket of course.  There are plenty of risks associated with your investments in real property, but you've probably identified those risks and are comfortable with them, and can get a sense that you can anticipate them.

My advice is to have a look at how your super has performed over the years, and imagine if all your savings were in that investment. Then if you wish to buy some ETFs or funds, perhaps dip your toe in by hiving off a few 100k and tracking that for a little while you are working, before putting the rest in (even though all the advice says lump sum in one go is the best way - it can be scary).

There are also tax implications of selling any property.  If you can, it would be good to wait until you aren't earning salaries to minimise any CGT you will be liable for.  But then you possibly miss a good time to sell a property (which is one of the risks associated with property investment of course).

Anyway, great you have options!

[hoping2retire35]

Unless you are absolutely tied to your very expensive home, why not sell the 1.3 million home and you will then have 2.4 million in cash and still have an "investment" property to live in (this is of course thinking it is something you like and not a distant vacation home). Or sell them both and you are up to 2.9 million in cash, although you'd have to find a place to live or rent.

Just a note for US readers, a 1.1million home isn't 'very expensive', not in Sydney or Melbourne, relative to the current prices for housing. It's not cheap. But its likely to be comfortoable, presumably in a nice area, but not necessarily.

lol, it is still about $800k USD! That is a super nice lake house on a really exclusive lake where I am from or an ocean view house.

[steveo]

Unless you are absolutely tied to your very expensive home, why not sell the 1.3 million home and you will then have 2.4 million in cash and still have an "investment" property to live in (this is of course thinking it is something you like and not a distant vacation home). Or sell them both and you are up to 2.9 million in cash, although you'd have to find a place to live or rent.

Just a note for US readers, a 1.1million home isn't 'very expensive', not in Sydney or Melbourne, relative to the current prices for housing. It's not cheap. But its likely to be comfortoable, presumably in a nice area, but not necessarily.

lol, it is still about $800k USD! That is a super nice lake house on a really exclusive lake where I am from or an ocean view house.

House prices in Sydney and probably most of Australia are so expensive. Our house is now worth about $1.5 million AUD. It's a small 4 bedroom house in a reasonable area. It isn't in an exclusive area. A nice 4 bedroom house in an exclusive area would be like $10 million. It's freaken crazy. The yield is also terrible. Eveyone is expecting capital growth.

I think we could cash out and retire if we relocated but the wife (always blame the wife) doesn't want too move and relocate for the kids sake.

[steveo]

Has anyone read the book "Get Rich Slow" by Clifton Thornton? He suggests to build your portfolio slowly by buying 1000 shares from 10 companies from the top 20 stocks on the Australian Market, then as they drop out of the top 20 to then sell that one that dropped out and then replace with the company that made it into the top 20. He does say to ensure that stocks are diversified across sectors. Any thoughts on this approach?

I think it's stupid. I honestly think the best approach for you is to use the option that I provided above which was the vanguard fund. You will not lose all your savings. You can put it in and forget about it. In fact you would be better off to just put it in and forget about it.

I agree with Steveo, however I'd add that you need to be comfortable with volatility.  You may not 'lose all your savings' but its quite possible it could underperform other assets over the long run.  The average 7% returns of the sharemarket are made up of depressing years of underperformance interrupted by stellar years of growth. This is not a problem if you're accumulating over the years as your purchase costs average out but if you want to lock off your savings and stop earning a salary, it could be psychologically quite confronting to see it drop (even if you have faith that it will return).

I think one of the hardest things to deal with in index investing is dealing with the psychological aspects.  Risk is not something unique to the sharemarket of course.  There are plenty of risks associated with your investments in real property, but you've probably identified those risks and are comfortable with them, and can get a sense that you can anticipate them.

My advice is to have a look at how your super has performed over the years, and imagine if all your savings were in that investment. Then if you wish to buy some ETFs or funds, perhaps dip your toe in by hiving off a few 100k and tracking that for a little while you are working, before putting the rest in (even though all the advice says lump sum in one go is the best way - it can be scary).

There are also tax implications of selling any property.  If you can, it would be good to wait until you aren't earning salaries to minimise any CGT you will be liable for.  But then you possibly miss a good time to sell a property (which is one of the risks associated with property investment of course).

Anyway, great you have options!

If they are concerned about volatility they could always take a much heavier income based fund.

