Author Topic: Australia - Vanguard ETFs v Lifestyle Strategy Fund  (Read 17475 times)

misterhorsey

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Australia - Vanguard ETFs v Lifestyle Strategy Fund
« on: January 27, 2015, 09:18:46 PM »
Hello there.  I've been a longtime frugalist (in the main), but relatively new to Mr Money Moustache and his amazing way of managing money and the good life. And dipping into this forum has already been pretty inspiring.

I'm pleased to report that its transformed my life already, although I appreciate its an ongoing project and there's a lot of work still to do. While I need to hit ebay and offload a heap of things, I also need to get my investment strategy in order.

I've been thinking about Vanguard ETFs v Lifestyle Strategy Funds, from an Australian perspective.  And I'd love to hear your thoughts.  Perhaps this might also be useful for someone else in a similar situation.

Context

But firstly some context.

My investments are currently 51% Direct Shares (mix of blue chip and a few speccies), 3% Cash, 29% Vanguard Aus ETF (VAS), 6.6% Vanguard All World ETF (hedged), 6.6% Aus Small Cap LIC (6.6%), 3% Vanguard High Growth Lifestyle Strategy Fund (Retail).
 
Note:  I've read what MMM has to say about indexing, and I've also just finished Malkiel's 'Random walk down Wall Street', Bernstein's 'Four Pillars of Investment' and I'm a convert to the passive index approach.  I've also previously read Ben Graham's 'Intelligent Investor' and just finished Peter Lynch's 'One Up on Wall Street', the latter was a particularly entertaining read, although i'm convinced by Malkiel, Bernstein, Jack Bogle and MMM to take on an index approach.  I'd previously been a fan of value investing ala Graham and Lynch, but I've found beating the market is a lot harder in practice than in theory. Its not too hard to do it for a short period of time, but sustained over a few decades then I think I'd rather trust in the market as a whole. To be honest, I think if I'd had the foresight to index from the beginning I'd be ahead of my position now, which has been the result of buying and holding (but not trading).

Non-Australian readers may not appreciate that Vanguard index funds are not as dirt cheap as they seem to be in the US.


Lifestyle Fund v ETF

So with that out of the way, I was wondering if anyone had any thoughts on buying into a Vanguard Life Strategy Fund (High Growth - 90% Growth/ 10% Income) or replicating the allocation via purchasing ETFs.

The Wholesale Life Strategy Funds have fees of 0.37% for the High Growth Fund (and 0.36% for the Growth Fund). Note they have a stated minimum investment of $500k, but after calling them turns out they can be a pretty flexible about that.  The retail funds have a much higher fee of .90% for the first 50k, but which drops down to a lower percentage as your investment increases.

Here are their wholesale funds:
https://www.vanguardinvestments.com.au/institutional/jsp/investments/managed-funds-wholesale.jsp#fundstab

Here are the retail funds:
https://www.vanguardinvestments.com.au/retail/ret/investments/managed-funds-retail.jsp#fundstab

The asset allocation for the High Growth Fund is:

- Income assets 10%
Australian fixed interest 4%
International government bonds (hedged) 4%
International credit securities (hedged) 2%

- Growth assets 90%
Australian property securities 5%
International property securities (hedged) 5%
Australian shares 40%
International shares 31%
International small companies 4.5%
Emerging markets shares 4.5%

This got me thinking.  Would it be significantly cheaper to replicate the mix of investments via ETFs, even taking into account the cost of rebalancing (brokerage and time).

Spreadsheet!

I prepared a google spreadsheet that analysed the cost of holding the above asset mix via ETFs (or their nearest equivalents). It came to be .2040%, which is lower, but then you have to factor in brokerage fees to allow for buying and selling in rebalancing or buying more, for which I allocated $250 -  10x$25 each. I've attached the spreadsheet to this post.

The difference seems relatively minimal. If you invested $1 milllion, the Lifestyle Fund would be charging you $3.7k p.a, whereas an ETF strategy would cost you $2.04k. This is a difference of $1.4k per annum more to invest via the Lifestyle Strategy Fund. 

At around $150k it would cost the same to do an ETF solution compared to the Lifestyle Strategy, around $557 p.a.

It's not possible to do a completely accurate comparison as the Lifestyle Strategy fund includes certain Vanguard funds that are not covered by ETFs (yet) such as:

 International Fixed Interest Index Fund (Hedged)
 International Credit Securities Index Fund (Hedged)
 International Property Securities Index Fund (Hedged)
 International Small Companies Index Fund

So it can only be an approximation.

Any thoughts?

Cost / Benefit Analysis

Here's a bit of more of a qualitative cost benefit analysis I've done as well.

All this spreadsheeting is quite novel for a liberal arts grad to be doing!

ETF portfolio
Pros
Lower cost per ETFs

Cons
- Requires manual rebalancing
- Only works out if you invest lump sums.

Lifestyle Fund
Pros
- Automatic asset allocation and rebalancing. Gets around the inertia and fear that may stop rebalancing.
- Greater diversification (the lifestyle growth fund has allocations in international small cap. There is currently no Australian ETF that covers this category)
- Easier to dollar cost or value average small amounts

Cons
Higher fees

Thanks in advance for any comments, feedback etc.

urbanista

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #1 on: January 27, 2015, 10:44:57 PM »
At around $150k it would cost the same to do an ETF solution compared to the Lifestyle Strategy, around $557 p.a.

Only if Vanguard would allow you to invest in the wholesale fund with $150K. Which I doubt they would. Last time I checked they wanted minimum $300K, but it may have changed.


potm

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #2 on: January 27, 2015, 11:51:42 PM »
I've been quoted as low as 100k to invest in the wholesale funds.
You have a comprehensive understanding of the pros and cons of both. It's up to you to decide which benefits you more.

Another option is to invest in vanguard wholesale funds, for individual asset types and not the lifestyle fund. This lowers the MER to about the same as the ETFs and allows the benefits of the unlisted funds. You would need to have sufficient capital to qualify for wholesale status for each fund though. Vanguard do not look at total amount you have invested across funds. Depends how complicated an asset allocation you want. If you just stick with the two major components, Australian shares and Int shares, you would just need 200k to start, that is if Vanguard are still accepting 100k minimums to the wholesale funds.

FFA

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #3 on: January 29, 2015, 08:54:14 AM »
If you have the discipline to rebalance I would go for etf's and keep costs minimal.