The Conservative Fund is biased towards income assets, and is designed for investors with a low tolerance for risk. The Fund targets a 70% allocation to income asset classes and a 30% allocation to growth asset classes.

The High Growth Fund invests mainly in growth assets, and is designed for investors with a high tolerance for risk who are seeking long-term capital growth. The Fund targets a 10% allocation to income asset classes and a 90% allocation to growth asset classes

There are differening options based upon how they feel regarding volatility. The conservative fund has still returned 6.86% since inception. The high growth fund has returned 8.18% since inception.  These are honestly great options. I wish my parents would do something like this. They probably have a fund of about $2 million or more and they invest through a financial advisor. It's probably costing them at least 2% in returns each year. The Vanguard funds are less than .4%. I bet the Vanguard funds have performed just as well if not better as well.

[iloveanimals]

So excuse my ignorance but how safe are funds like these from Vanguard? Reason is I am thinking to lock away about $200k in cash for emergencies - but not sure if I would be better off leaving in a bank:

Vanguard Cash Reserve Fund
Vanguard Cash Plus Fund
Vanguard Australian Fixed Interest Index Fund

I also have been trying to think long term about retiring and I know that there are some excellent advantages if the profit is fully franked credits, hence the interest in either direct investing in top 20 companies in Oz or LIC's like AFI/MLT/DUI. If I decide the Vanguard route I am worried that I may have missed the opportunity to set up a long term strategy to make the most out of fully franked credits, meaning the possibility to actually get a money back from the tax man for once. :) Thoughts?

[misterhorsey]

Unless you are absolutely tied to your very expensive home, why not sell the 1.3 million home and you will then have 2.4 million in cash and still have an "investment" property to live in (this is of course thinking it is something you like and not a distant vacation home). Or sell them both and you are up to 2.9 million in cash, although you'd have to find a place to live or rent.

Just a note for US readers, a 1.1million home isn't 'very expensive', not in Sydney or Melbourne, relative to the current prices for housing. It's not cheap. But its likely to be comfortoable, presumably in a nice area, but not necessarily.

lol, it is still about $800k USD! That is a super nice lake house on a really exclusive lake where I am from or an ocean view house.

It's a lot of money but a lot of money doesn't buy you much house in metropolitan Australia, where most Australians live.  I'm not suggesting that it's justified. I think the Australian property is overdue a correction (slow, or fast, who knows).  I just think its worth mentioning in case people think the OP is living extravagantly in a house they spent too much money on - when they probably bought it for much less but the recent rise in prices (not values) has been quite dramatic.

AUD$800K could buy you an massive estate in parts of Australia, provided you don't need to be near jobs, significant amenities, infrastructure or people.

[misterhorsey]

So excuse my ignorance but how safe are funds like these from Vanguard? Reason is I am thinking to lock away about $200k in cash for emergencies - but not sure if I would be better off leaving in a bank:

Vanguard Cash Reserve Fund
Vanguard Cash Plus Fund
Vanguard Australian Fixed Interest Index Fund

I also have been trying to think long term about retiring and I know that there are some excellent advantages if the profit is fully franked credits, hence the interest in either direct investing in top 20 companies in Oz or LIC's like AFI/MLT/DUI. If I decide the Vanguard route I am worried that I may have missed the opportunity to set up a long term strategy to make the most out of fully franked credits, meaning the possibility to actually get a money back from the tax man for once. :) Thoughts?

I would query the benefit of putting cash into one of these funds when Ubank offers you a similar interest rate.  Either way, you are going to be liable for tax on any interest earnt via the savings account, or distributions via a vanguard fund.  The return on these funds seems equivalent to interest rates on an online saving account, which is g'teed up to $250k by the government (https://www.moneysmart.gov.au/managing-your-money/banking)

One question, why such a large amount set aside for emergencies?  The value of cash erodes over time due to inflation. Why not keep a $50k emergency fund in cash, for example, and a $150k extra-emergency fund invested in a mix of shares and bonds via a fund. You can draw on the emergency fund in an emergency, and the extra-emergency fund if you are really, really  desperate. The likelihood of drawing down on it is likely to be quite low. So on the balance it may be better for you to invest it in a higher yielding investment. 

But if you are nearing retirement, perhaps capital preservation is one of the most important considerations.

There are so many ways to slice this cake - its good to think about ways to slice it, but you just got to do what feels comfortable to you.

I'd also recommend giving this a read.

http://www.getrichslowly.org/blog/2008/07/08/the-four-pillars-of-investing/

It's a US book and you'll need to tailor sections for the Australian environment.  The asset allocations you will decide will be determined on your own risk profile, time frame, preferences, level of management you want, control etc.  But the book is a pretty solid read and gives a very comprehensive overview on different strategies and philosophies for investing.  Everything else comes down to what flavour ice cream you want to have.

[MustacheAndaHalf]

You are counting on the local real estate market for 100% of your earnings.  In almost everywhere, cash has trouble keeping up with inflation.  And if you're scared of inflation, you might buy more properties, which concentrates more of your retirement in the rental market.

I wouldn't advise dropping $1M into a stock market you've never touched before.  You might want to do some book learning about investing before you start.  If you plow lots of money into one company, then that company drops -20%, you could panic and never get back in the market again.

You mentioned buying "top 20" stocks on a rotating basis.  That sounds like a crude approximation of an index fund.  Have you considered using index funds instead of doing it manually?  In the U.S., Vanguard runs some of the largest index funds at the lowest expense ratios (an annual fee).  For example, the S&P 500 and Total (U.S.) Stock Market funds charge 0.05% per year yet contain hundreds of stocks.  They represent the market, rather than trying to guess what will be up or down.  You might look at Vanguard's AU website...
vanguardinvestments.com.au

Ultimately I think you should read up on investing (A Random Walk Down Wall Street, The Investment Answer) so you have some level of comfort, and then start.  You could move into it gradually, with only a portion of your cash.  Ultimately you need to be much more than 0% stocks, 0% bonds, and 100% cash to have a balanced portfolio.

[urbanista]

Unless you are absolutely tied to your very expensive home, why not sell the 1.3 million home and you will then have 2.4 million in cash and still have an "investment" property to live in (this is of course thinking it is something you like and not a distant vacation home). Or sell them both and you are up to 2.9 million in cash, although you'd have to find a place to live or rent.

Just a note for US readers, a 1.1million home isn't 'very expensive', not in Sydney or Melbourne, relative to the current prices for housing. It's not cheap. But its likely to be comfortoable, presumably in a nice area, but not necessarily.

lol, it is still about $800k USD! That is a super nice lake house on a really exclusive lake where I am from or an ocean view house.

Prices in Melbourne and Sydney are comparable to Bay Area. We have just bought a 1.3M house in Melbourne as our home. It is an old (1950s without much renovations), and small (1200sqf) AND it is still 45 min commute to work. Our previous house ($750K) had 2.5hrs daily commute for both of us.

[urbanista]

Vanguard pays franking credits too.

VAS pays approximately 80% franking. That's actually all credits passed back to investors. Some Australian companies derive foreign income thus 80% franking level. You would get exactly the same franking credits if you bought 300 companies in proportion to index yourself.

VAS represents 300 largest Australian companies. Dividends before franking is about 4.3% at the moment = about 5.5% after adding franking and subtracting 0.25% management fees. I understand your hesitance to diversify international (I have only 5% international) due to franking credits but there is no need to buy individual companies to get franking credits.

Don't buy individual companies. Except high transaction costs, most of the inexperienced investors can't stomach losses on individual companies and sell. I know that all too well as I liquidated all individual stocks in 2008, taking 50% loss (too much REITs in the portfolio plus Babcock & Brown disaster). I lost about $100K. Now I buy only index (ETF) because it allows me to sleep at night. ETF can never go to zero, but individual companies can.

[marty998]

Vanguard Fund for investments you need to get your $72,000 a year. Bricks and mortar may give you capital, but they don't shit cash the way shares and managed funds do.

Anything above I would advise putting the absolute largest amount you possibly can into super whilst the rules are the way they are. Right now you can make a non concessional contribution up to $1,080,000 ($540k each under the 3yr bring-forward rule).

Forget all this rubbish about super being dodgy because rules keep getting changed. It's just a media and industry beat up to protect vested interests. Super still is by far and away the best deal in town when it comes to tax efficiency.

[urbanista]

Actually, yes, super is a great vehicle to shelter from tax. If you do decide to work 2-3 years, salary sacrifice into super 30K for both of you. We max out our super with salary sacrifice each year. Our goal is to retire in 6 years at the age 45, exhaust taxable investments then switch to super at 60. If they increase the preservation age beyond 60 (which I personally think would not happen without like 20 years notice), big deal. We should have a 1.3M+ house as a safety net to get us through till super is available.