Personally I would opt for a simple 3 fund to cover the shares , either vas/vts/veu or can use the recently released vgs/vgad instead. I believe former has deeper diversification. But latter gives you an option on currency hedging. I am in the former but probably would choose the latter if I did it now, they were not yet released when I bought my etfs last year...  I chose to forego small allocations to emerging mkts for simplicity, but I know many people are keen on such portfolio tweaks.

I'm also not keen on property securities as I feel the asx already has enough inside. Again this is just my personal view....

For bonds/FI you might consider getting exposure to this inside your super if your fund has suitable index options.

Another suggestion for rebalancing is to do so on overall portfolio basis using super contribution allocations and/or switching if needed. This is to help address the lump sum issue. If you're in a low cost eg industry fund it may be more efficient than buy/selling etfs.

I hope the above helps. In summary I'd suggest a simple etf portfolio and utilizing your super to get some of the other exposures if desired, as well as to help rebalance.


misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #4 on: February 26, 2015, 07:21:21 PM »
Hey thanks guys for the responses.  Nothing worse than a detailed question from a newbie on a forum, a couple of replies and then hearing nothing from the original poster!

Reason I've been quiet is its taken me a little while for the analysis I prepared earlier on ETF v Lifestyle Strategy to sink in.  While I'm comparing MERs of 0.17 or so v 0.37, the real world intervenes and the market suddenly kicked up long and hard, which again suddenly changes the position of the goalposts.  Now in order to liquidate some shareholdings to put into ETFs or Lifestyle Strategy, I suddenly have a CGT problem!!!

This is a good problem obviously, but it does drive home the point that while I have been hesitating with my decision in order to optimise my earnings, the market has gone and made my decision redundant (for now) by increasing in value such that the increase would would exceed any return from minimising fees under my original parameters.

Again, this is a good problem however its made me realise that I am veering quite close to Over Optimisation Paralysis!  In an attempt to get the most out of a good situation, you end up investing far too much time trying to get the BEST situation and then not benefiting from doing what may not be the best, but will be good enuff!

So I'm sitting back and just letting things sink in a little and going to make my decision over the next few months.

In answer to earlier questions, Vanguard have advised that they will accept 100k min on their wholesale funds.  This is achievable but a pain for me to liquidate existing holdings to get to this minimum.

On reading comments elsewhere I realise that it may not be sensible to shift everything, or even a lot, but just keep existing investments as they are to minimise any CGT , but then start any new investing with an ETF/lifestyle strategy.

I do have some wriggle room as I have a little bit of CGT losses carried over, as well as sitting on current paper losses on certain silly pre-moustachian investments.

And i'm still tossing up the practical cost/benefits of ETF v Lifestyle Strategy.

To minimise transaction costs, ETFs would seem to need a $20k purchase each time.  This will take me quite some time to save up and I would therefore lose a lot of dollar cost averaging benefits.  The Lifestrategy wholesale minimum of $5k is much more achievable.

Anyway, I'm realising that the time spent hesitating and keeping a little cash on the sideline has actually cost me.  Not a huge amount, but it would have been better to have tossed a coin, chosen one of the options and invested it, and made more money by being fully invested, than by sitting back trying to optimise minimisation of fees!

(Although to be fair I'm trying to set up a sensible set and kinda forget strategy for the long term).

Also, I currently have VAS and VGAD.  I chose VGAS over VGS, cos I was attracted to the hedging tho this may be a slight mistake as conventional wisdom suggests unhedged is better as it is lower cost and the currency fluctuation tends to take care of itself. Not sure if I agree on that.

I'd love some VTS.  I would have loved to have bought some in 2010!  I shouldn't time the market, but I can't help feeling nervous about buying around the same time as 'record highs' keep being bandied about.  Then again, that last sentence may be damning if the Dow Jones keeps on keeping on and I look back at this post in 5 years time.

For my super I'm already in Lifestyle Strategy Growth - I am happy to not care quite so much about super.  But I only contribute the minimum into super.  I'm not quite comfortable in locking away funds until retirement age, even tho its so tax effective.  But open to reconsidering this.

So much to think about!



FFA

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #5 on: February 27, 2015, 10:01:13 AM »
Sometimes best to decide, act..... Review, decide act again... Beats overthinking

Anyway you're on the right track, good luck!

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #6 on: March 02, 2015, 08:19:49 PM »
Thanks FFA. I do think I'm getting there.  A large part of it has been reading MMM's blog posts and then realising I needed to do something.

Having said that, I"m now about 93% invested in equities, directly or via a mix index funds or 'lightly managed' active funds.

So all my deliberating was over about 7% of my total assets. 

Which is pretty much over-optimising!

Murdoch

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #7 on: March 04, 2015, 03:54:19 AM »
Misterhorsey,

I was in your position 2 years ago. ETF's with Vanguard, trying to get balance with diversification, umming and arring and wasting time and mind energy. Similar to trading shares.... sort of.

Anyway, I sold it all, put it into a retail Vanguard Lifestrategy fund 70%/30% (Moderate Growth)(I know, I'm a chicken)
As soon as I hit 100K, I closed it and opened the same Wholesale Fund with the lower expense ratio. Vanguard Australia made this very easy and cost me nothing.

I love this fund as it:
- does all the diversification for me,
- rebalances for me,
- allows $100 or more additions via BPay transfers straight from my regular bank account (no saving big chunks to reduce transaction costs),
- has an easy online interface,
- prepares tax statements promptly when the time comes,
- have good phone customer reps,
- is part of a huge and hopefully unsinkable company/organisation

There is no more need for me to put valuable time, brain energy, and stress into finding the right solution, as for this minuscule fee it is all taken care of. Sounds anti-mustachian right? But when comparing the alternative which you have suggested makes only a minimal improvement in percentage costs saved, but requires significant time and energy and monitoring, I reckon it is a fair trade off for simplicity and free time. You should join me on this side of the fence:)

I'll be interested to see which way you go.
Good luck making your mind up.

Murdoch


FFA

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #8 on: March 04, 2015, 08:16:46 AM »
Murdoch, I think you make much sense and this will be an excellent approach for the vast majority to take. Around here though with many cost sensitive DIY-ers it could be a bit different with people inclined to save the last bit of cost and/or have more control over it.