What is your super invested in? What superfund and what option? You can DYI your super and buy ETF there or just invest in index low cost funds. That's what we do.

Ignore media. Even if the rules change, I look at it like this: a probability to pay some more tax on super in the future if the rules change vs 100% probability to pay income tax now if we don't salary sacrifice. I prefer the first option :)

[hoping2retire35]

I was looking at homes in the northern territory. it is still nuts there. I'll see a picture and think "ok, should be $80k usd, so maybe 105k aussie", nope, $375! Either way lots of nice homes under $500k near the beach and city life. If those are not good enough for you then adjust your perception and retire.

As everyone else said stay away from rentals, with those prices you will never justify it for the rental income.

[jjandjab]

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.

[TheAnonOne]

•   $1.1Mil in cash savings
•   Paid off our house – worth $1.3Mil
•   Paid off Invest unit – worth $500k – brings in about $1k per month after most costs except tax
•   Have about $350k together in super.

We are wanting to work out a plan that brings us an income stream of about $6k per month, however we are willing to work for the next 2-3 years. My husband earns about $100k and I earn about $50k.

You literally have 1.6 million dollars losing money....

1k per month BEFORE TAXES? Gross...

Just moving that 1.6 into the market would generate $64,000 yearly in a conservative 4% RW

Not only that, dropping the rental will just clear up a stress-point, that 1k is hardly "Passive". It does seem like you passed "FI" and "FIRE" a long time ago but certain choices are holding you back.

If you liquidated everything you would have $2,900,000 or $116,000 yearly in income that you would have to afford everything out of, house included. (plus 350k in super that I left alone)

[K-ice]

  What is the longest dip the market has taken?

OK I had some time to answer my own question. I found this helpful.

https://www.mackenzieinvestments.com/en/assets/documents/marketingmaterials/mm-bull-bear-markets-sp500-en.pdf?m=15656dfd1a0

The longest drop (Bear market) lasted only 25 months. But how long did it take to climb back up again?

So then I found this stock chart:

https://finance.yahoo.com/chart/%5Egspc?ltr=1#eyJtdWx0aUNvbG9yTGluZSI6ZmFsc2UsImJvbGxpbmdlclVwcGVyQ29sb3IiOiIjZTIwMDgxIiwiYm9sbGluZ2VyTG93ZXJDb2xvciI6IiM5NTUyZmYiLCJtZmlMaW5lQ29sb3IiOiIjNDVlM2ZmIiwibWFjZERpdmVyZ2VuY2VDb2xvciI6IiNmZjdiMTIiLCJtYWNkTWFjZENvbG9yIjoiIzc4N2Q4MiIsIm1hY2RTaWduYWxDb2xvciI6IiMwMDAwMDAiLCJyc2lMaW5lQ29sb3IiOiIjZmZiNzAwIiwic3RvY2hLTGluZUNvbG9yIjoiI2ZmYjcwMCIsInN0b2NoRExpbmVDb2xvciI6IiM0NWUzZmYiLCJyYW5nZSI6Im1heCJ9

(^^ that's a crazy long link, I'm not sure it works.)

Worst case scenario in recent history:

If you invested in January 2000 at the peek of 1498, you would have gone down to 815 by July 2002  and lost 46%.

In 2002 it started its slow climb and rebounded fully by April 2007.  7 years is a long time to wait.

The 2008 crash was also bad.  Starting in October 2007 and down to February 2009 the market again lost 1545 to 739  this time 52%.  By March 2013 it recovered to 1569.  This time to fully recovery took 5.5y.   

I've overheard some people say their investments recovered within a year. Who are they? How did they invest?


I don't want to completely scare the OP, or hijack this thread, but I think the charts are interesting to look at.

Having a 2 year emergency fund would help you not need to sell your stocks while they are falling. But you would still need to sell some at a loss while they climbed back up.


Remember this is 100% US stocks.  Can someone find a calculator that looks at this for more diversified stocks and some bonds?

 




 

[urbanista]

You forgot about dividends. When you include dividends, the picture is not so bad even for 50% drop in value.

When ASX was at the lowest (3300) in 2008-2010, dividends were more than 10% including franking. Overall, companies cut dividends by 40% and the gradually increased them as economic situation improved. If you invest in index, you can count on constant stream of dividends even after the 50% drop in value. I personally would have only 1 year expenses in cash, because dividends will top that up, and I would not to have to sell any shares for 2-3 years in the absolute worst case scenario.

Also, the common practice is to cut your expenses for a couple of years when the value drops significantly. Wits 72K annual expenses you are in a great position that you can cut your budget for a while to get you through the worst 2-3 years of share market drops.

[urbanista]

•   $1.1Mil in cash savings
•   Paid off our house – worth $1.3Mil
•   Paid off Invest unit – worth $500k – brings in about $1k per month after most costs except tax
•   Have about $350k together in super.

We are wanting to work out a plan that brings us an income stream of about $6k per month, however we are willing to work for the next 2-3 years. My husband earns about $100k and I earn about $50k.

You literally have 1.6 million dollars losing money....

1k per month BEFORE TAXES? Gross...

Just moving that 1.6 into the market would generate $64,000 yearly in a conservative 4% RW

Not only that, dropping the rental will just clear up a stress-point, that 1k is hardly "Passive". It does seem like you passed "FI" and "FIRE" a long time ago but certain choices are holding you back.

If you liquidated everything you would have $2,900,000 or $116,000 yearly in income that you would have to afford everything out of, house included. (plus 350k in super that I left alone)

Yeah, problem is property values in blue chip areas of Sydney and Melbourne grew around 8-10% annualised for the last 5 years or 5-6% if we take the last 15 years. Still growing because the demand is very strong. You will be surprised but not many people want to live in Northern Territory. It is nice in season but out of season it rains like for 3 months nonstop. Personally I think that property values will grow at least with the wages growth, so 2-3 % a year growth for metro areas detached houses is expected.

[steveo]

So excuse my ignorance but how safe are funds like these from Vanguard? Reason is I am thinking to lock away about $200k in cash for emergencies - but not sure if I would be better off leaving in a bank:

Vanguard Cash Reserve Fund
Vanguard Cash Plus Fund
Vanguard Australian Fixed Interest Index Fund

I also have been trying to think long term about retiring and I know that there are some excellent advantages if the profit is fully franked credits, hence the interest in either direct investing in top 20 companies in Oz or LIC's like AFI/MLT/DUI. If I decide the Vanguard route I am worried that I may have missed the opportunity to set up a long term strategy to make the most out of fully franked credits, meaning the possibility to actually get a money back from the tax man for once. :) Thoughts?

I think your questions have been answered but Vanguard is safe. Those funds though aren't good for a long term retirement.

Forget about franking credits for the moment. You are focussed on trying to get he maximum possible returns via some tax advantage when you have all your money in cash and property. I accept that a lot of Australians do this but reading this makes me want to spontaneously combust. It's really a poor approach.

To try and give you some points:-

1. Modern asset allocation theory states put your money in some different asset classes. Stocks and bonds are the simplest way to divide your money.
2. Modern finance theory states that the lowest fees that you can get typically lead to the best long term returns.
3. Modern asset allocation says diversify within each asset class as much as possible.
4. Share over time should give you the maximum returns. This comes with volatility though.

The reason I state that you should get one of the diversified Vanguard funds is that they tick every box and it's so simple. You are diversified across the world and within Australia and you won't have to worry about anything other than withdrawing your money. You sound like a very inexperienced and uneducated investor and this option takes away all of that drama. You can just chuck all your money in after picking if you want a conservative fund or a high growth but high volatility fund.

I would stop there but if you really want to do it yourself it's just as easy.

1. Pick your bond/cash/share/property limits. I suggest you just own your house and don't invest one cent into property because you are already way overexposed to property. I would suggest you choose something like 80/20, 60/40 or even 50/50 as this is money outside of super.
2. With the share investment make sure that you purchase international equities because the Australian market is too small. I would suggest to make it a simple 50/50 split.
3. Buy Vanguard ETF's or if you really want to you can purchase LIC's for the Australian equity.

To make it simple you just sell all your investment properties and say you have $1.6 million. Leave $100k in cash. Put $500k in bonds (VAF will work). Put $500k in VGS. Put $500k in VAS or but some LIC's. If you do that you are set for life. Sit back and enjoy life. You will get franked dividends as well. VAS pays out franked dividends.

Now retire.

[steveo]

•   $1.1Mil in cash savings
•   Paid off our house – worth $1.3Mil
•   Paid off Invest unit – worth $500k – brings in about $1k per month after most costs except tax
•   Have about $350k together in super.