Re: the etf route, it can be much simplified to say a three fund portfolio VAS/VGS/VAF. Or even simpler just the first two if you choose to hold your fixed int. /cash in TDs and online savers. Less diverse i concede, but IMHO it still does the job and Im unconvinced the value add of all the 5% tweaks like emerging mkt, reits, etc. This two or three fund approach is minimal effort to rebalance and only a little more at tax time.

Portfolio size also matters, once it gets bigger eg 500k means 0.2% = 1k, it starts to pay off.

steveo

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #9 on: March 04, 2015, 01:11:08 PM »
Murdoch, I think you make much sense and this will be an excellent approach for the vast majority to take. Around here though with many cost sensitive DIY-ers it could be a bit different with people inclined to save the last bit of cost and/or have more control over it.

Re: the etf route, it can be much simplified to say a three fund portfolio VAS/VGS/VAF. Or even simpler just the first two if you choose to hold your fixed int. /cash in TDs and online savers. Less diverse i concede, but IMHO it still does the job and Im unconvinced the value add of all the 5% tweaks like emerging mkt, reits, etc. This two or three fund approach is minimal effort to rebalance and only a little more at tax time.

Portfolio size also matters, once it gets bigger eg 500k means 0.2% = 1k, it starts to pay off.

I'm starting to think just having VAS as my non super portfolio with a cash buffer is enough. Its simple and it should be as safe as any other option. There is a high correlation between the Australian Stock Exchange and the world stock exchanges.

Maybe a simple portfolio such as:-

1. Non-super VAS.
2. Super.
3. 5 years of living expenses in cash.
4, Own your PPOR.

The total of 1-3 should be approximately 25 times your expected yearly expenses. Super could be whatever an asset allocation you choose (say 70/30) but make sure it is a low cost fund. The 5 years cash buffer (which you could put into the best interest paying account or split it) ensures that if the market goes down you should be safe because VAS dividend payments plus that buffer should last a long period of time.

Maybe I'm just trying to convince myself but it seems simple and as robust as any other alternative that I have seen.

marty998

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #10 on: March 04, 2015, 01:50:59 PM »

I'm starting to think just having VAS as my non super portfolio with a cash buffer is enough. Its simple and it should be as safe as any other option. There is a high correlation between the Australian Stock Exchange and the world stock exchanges.

Maybe a simple portfolio such as:-

1. Non-super VAS.
2. Super.
3. 5 years of living expenses in cash.
4, Own your PPOR.

The total of 1-3 should be approximately 25 times your expected yearly expenses. Super could be whatever an asset allocation you choose (say 70/30) but make sure it is a low cost fund. The 5 years cash buffer (which you could put into the best interest paying account or split it) ensures that if the market goes down you should be safe because VAS dividend payments plus that buffer should last a long period of time.

Maybe I'm just trying to convince myself but it seems simple and as robust as any other alternative that I have seen.

Yeah I too think that simple is better. I would go as far as to say that (1) and (3) need to get you to 55. From there, super needs to be 25x your expenses.

By then you could reverse mortgage your house if you need to top up your income, and house price appreciation will outstrip the growing reverse mortgage so you (and your eventual heirs) are no worse off in real terms.


Murdoch

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #11 on: March 04, 2015, 02:18:21 PM »
FFA, I think you may be right.
However, another core message of MMM is to not spend all your time making money.
The value of your time on self managing the portfolio improves as the sums get bigger (same time to balance a 50K portfolio as a 500K portfolio).
For most here, a target of 1million would be enough to at least cut back from full time work, if not completely retire. In you example, this would make self management worth 2K a year, which is probably good bang for buck when you have lots of extra time that comes with retirement. You can then argue self managing your portfolio is your job:)
If all this is true (and I'm not saying it absolutely is), then wouldn't it make sense to use the managed, but low cost, fund, until you reach a significant enough value to make it worth your time? Presumably it is lower whilst you are working a normal job to build your capital, so you actually have less free time to manage it whilst in this phase.

For me, personality plays a larger role than the maths. (so long as the maths shows marginal differences).
I am paying my student HECS debt down, despite the low yield, because I hate debt. Also, I'm using the managed fund despite the only slightly higher cost as I don't want to worry about the hassle of rebalancing and buying in chunks.
This suits my personality, which is important to take into account with anyones approach.

For those such as the OP  who have a history of 'market timing', who still want an active hand in the management of their funds, it may be best to self balance. On the other hand, it may then be too tempting too not fiddle, and OP may attempt market time through his rebalancing manoeuvres.

Just some thoughts.

Murdoch

FFA

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #12 on: March 04, 2015, 02:40:46 PM »
Yes Murdoch I think we're on the same page. In terms of fees I think as long as it's below 0.5% it's tolerable so the vanguard lifestyle wholesale funds once you crack the 100k are fine really. Personality factors are key and that's why many here will be inclined to DIY but you make a good point the one fund approach has the added benefit of discipline and control. If you're focusing on FIRE by far the bigger factors are savings rate and earnings rate. Relatively speaking, investment approach is a second order effect but I guess as we're in the investment forum here .....

Steveo , I don't want to reopen the home bias can of worms, but I do feel local market is heavy on banks, miners and property; limited tech and healthcare. I prefer 50:50 local:global. If you want vas only for non super maybe you consider putting super share allocation mainly in international shares? It's a More tax effective placement too.

steveo

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #13 on: March 04, 2015, 07:10:50 PM »
Steveo , I don't want to reopen the home bias can of worms, but I do feel local market is heavy on banks, miners and property; limited tech and healthcare. I prefer 50:50 local:global. If you want vas only for non super maybe you consider putting super share allocation mainly in international shares? It's a More tax effective placement too.

I think the only issue is the possibly home bias however on the flip side you might do better as you will get tax concessions. Plus Australia has been possibly more resilient than the rest of the world predominantly I think because we are smaller and exposed to Asia plus we have been more economically open for a fairly lengthy time period.

I'm not sure what is the best option however I can see your point. Again on the flip side though managing your stash as per the allocation I listed down will be simple and I wonder how much better returns compared to safety concerns would be possible. I think we are talking really minor trivial details here.


slothman

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #14 on: March 04, 2015, 08:23:59 PM »
I prefer 50:50 local:global.

Hi FFA,

First I wanted to say I'm really enjoying your blog. Great to see a new blog focusing on the emotional aspects of early retirement.

Secondly, I'm keen to understand what the ideal local:international equity split is for Aussies. The 50/50 split seems to be backed up from Figure 1 of the following PDF - in that a 50/50 split had the lowest average volatility from 1988 through 2011 for Australians.
https://pressroom.vanguard.com/content/nonindexed/6.26.2012_The_Role_of_Home_Bias.pdf

But how do you reconcile the lower volatility with the higher dividend yields offered by the Australian stock market, the tax benefits of franking credits, and the currency risks of offshore investments?

I'm thinking perhaps a 60 local/40 international split might be more appropriate for those seeking early retirement.

Keen to get your thoughts.

Regards,
Slothman

steveo

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #15 on: March 04, 2015, 11:51:08 PM »
But how do you reconcile the lower volatility with the higher dividend yields offered by the Australian stock market, the tax benefits of franking credits, and the currency risks of offshore investments?

Do you really get lower volatility and is that because of the currency risk ? There are lots of advantages in investing locally. The risk is probably also mitigated against somewhat if you own your house and have an industry super fund.

I'm not sure what the right solution is and even if the right solution provides much more stability or returns.

FFA

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #16 on: March 05, 2015, 06:56:32 AM »
I prefer 50:50 local:global.

Hi FFA,

First I wanted to say I'm really enjoying your blog. Great to see a new blog focusing on the emotional aspects of early retirement.

Secondly, I'm keen to understand what the ideal local:international equity split is for Aussies. The 50/50 split seems to be backed up from Figure 1 of the following PDF - in that a 50/50 split had the lowest average volatility from 1988 through 2011 for Australians.
https://pressroom.vanguard.com/content/nonindexed/6.26.2012_The_Role_of_Home_Bias.pdf

But how do you reconcile the lower volatility with the higher dividend yields offered by the Australian stock market, the tax benefits of franking credits, and the currency risks of offshore investments?

I'm thinking perhaps a 60 local/40 international split might be more appropriate for those seeking early retirement.

Keen to get your thoughts.

Regards,
Slothman
Hi Slothman, thanks for checking out the blog, it's always nice to know someone's reading it :)

Like Steveo I also doubt there's any "ideal" blend. I'm not a huge believer in modern portfolio theory that will run some numbers and spit out an optimal ratio. Frankly I suggest anything between 70/30 and 40/60 is a good choice (local/global). It's not an exact science, and consistency is far more important than accuracy, ie stay the course with your chosen split.

For me the diversification is a key factor and being able to invest in 1000's of companies like apple, exxonmobil, Google, etc (vts). Indeed its offset by currency risk and lack of franking credits. Yield is a factor too and it's attractive especially these days. But then again I read articles saying the yield focus is killing future growth prospects for Aus companies due to lack of reinvestment. So not sure it's positive for total returns in long term.

Anyway, that's my thoughts and how I ended up in the middle at 50/50. Even at this level, its a huge home bias based on market cap (approx 3/97)!
« Last Edit: March 05, 2015, 09:05:18 AM by FFA »

slothman

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #17 on: March 05, 2015, 03:49:39 PM »
Anyway, that's my thoughts and how I ended up in the middle at 50/50. Even at this level, its a huge home bias based on market cap (approx 3/97)!

Thanks FFA. I'm beginning to feel more comfortable with a higher allocation to international shares and will contribute new funds towards the VGS ETF until I hit a 50/50 ratio.

For reference, I looked up the asset allocations of the major industry super funds and found the following for their growth/high growth pre-mix investment options (Does not add up to 100% as I didn't include the non-share components):

First State Super
33% Australian equities
40% International equities

SunSuper
Australian shares   30%
International shares   30%

AustralianSuper
Australian shares 37%
International shares 38%

REST
Australian Shares   26%
Overseas Shares   38%

slothman

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #18 on: March 05, 2015, 04:15:26 PM »
The risk is probably also mitigated against somewhat if you own your house and have an industry super fund.

Hi Steveo. Thanks for your reply. Just to clarify, is it the currency exposure risk that is being mitigated? How so?

I'll have paid off my PPOR in the next couple of years and have an industry super fund that I don't contribute towards other than the minimum 9.5% of pay.

steveo

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #19 on: March 05, 2015, 07:30:09 PM »
The risk is probably also mitigated against somewhat if you own your house and have an industry super fund.

Hi Steveo. Thanks for your reply. Just to clarify, is it the currency exposure risk that is being mitigated? How so?

I'll have paid off my PPOR in the next couple of years and have an industry super fund that I don't contribute towards other than the minimum 9.5% of pay.

I think you already have a diversified portfolio by owning your own house. If you have an industry super it will probably have a diversified mix of assets including OS shares. Basically by having these two components within your overall asset allocation you already have some diversification and therefore I wonder how much benefit you gain by purchasing OS shares.

The currency risk is a risk if you have OS shares. Its typically unmitigated risk however you could easily take a position in the FX market or possibly by a hedged OS share ETF.

potm

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #20 on: March 05, 2015, 08:36:47 PM »
I see the currency risk as having all your assets in Australian dollars. Unhedged overseas shares mitigates the risk. Your future expenditure will most likely involve a lot of goods and services from overseas, even if you were to live only in Australia. If you plan on doing a lot of travelling, even more so.

Astatine

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #21 on: March 05, 2015, 09:10:43 PM »
Posting to follow. Very useful discussion as I'm realizing that whatever investment strategy I choose, simplicity is super important. There is a real risk that I could incapacitated for an extended period of time and DH is not comfortable with even straightforward financial stuff (eg term deposits, basic financial planning).

FFA

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #22 on: March 05, 2015, 10:12:50 PM »
I see the currency risk as having all your assets in Australian dollars. Unhedged overseas shares mitigates the risk. Your future expenditure will most likely involve a lot of goods and services from overseas, even if you were to live only in Australia. If you plan on doing a lot of travelling, even more so.
My mindset is more in this direction too, as someone who's been out of the country for 12 years now. You could start at 100% Australian shares and rationalise adding the global as per steveo. I'm inclined to start at 3% as per market cap and work back in the other direction. Then it's a question of how much home bias you feel is appropriate to manage currency, diversification, tax etc. When I end up at 50/50 I'm mindful its 15-20x the market cap proportion of oz.

happy

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #23 on: March 07, 2015, 05:15:14 PM »
following...

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #24 on: March 12, 2015, 04:03:27 AM »
Sometimes best to decide, act..... Review, decide act again... Beats overthinking

Anyway you're on the right track, good luck!

Thanks FFA.  I wish I'd discovered MMM a lot sooner.  Its taken me a freakin' long time to get onto the right track I must say! 