We are wanting to work out a plan that brings us an income stream of about $6k per month, however we are willing to work for the next 2-3 years. My husband earns about $100k and I earn about $50k.

You literally have 1.6 million dollars losing money....

1k per month BEFORE TAXES? Gross...

Just moving that 1.6 into the market would generate $64,000 yearly in a conservative 4% RW

Not only that, dropping the rental will just clear up a stress-point, that 1k is hardly "Passive". It does seem like you passed "FI" and "FIRE" a long time ago but certain choices are holding you back.

If you liquidated everything you would have $2,900,000 or $116,000 yearly in income that you would have to afford everything out of, house included. (plus 350k in super that I left alone)

It is crazy. I'ts driving me batty just reading it. This is though typical in Australia. We have the worst investors in the world. My parents are a couple of levels above this and they actually pay a financial advisor. My mum says stuff to me like "we have a very diversified portfolio". My dad knows better but just can't be bothered. The hilarious thing is that his financial advisor recently bought Vanguard funds for them. So the financial advisor bought a fund with a less than .5% fee and is probably charging them a 2% fee. It's enough to drive me crazy. I think I need to get on the Valium or something.

[steveo]

Unless you are absolutely tied to your very expensive home, why not sell the 1.3 million home and you will then have 2.4 million in cash and still have an "investment" property to live in (this is of course thinking it is something you like and not a distant vacation home). Or sell them both and you are up to 2.9 million in cash, although you'd have to find a place to live or rent.

Just a note for US readers, a 1.1million home isn't 'very expensive', not in Sydney or Melbourne, relative to the current prices for housing. It's not cheap. But its likely to be comfortoable, presumably in a nice area, but not necessarily.

lol, it is still about $800k USD! That is a super nice lake house on a really exclusive lake where I am from or an ocean view house.

Prices in Melbourne and Sydney are comparable to Bay Area. We have just bought a 1.3M house in Melbourne as our home. It is an old (1950s without much renovations), and small (1200sqf) AND it is still 45 min commute to work. Our previous house ($750K) had 2.5hrs daily commute for both of us.

It's crazy. We bought our house for $770k about 7 years ago. I thought we've probably bought at a top but we won't sell so we will be okay. Now it's probably worth $1.5 million. Who can afford a house now.

[steveo]

Forget all this rubbish about super being dodgy because rules keep getting changed. It's just a media and industry beat up to protect vested interests. Super still is by far and away the best deal in town when it comes to tax efficiency.

You just need enough outside of super to get to your super funds. That is it.

The good thing about Super as well is that they appear to follow a low cost indexing approach within a diversified asset allocation. You can basically chuck your money in and not worry about it.

[steveo]

Not only that, dropping the rental will just clear up a stress-point, that 1k is hardly "Passive". It does seem like you passed "FI" and "FIRE" a long time ago but certain choices are holding you back.

This is a classic example of being passed FIRE but not having the knowledge to realise it. I'm jealous. If I was in that situation I'd retire now.

I'm also frustrated because people should know this stuff. It's not rocket science. We have such a poor culture in Australia for the average investor.

[urbanista]

That's right, it we were in the same situation as OP, I would be writing a resignation notice to my boss today. I mean 1.6M + 350 super + 1.3M house is just enough.

[misterhorsey]

•   $1.1Mil in cash savings
•   Paid off our house – worth $1.3Mil
•   Paid off Invest unit – worth $500k – brings in about $1k per month after most costs except tax
•   Have about $350k together in super.

We are wanting to work out a plan that brings us an income stream of about $6k per month, however we are willing to work for the next 2-3 years. My husband earns about $100k and I earn about $50k.

You literally have 1.6 million dollars losing money....

1k per month BEFORE TAXES? Gross...

Just moving that 1.6 into the market would generate $64,000 yearly in a conservative 4% RW

Not only that, dropping the rental will just clear up a stress-point, that 1k is hardly "Passive". It does seem like you passed "FI" and "FIRE" a long time ago but certain choices are holding you back.

If you liquidated everything you would have $2,900,000 or $116,000 yearly in income that you would have to afford everything out of, house included. (plus 350k in super that I left alone)

It is crazy. I'ts driving me batty just reading it. This is though typical in Australia. We have the worst investors in the world. My parents are a couple of levels above this and they actually pay a financial advisor. My mum says stuff to me like "we have a very diversified portfolio". My dad knows better but just can't be bothered. The hilarious thing is that his financial advisor recently bought Vanguard funds for them. So the financial advisor bought a fund with a less than .5% fee and is probably charging them a 2% fee. It's enough to drive me crazy. I think I need to get on the Valium or something.

We may have the worst investors in the world, and Australians seem to be, on a whole, over invested into Property.  But on the flip side, the OP and her partner have gotten to where they are by taking a punt on property - which just so happened to perform extraordinarily well over the recent period.

I think it can be conceptually hard to withdraw from an investment such as property, and diversify into other investments, when the original investment has seemed to have done so well for you.

[Fresh Bread]

Good point Mr Horsey, it's really hard to let property go once you've got it and it's done well for you. I am slowly coming round to the idea selling our IP after years and years of learning but it's so hard. I almost need a small correction in the price to be able to let it go.

[steveo]

We may have the worst investors in the world, and Australians seem to be, on a whole, over invested into Property.  But on the flip side, the OP and her partner have gotten to where they are by taking a punt on property - which just so happened to perform extraordinarily well over the recent period.

I think it can be conceptually hard to withdraw from an investment such as property, and diversify into other investments, when the original investment has seemed to have done so well for you.

Lot's of people have done really well in property including myself but that doesn't mean:-

1. It's a good investment now.
2. Other options wouldn't have done just as well.

I just looked this up so I'd like to get some better data but I assume the returns have been pretty similar between property and the share market:- http://www.smh.com.au/business/property/flats-and-townhouses-outstrip-stocks-20110201-1aciv.html

Property also has lots of downsides. People don't take into account the buying and selling costs. They don't take into account the holding costs. They don't take into account the interest payments. In some ways the interest payments are probably a positive thing because people leverage themselves into the market.

For me personally I just have no interest in property in Australia once you own your own house. I will probably have a wealth allocation at best of 60% property and 40% other assets just from owning my own house when I retire. That isn't including the property that I will own in my super fund and my index funds. When I invest in shares I also don't have to borrow. I just save up and invest.

I get that it is hard to diversify away from property when you've done so well out of it but geez it doesn't seem to be a rational way to invest your hard earned money.

[misterhorsey]

We may have the worst investors in the world, and Australians seem to be, on a whole, over invested into Property.  But on the flip side, the OP and her partner have gotten to where they are by taking a punt on property - which just so happened to perform extraordinarily well over the recent period.

I think it can be conceptually hard to withdraw from an investment such as property, and diversify into other investments, when the original investment has seemed to have done so well for you.

Lot's of people have done really well in property including myself but that doesn't mean:-

1. It's a good investment now.
2. Other options wouldn't have done just as well.

Yes, and I agree with you.

I've had property before, it didn't do so well for me.  I hate it as an asset class. Expensive to maintain, expensive to transact, preferential treatment by our tax system which allows those who have the security and stability to put down roots get the bulk of the benefit of those tax concession. I've moved around a bit - not sure why I should be effectively punished by my inability to commit to a postcode!  What if I was in witness protection?

All I'm saying is that changing direction in your investment strategy is not something that can easily be done overnight - particularly when you've had a great deal of success (and less apparently volatility) with your current property focused savings and investment strategy.

Also, even if you want to make wholesale changes, you often have legacy issues from your investments due to CGT liabilities that would be preferable to minimise, and would have an impact on your ability to change things quickly, or to a timetable that you may wish to have.  I.e. I would have preferred to move all my direct share holdings into an index fund but it would have cost my five figures in tax - so for now I'm still part market timing value investor.....

I use the Vanguard Wholesale funds that you recommend Steveo.  But I still appreciate it is a big ask for someone to liquidate other holdings and plow them into it. It was hard for me to do and I'd been moderately in and out of shares for the previous decade.

(And yes, I would have done better if I'd just started with index funds form the beginning.  But in my defence, I don't think they were as easily accessible to the retail investors when I started work in 2000.  LICs were but they were a bit opaque for someone as green as myself.)

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?

[urbanista]

Property is doing good only if one uses leverage. With no leverage, shares outperformed property. That's not considering a hussle of dealing with buying/selling and maintenance.

[misterhorsey]

That's right, it we were in the same situation as OP, I would be writing a resignation notice to my boss today. I mean 1.6M + 350 super + 1.3M house is just enough.