The wisdom of this frugal hive mind is pretty awesome as well.

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #25 on: March 12, 2015, 04:07:15 AM »
Misterhorsey,

I was in your position 2 years ago. ETF's with Vanguard, trying to get balance with diversification, umming and arring and wasting time and mind energy. Similar to trading shares.... sort of.

Anyway, I sold it all, put it into a retail Vanguard Lifestrategy fund 70%/30% (Moderate Growth)(I know, I'm a chicken)
As soon as I hit 100K, I closed it and opened the same Wholesale Fund with the lower expense ratio. Vanguard Australia made this very easy and cost me nothing.

I love this fund as it:
- does all the diversification for me,
- rebalances for me,
- allows $100 or more additions via BPay transfers straight from my regular bank account (no saving big chunks to reduce transaction costs),
- has an easy online interface,
- prepares tax statements promptly when the time comes,
- have good phone customer reps,
- is part of a huge and hopefully unsinkable company/organisation

There is no more need for me to put valuable time, brain energy, and stress into finding the right solution, as for this minuscule fee it is all taken care of. Sounds anti-mustachian right? But when comparing the alternative which you have suggested makes only a minimal improvement in percentage costs saved, but requires significant time and energy and monitoring, I reckon it is a fair trade off for simplicity and free time. You should join me on this side of the fence:)

I'll be interested to see which way you go.
Good luck making your mind up.

Murdoch

Thanks murdoch.  Still rinsing and repeating at the moment. 

Also just realised I will have a small but annoying CGT liability from my initial $15k I put in a vanguard retail fund, before I realised wholesale was available at $100k.  Not a huge issue but I hate dealing with surprises so still determining my strategy.

Murdoch

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #26 on: March 12, 2015, 04:10:56 AM »
Astatine,
You raise a good point, and one that is often raised on the Bogleheads forums.
Could your spouse understand/follow/continue your portfolio in your absence?

A morbid thing to think about, but may play into your decisions.

My spouse leaves it all to me, and whilst I would go for the simplistic option even without her, I know she could easily handle the finances the way they are even if I were gone.

Murdoch

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #27 on: March 12, 2015, 04:21:13 AM »
FFA, I think you may be right.
However, another core message of MMM is to not spend all your time making money.
The value of your time on self managing the portfolio improves as the sums get bigger (same time to balance a 50K portfolio as a 500K portfolio).
For most here, a target of 1million would be enough to at least cut back from full time work, if not completely retire. In you example, this would make self management worth 2K a year, which is probably good bang for buck when you have lots of extra time that comes with retirement. You can then argue self managing your portfolio is your job:)
If all this is true (and I'm not saying it absolutely is), then wouldn't it make sense to use the managed, but low cost, fund, until you reach a significant enough value to make it worth your time? Presumably it is lower whilst you are working a normal job to build your capital, so you actually have less free time to manage it whilst in this phase.

For me, personality plays a larger role than the maths. (so long as the maths shows marginal differences).
I am paying my student HECS debt down, despite the low yield, because I hate debt. Also, I'm using the managed fund despite the only slightly higher cost as I don't want to worry about the hassle of rebalancing and buying in chunks.
This suits my personality, which is important to take into account with anyones approach.

For those such as the OP  who have a history of 'market timing', who still want an active hand in the management of their funds, it may be best to self balance. On the other hand, it may then be too tempting too not fiddle, and OP may attempt market time through his rebalancing manoeuvres.

Just some thoughts.

Murdoch

Hi Murdoch - I definitely share your view in valuing the time you DON'T spend managing your portfolio.

I acknowledge FFA's point that you can keep it pretty simply with a 3 ETF strategy, and FFA I share your view that the benefits of small amounts in emerging markets probably won't have a HOOOGE impact, so a 3 ETF is diversification a plenty.

I was out of the market for all of the GFC as I had a poorly performing investment property and I remember telling a colleague, who was in the market, that I didn't want to think about investing as if I do I will get obsessed with it.  Which I have.

But I think what makes my current circumstances tricky is I already have about 30 share holdings and I'm probably already self indexing - my performance pretty much currently mirrors the ASX give or take a little. Its hard not to if you own any of the top 20, given the proportion of the entire ASX they comprise. This does beg the question, why sell down?  I guess I'm looking for less day to day, week to week volatility. Although I also kind of enjoy it from time to time.

And while I think I would be relatively disciplined if I moved over to ETFs and had to rebalance - but there's no knowing until I actually did it.


misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #28 on: March 12, 2015, 04:23:18 AM »
Astatine,
You raise a good point, and one that is often raised on the Bogleheads forums.
Could your spouse understand/follow/continue your portfolio in your absence?

A morbid thing to think about, but may play into your decisions.

My spouse leaves it all to me, and whilst I would go for the simplistic option even without her, I know she could easily handle the finances the way they are even if I were gone.

Murdoch

I think those considerations would swing me heavily towards a managed solution.  Its a reasonable price to pay for the simplicity of transition.

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #29 on: March 12, 2015, 04:25:23 AM »
Sorry if its hard to follow the thread with my late replies. 

I'm going to go away again and um and ahh for a bit.  No need to do it publicly unless I have specific questions.

But its great that its flushing out others who have some of the same questions.  That was one of my hopes in providing such a detailed initial post.

I'll be keen to hear the opinions of others as well. 

And to put things into perspective, this is a good problem to have.

aussiegal

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #30 on: March 20, 2015, 12:19:27 AM »
Hi all,

My 2 cents!

I have been essentially DCAing into a brokerage account for about 2 years. As the amount that I had been saving had been a substantial chunk ($500+) per fortnight, I had been able to buy $2500 parcels regularly, and feel that I was still getting some benefit of DCA as well as being able to balance the portfolio etc.

However, now due to about to get a mortgage, and using some of the $ that I would normally put into the investment account, I am in a situation of needing to revisit a strategy. I think I have decided to go with the Vanguard fund (probably growth) and will transfer a couple of hundred dollars a fortnight into it. WHen I looked at the maths of cost vs the other factors, although the Vanguard option is a little more expensive, I feel like the benefit of regular parcel buys (compared to a couple a year given the small amount being stashed each week) and the auto balancing makes it the more attractive option.

I am planning on keeping all of my existing holdings, and will take advantage of SPP when they arise to build those up as well.

:)

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #31 on: March 23, 2015, 06:02:00 PM »
Personally, I think I'm about to choose the wholesale growth fund over ETFs.

My PPOR is paid off, ($550k), and my super is in a 'balanced' industry fund ($267k). I've got some gold exposure ($50k), and I've got about $420k in cash (mainly in a TD at just under 4%)

My TD's are coming up, and I want to deploy some of them out of cash.  I'm concerned that markets in general are due a correction, so am hedging my bets a bit. I'll put $200k into the vanguard fund, and hold the rest so I can sleep at night. In my head, the spare cash gives me some powder if there's a decent correction.

I'll also add about $45k pa from wages into the fund, which will give me some DCA aswell. I was initially going to use etf's, but my 'nature' is quite likely to stop me from rebalancing effectively. I don't think I can be trusted to manage things properly in the heat of the moment, so I'd rather pay a small fee to remove that problem.


misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #32 on: March 26, 2015, 12:34:01 AM »
Hi all,

My 2 cents!

I have been essentially DCAing into a brokerage account for about 2 years. As the amount that I had been saving had been a substantial chunk ($500+) per fortnight, I had been able to buy $2500 parcels regularly, and feel that I was still getting some benefit of DCA as well as being able to balance the portfolio etc.

However, now due to about to get a mortgage, and using some of the $ that I would normally put into the investment account, I am in a situation of needing to revisit a strategy. I think I have decided to go with the Vanguard fund (probably growth) and will transfer a couple of hundred dollars a fortnight into it. WHen I looked at the maths of cost vs the other factors, although the Vanguard option is a little more expensive, I feel like the benefit of regular parcel buys (compared to a couple a year given the small amount being stashed each week) and the auto balancing makes it the more attractive option.

I am planning on keeping all of my existing holdings, and will take advantage of SPP when they arise to build those up as well.

:)

Hi aussiegal

I agree with you being able to make small regular deposits and auto rebalancing as one of the reasons why a fund is a little more attractive.  I still haven't made up my mind what to do though!

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #33 on: March 26, 2015, 12:37:20 AM »
Personally, I think I'm about to choose the wholesale growth fund over ETFs.

My PPOR is paid off, ($550k), and my super is in a 'balanced' industry fund ($267k). I've got some gold exposure ($50k), and I've got about $420k in cash (mainly in a TD at just under 4%)

My TD's are coming up, and I want to deploy some of them out of cash.  I'm concerned that markets in general are due a correction, so am hedging my bets a bit. I'll put $200k into the vanguard fund, and hold the rest so I can sleep at night. In my head, the spare cash gives me some powder if there's a decent correction.

I'll also add about $45k pa from wages into the fund, which will give me some DCA aswell. I was initially going to use etf's, but my 'nature' is quite likely to stop me from rebalancing effectively. I don't think I can be trusted to manage things properly in the heat of the moment, so I'd rather pay a small fee to remove that problem.

Sounds like you are in a great position Sparkie!

The longer I put off my decision is actually strengthening the argument to go with a fund solution for me.

Market had a bit of a downturn today, at 1.5%.  But that's neither here nor there given the 10% or so increase since January 2015

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #34 on: April 16, 2015, 04:45:05 PM »
I've finally made a decision, and it was non-financial matters that finally provoked me.

Recent events in life have made me realise that sometimes emergencies happen, life events intervene, and the less time I spend thinking about the market the better.

So I've started selling down part of my direct share investments and I've transferred amounts to the Vanguard Wholesale High Growth Index Fund.  For my requirements, I think apportioning part of my investments to a managed, auto balancing fund allocated across Aus and International indexes, for a fee of 0.37% per annum is ideal.

At the moment, I'll have a bit over 20% of my non-super investments in this index fund, with another 40% in a range of ETF indexes, and a small amount in a small cap active fund, with the remaining 40% in direct share investments, a mix of blue chips and a small proportion of crazy speculative purchases (maybe 5%, and falling!).  All future savings will go into the wholesale index fund so over time this will represent a bigger proportion of my investments. And I might sell down some more direct investments once they've hit a totally arbitrary thresehold (at the moment, I am selling half if they hit a 100% gain, taking my initial investment off the table, but leaving the rest in the market to hopefully surprise me on the upside).

The other key attraction to the fund that finally convinced me was the diversification.  About 80% in equities, half in Australia half overseas, with the foreign component unhedged.  I anticipate:
- while another Black Swan-y GFC type crash is highly likely to happen again, who knows when it will happen and the extent to which it will happen.  Diversification across Australia and international will at least mean I'll suffer along with everyone else, and recover like everyone else.  Having too many direct shareholders means its easier to outperform the index on occasion, but when the market starts thinking some of your companies are on the nose, and short sellers target your companies, then unless you sell out you suffer silently for years until it recovers.

- Also I do think Australia is in for some slightly rough economic weather in the future.  All that capital borrowed and tied up in an extremely expensive residential property market, the declining resources revenues, aging population, high youth unemployment etc - there should be some kind of adjustment in the near future.  So I think having some capital invested in profitable companies overseas is a good hedge against domestic asset speculation.

Anyway, i'm excited about not thinking about this or having to read and follow the market.  I think I will miss the idiotic economists forecasting the totally arbitrary number of the All Ords/ S&P200 the least!

Thanks for all your previous advices.


potm

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #35 on: April 16, 2015, 11:43:18 PM »
What was the process of getting the wholesale fund option like? Did you call them and negotiate a lower 100k minimum amount?

Did you consider the individual wholesale fund options with fees of 0.18%?

steveo

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #36 on: April 17, 2015, 02:17:39 AM »
@misterhorsey - I am still thinking about what is the best option for myself. I'm still leaning towards the ETF's however I do like the option that you chose mainly because I can invest in it every fortnight and I don't have to worry about it at all.

So I think that you have made a good choice. If they lowered the fee a little more that would be my ideal choice.

aussiegal

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #37 on: April 17, 2015, 04:24:22 AM »
Hi again,

Mrhorsey, glad to hear that you made a decision that sounds like a good fit!

Out of curiosity, what led you to the high growth vs growth if you are a bit worried about ongoing aus stability?

Just wondering as I am faced with a similar quandary?

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #38 on: April 17, 2015, 07:38:29 AM »
What was the process of getting the wholesale fund option like? Did you call them and negotiate a lower 100k minimum amount?

Did you consider the individual wholesale fund options with fees of 0.18%?