Me too. I'm actually considering resigning on less than a quarter of that (but having to read Early Retirement Extreme in order to make myself think its doable).

[Fresh Bread]

That's right, it we were in the same situation as OP, I would be writing a resignation notice to my boss today. I mean 1.6M + 350 super + 1.3M house is just enough.

Me too. I'm actually considering resigning on less than a quarter of that (but having to read Early Retirement Extreme in order to make myself think its doable).

On a quarter of which total - the 1.6 or the 2.9? $16k might be a bit extreme for Aus unless you're under a bridge or couch surfing!

[steveo]

That's right, it we were in the same situation as OP, I would be writing a resignation notice to my boss today. I mean 1.6M + 350 super + 1.3M house is just enough.

Me too. I'm actually considering resigning on less than a quarter of that (but having to read Early Retirement Extreme in order to make myself think its doable).

On a quarter of which total - the 1.6 or the 2.9? $16k might be a bit extreme for Aus unless you're under a bridge or couch surfing!

I just did the figures on this and I reckon it would be tough. Say you retire on $500k and drawdown 5% that is $25k per year. It's doable because you could pick up the pension at 67. My target is about $800k including super plus a paid off house. I could possibly go a little less than that. That is with myself and my wife plus 3 kids. 1 kid will be 10 or 11. The other two will be 17 at the youngest to about 20 at the oldest.

I reckon myself and my wife would be fine on $40k.

[steveo]

Property is doing good only if one uses leverage. With no leverage, shares outperformed property. That's not considering a hussle of dealing with buying/selling and maintenance.

People often don't talk about the hassle of property. Even owning my own house and being cheap there are always additional costs that come up. I think that this is a big reason for the op's big expenses.

[misterhorsey]

On a quarter of which total - the 1.6 or the 2.9? $16k might be a bit extreme for Aus unless you're under a bridge or couch surfing!

1/4 of the big total. Actually, I just realised I have a bit more than the 1/4 - at the moment at least -such are the gyrations of the stockmarket.

Yes, it is probably a bit extreme.  For Australia. Which is why I am reading the Early Retirement Extreme blog for inspiration!

[misterhorsey]

On a quarter of which total - the 1.6 or the 2.9? $16k might be a bit extreme for Aus unless you're under a bridge or couch surfing!

I just did the figures on this and I reckon it would be tough. Say you retire on $500k and drawdown 5% that is $25k per year. It's doable because you could pick up the pension at 67. My target is about $800k including super plus a paid off house. I could possibly go a little less than that. That is with myself and my wife plus 3 kids. 1 kid will be 10 or 11. The other two will be 17 at the youngest to about 20 at the oldest.

I reckon myself and my wife would be fine on $40k.

Yes, I agree it would be tough. Although in the year to date, without having implemented full frugality in the fist part of the previous 12 months, I got by on $25k.  It was livin' too.  Not particularly fancy, but it was enjoyable.  I'm anticipating that the next 12 months I can get it down to about 19k if I am very frugal. Mind you, 12k of my current expenditure is rent, which is actually rather high in my situation (a nicer quality share house).

Realistically I am likely to resign soon as I don't really like my job or industry anymore.  But I would like to continue working/contributing in some capacity, but with more enjoyment in my work hopefully. So maybe I should think of the $25k as my base passive income, with commissions and bonuses to add to it if I actually do work.

Anyway, apologies to the OP if this has taken things off thread - but hope you might find alternative insights interesting.

[iloveanimals]

Actually, yes, super is a great vehicle to shelter from tax. If you do decide to work 2-3 years, salary sacrifice into super 30K for both of you. We max out our super with salary sacrifice each year. Our goal is to retire in 6 years at the age 45, exhaust taxable investments then switch to super at 60. If they increase the preservation age beyond 60 (which I personally think would not happen without like 20 years notice), big deal. We should have a 1.3M+ house as a safety net to get us through till super is available.

What is your super invested in? What superfund and what option? You can DYI your super and buy ETF there or just invest in index low cost funds. That's what we do.

Ignore media. Even if the rules change, I look at it like this: a probability to pay some more tax on super in the future if the rules change vs 100% probability to pay income tax now if we don't salary sacrifice. I prefer the first option :)

I think we can really relate to this and think it is very good advise. Thanks very much for this and your earlier contributions.

[iloveanimals]

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]

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.

[misterhorsey]

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