Hi Potm

The process was that there was no process!  I called up vanguard quite a bit late last year and early this year to discuss investment options.  Without exception each of their telephone staff were exceptionally friendly and helpful. Embarassingly, some of them know me by name by now.

I initially started a retail Life Strategy Growth Fund as I assumed the 500k min was firm.  Note that the prospectus suggests that the min investment is 500k , unless another amount is agreed.  Had I know there was an 100k min I wouldn't have started the retail fund (which has a fee of .90%, but which reduces after 50k and at different levels I think), and would have gone straight into wholesale.  A bit annoying but no real biggie.

Regarding the individual funds, while the .18% fee is very attractive I didn't consider them for 2 reasons:

- I don't have quite enough capital or liquidity to buy several different individual funds.  Remember the wholesale need 100k min, so to get a good spread you'd need several amounts of 100k.

- I have a substantial amount in the ETFs already, VAS and VGAD, as well as a bit of Contango Microcap for a bit of fun.  So I see the ETFs and being somewhat equivalent to the individual funds.

The ETFs are great and low cost.  But it can be rather expensive to add small amounts to due to the brokerage.  There is also a psychological factor.  Its easy to shove money into a fund that then allocates your savings into several different indexes, without you really knowing which amounts go into each fund.  While this opaqueness may put some people off, I know that if I were to put money into specific individual funds, or ETFs, I will invariably wait until there's a down day. Or try to wait for a down day to maximise my purchases.  Its like going for a walk, but agonising over each step. The mixed fund means that I will just transfer it over without trying to time the market.  In the long run, being IN the market is better than trying to maximise returns by timing. Or so the theory and observations suggest.

So give them a call. They are interested in increasing funds under management to increase economies of scale so they are being flexible with their minimums at the moment.

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #39 on: April 17, 2015, 07:50:05 AM »
@misterhorsey - I am still thinking about what is the best option for myself. I'm still leaning towards the ETF's however I do like the option that you chose mainly because I can invest in it every fortnight and I don't have to worry about it at all.

So I think that you have made a good choice. If they lowered the fee a little more that would be my ideal choice.

Hi Steveo

Yes, i think if they lowered the fee a little it would be a no brainer to go with the fund.

Everyone's circumstances are different so it may be better to go with ETFs for you.

In my circumstances, I think the difference in fee between the ETFs and the Fund made little difference in the short to medium term when you consider I sat on the sidelines a little when the market leapt up about 14% or so. 

The difference between .37% for the fund and about .20% for the equivalent of a fund made of ETFs  from my table above that I attached at the very beginning of this post is only .17% which you'd have to agree is pretty marginal if you're doing things like making your lunch every day, riding your bike and doing all sorts of other things to save as much as you can and live a simple, frugal but fulfilling life.
I had a realisation that spending to much energy trying to over optimise your investments and your financial situation is a waste of time and potentially just as bad as frittering away your money on too much luxuries and status oriented items.  Being frugal and getting to financial independence is about optimising time as much as it about optimising money.

Of course if you enjoy managing share investments then go for it.  But I think indexes are pretty zzzzzz and don't really give much in terms of entertainment value.








misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #40 on: April 17, 2015, 08:02:29 AM »
Hi again,

Mrhorsey, glad to hear that you made a decision that sounds like a good fit!

Out of curiosity, what led you to the high growth vs growth if you are a bit worried about ongoing aus stability?

Just wondering as I am faced with a similar quandary?

Hi aussiegal

This was an easy one for me.

I'm turning 40 this year and I have faith in markets to perform over time,  so I feel I have about 25 years of relatively higher risk investment years ahead of me.

The key difference between the High Growth and the Growth options is that they allocate 90/10 and 70/30 to Growth/Income respectively.

If you look at what constitutes income assets, its fixed interest and bonds.

My view is that if you are paying a manager a fee to invest your assets, then it doesn't make any sense to pay someone a fee to put your money into fixed interest or bonds when online bank accounts offer relatively high interest rates. 

So in investing my funds I'd put 100% into growth assets if I could.  And if I needed to put some into fixed interest/bonds, I'd just do it myself as cash in a high interest account.

Yes, its likely to be more volatile. But I'm committed to my strategy.  The only potential deviation is if I try and buy a property.....

But, just on the 25 year investment horizon thing.  Its 2015 now, so 25 years ago was 1990. In that year:

- Iraq invaded Kuwait
- Lech Walesa was president of Poland
- The Simpsons first aired
- Nelson Mandela was freed
- The first webpage was published
- Thatcher resigned
- East and West Germany were reunited
etc etc (http://www.thepeoplehistory.com/1990.html)

Who knows what the next 25 years will bring??!!!! 




steveo

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #41 on: April 17, 2015, 05:13:25 PM »
I had a realisation that spending to much energy trying to over optimise your investments and your financial situation is a waste of time and potentially just as bad as frittering away your money on too much luxuries and status oriented items.  Being frugal and getting to financial independence is about optimising time as much as it about optimising money.

I 100% agree with this but I don't think investing in a 2 or 3 fund ETF portfolio would require much work.

I trade foreign currencies and I do enjoy it but I check it say 10 times per year and when I check it I spend about a minute or two on it. I don't have a large account however I find this more profitable than checking it every day anyway. I found if I checked it all the time I just traded too much and looked for trades too often. My style is more to look for an extreme, take a small position against the market and ignore it until it goes my way.

The last thing I want to do is spend time worrying about my investments. I'm happy to check it once per year and just rebalance if it is really required.

I am also not investing at this point but the house is close to being paid off (hopefully by the end of the year) and by then I want to know what I am going to do and just stick to that for life. I'm also not worried about super at this point but I might change that at some point. I think we are charged about .69% on our super which now I think could be lower but I'm not sure if there is an easy way to manage super outside of a super fund and I don't really want to get a SMSF.

potm

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #42 on: April 17, 2015, 06:40:27 PM »
If you are after 100% growth assets than eventually having an Australian and International share fund would reduce the MER to .18%.
Another thing to consider is that I don't think you can just move from retail to wholesale fund. At least not when I asked them. It would be selling out of the retail to buy into the wholesale and thus incurring any capital gains tax.

aussiegal

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #43 on: April 17, 2015, 11:25:34 PM »
Thanks for the explanation!

Those are my thoughts as well, and I will probably go down this path in a month or so! Similarly, I will keep a bit of a cash buffer hiding in the wings!!

Murdoch

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #44 on: April 18, 2015, 03:04:23 AM »
Hi Potm,
I originally had a retail fund, and kept adding to it till it was well over 100K.
Called them up and discussed switching it to wholesale, and you are correct it required selling, and then buying into the new fund.
They made the initial retail setup very easy, and when the switch time came, they made that very easy also.
It did trigger a CGT event, but it is a marginal issue in the long run and will depend on your circumstances.
The sale of the retail fund occurred on one day, then the buy into the wholesale occurred on the next day (I think). They held the money temporarily to avoid several days lost in transferring to my bank and back again.

I'll confess to the call service guys knowing me by name also during the initial setup phase, and then again when switching to the wholesale. It has been a success though, and the fact that I haven't called them, or had to frequently check the account, or stressed over the fund, proves that it has been a good choice in investment vehicle for myself.

If Vanguard Australia follows the US, then we are likely to see growth in capital in all their funds, and economies of scale will improve over coming years.

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #45 on: April 18, 2015, 04:38:00 PM »
I had a realisation that spending to much energy trying to over optimise your investments and your financial situation is a waste of time and potentially just as bad as frittering away your money on too much luxuries and status oriented items.  Being frugal and getting to financial independence is about optimising time as much as it about optimising money.

I 100% agree with this but I don't think investing in a 2 or 3 fund ETF portfolio would require much work.

I trade foreign currencies and I do enjoy it but I check it say 10 times per year and when I check it I spend about a minute or two on it. I don't have a large account however I find this more profitable than checking it every day anyway. I found if I checked it all the time I just traded too much and looked for trades too often. My style is more to look for an extreme, take a small position against the market and ignore it until it goes my way.

The last thing I want to do is spend time worrying about my investments. I'm happy to check it once per year and just rebalance if it is really required.

I am also not investing at this point but the house is close to being paid off (hopefully by the end of the year) and by then I want to know what I am going to do and just stick to that for life. I'm also not worried about super at this point but I might change that at some point. I think we are charged about .69% on our super which now I think could be lower but I'm not sure if there is an easy way to manage super outside of a super fund and I don't really want to get a SMSF.

Yes, a 2 or 3 ETF fund probably is pretty manageable.  The advantages to the Wholesale High Index Fund is it has far more diversification however.  Whether or not 2 or 3 ETF diversification is suffficient is moot. It probably is.

The other advantage of the fund is the ability to put tiny amounts in regularly.  I find that psychologically this is helpful in enabling a set and forget dollar cost averaging type approach.  At the moment, I have difficulty buying more ETFs when the prices are high. I inevitably want to wait until prices dip to buy more.  This has worked well for me in the past, where I've bought VAS in the dips...but I suspect if I'd just bought small parcels as the money has become available I would have probably done just as well, over the long term.

Lastly, its just a simple matter of transaction costs.  Yes the fund has a higher management fee + buy/sell spread.  But in the end I like the fact that you can put in small amounts regularly and not have to stockpile cash to buy a decent enough amount via the ETFs to minimise brokerage as a proportion of your overall investment.

In the end, I've realised that the path you take is actually all rather personal and dependent on your own financial situation and risk appetite as well as interest in managing things.

As for your super, one way of reducing that fee is to go with a vanguard fund for your super.  All the index funds are available for your super via Plum. That's what I currently do. Although to be honest I"m not quite sure what the fees + plum fees amount to.

http://www.plum.com.au/




misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #46 on: April 18, 2015, 04:42:52 PM »
If you are after 100% growth assets than eventually having an Australian and International share fund would reduce the MER to .18%.
Another thing to consider is that I don't think you can just move from retail to wholesale fund. At least not when I asked them. It would be selling out of the retail to buy into the wholesale and thus incurring any capital gains tax.

Thanks POTM.

Murdoch pretty much explained it with his/her post up there. 

I've only had my retail fund for about 6 months. And I've only got 14k in it. I only got into it cos I thought the 500k min for wholesale was firm.  So my CGT will be negligible and will be simply be offset against some paper losses I have sitting somewhere!

Re: .18%, sounds awesome, but I am trying to look beyond naked costs and also at the entire value add.  I do sincerely appreciate that others don't have a problem doing extensive self management of this stuff, but I have in the past so I feel that the higher fund fee is a reasonable cost in my circumstances.






steveo

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #47 on: April 18, 2015, 07:53:33 PM »
The other advantage of the fund is the ability to put tiny amounts in regularly.  I find that psychologically this is helpful in enabling a set and forget dollar cost averaging type approach.  At the moment, I have difficulty buying more ETFs when the prices are high. I inevitably want to wait until prices dip to buy more.  This has worked well for me in the past, where I've bought VAS in the dips...but I suspect if I'd just bought small parcels as the money has become available I would have probably done just as well, over the long term.

This is the no 1 reason that I am considering the fund option. Putting money away every fortnight instead of once per year to me is a much better approach.

misterhorsey

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #48 on: April 20, 2015, 07:06:17 PM »
The other advantage of the fund is the ability to put tiny amounts in regularly.  I find that psychologically this is helpful in enabling a set and forget dollar cost averaging type approach.  At the moment, I have difficulty buying more ETFs when the prices are high. I inevitably want to wait until prices dip to buy more.  This has worked well for me in the past, where I've bought VAS in the dips...but I suspect if I'd just bought small parcels as the money has become available I would have probably done just as well, over the long term.

This is the no 1 reason that I am considering the fund option. Putting money away every fortnight instead of once per year to me is a much better approach.

Yes, and one needs to take a holistic view over one's investment strategy.

.18% fee is > .37% fee

regular investments with .37% fee is >  once annually investments with a .18% fee

ANY OF THE ABOVE! is > timing the market with speculative purchases in companies that lose 95%......(speaking from experience, LOL, WTF! etc etc)

potm

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Re: Australia - Vanguard ETFs v Lifestyle Strategy Fund
« Reply #49 on: April 20, 2015, 07:45:56 PM »
Just to note one more time in case you are thinking I'm suggesting ETFs.
The vanguard Australian shares and International share also allow regular contributions, just like the lifestyle fund. They actually make up 71% of the highgrowth life style fund.

The fees are .75, .9% for the retail versions so not much cheaper than the lifestyle fund. The wholesale options are both at .18%.

The downside to this option is that you don't get the other 29% that the fund makes up, but do you really want the other parts?
Also you will need to get to 200k of funds to have both of them at the wholesale level. Since you are starting out in the retail option and will have to change funds later anyway, you can always adjust your choice.