Australian Investing Thread

[TB_J]

Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.

A whopping 2k for a 98 mitsubishi mirage - costs about $50 a month on fuel. No power steering, but that's ok. Everyday is arms day :)

It's nice knowing I have the bank balance to purchase just about any car on the road, outright, in cash... If I was a clown. But I've got nothing to prove, so the mirage does the job. My other car is a bicycle. I also like to ride my skateboard.


Back to investments - something worth raising about superannuation for anyone with an INDUSTRY SUPER FUND.

I'm with REST and have recently logged into my super account online - changed my asset control from a "Core" default strategy (bonds/stocks/cash/REIT mix), to 100% Australian Stocks. This gives a significantly higher return over the long term & costs about $10-20 bucks to change. I've also removed a number of unnecessary insurances - for example, a default life insurance policy that was only payable to my dependants in the case of my death. I have no dependants, so I've saved my self a few bucks a week.

Simple changes that I would expect to have a significant impact over the course of time.

[Notch]

Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.

A whopping 2k for a 98 mitsubishi mirage - costs about $50 a month on fuel. No power steering, but that's ok. Everyday is arms day :)

It's nice knowing I have the bank balance to purchase just about any car on the road, outright, in cash... If I was a clown. But I've got nothing to prove, so the mirage does the job. My other car is a bicycle. I also like to ride my skateboard.


Back to investments - something worth raising about superannuation for anyone with an INDUSTRY SUPER FUND.

I'm with REST and have recently logged into my super account online - changed my asset control from a "Core" default strategy (bonds/stocks/cash/REIT mix), to 100% Australian Stocks. This gives a significantly higher return over the long term & costs about $10-20 bucks to change. I've also removed a number of unnecessary insurances - for example, a default life insurance policy that was only payable to my dependants in the case of my death. I have no dependants, so I've saved my self a few bucks a week.

Simple changes that I would expect to have a significant impact over the course of time.

$5000 for a 2006 Kia Rio. Service it myself.

TB_J, you may have no need for life insurance, but check that you didn't also cancel your total permanent disability (TPD) insurance at the same time, as they are often linked.  TPD insurance is vital for protecting you against the risk of losing your most important asset of all, your earning capacity.

[TB_J]

$5000 for a 2006 Kia Rio. Service it myself.

TB_J, you may have no need for life insurance, but check that you didn't also cancel your total permanent disability (TPD) insurance at the same time, as they are often linked.  TPD insurance is vital for protecting you against the risk of losing your most important asset of all, your earning capacity.

Thanks Notch - I've kept my TPD Insurance. You are correct, this one is vital. I should have mentioned that.

[This_Is_My_Username]

Unrelated question (and actually probably deserves its own thread), but what are your suggestions for a second hand car in Australia these days? I anticipate three trips a week of about 20-40 km each way, with the occasional 300km trip to Sydney. Otherwise it will be in the garage the whole time. Would be interested to know what you guys purchased, how much you paid, how it has worked out for you etc.

Buy a 5-8 year-old car for 3k-5k cash.  With good fuel efficiency.  Or a motorbike!  Seems pretty simple to me. 

[AustralianMustachio]

A number of economists predicting the AUD to slide to 80c against the greenback by end of next year. VTS may prove to be a decent medium term proposition with somewhat of a hedge against a US market correction.

Just my musings for the day.

This seems to be what I'm seeing in the financial media more and more recently - the AUD will fall soon vs the rallying USD, and we won't have the buying international power we have had for much longer.

[MsRichLife]

Hi All,

I'm looking for recommendations for a good online high interest account to hold some cash in for a while (about to sell a property).

We've already maxed out INGDirect, so looking for something similar or better.

Thanks

MRL

[superannuationfreak]

Ubank USaver with Ultra

Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)

[Sky23]

Hi All,

I'm looking for recommendations for a good online high interest account to hold some cash in for a while (about to sell a property).

We've already maxed out INGDirect, so looking for something similar or better.

Thanks

MRL

Ubank's Usaver account has the highest interest rate as far as I'm aware... actually just checked and Commbank's Goal Saver is at 4% at the moment which is currently higher than Usavers 3.81%

Also a couple of beginner level questions for everyone:

1. If I want to buy VAS / VHY or ARGO etc. what is the best way to do so? I have an eTrade account, should I purchase through there?
2. Also was thinking of purchasing under my wife's name as she earns less than I do, is it easy to transfer them to my own name later on? Any other potential drawbacks of purchasing under the wife's name that I should be aware of?

Thanks and any advice would be much appreciated!

[Sky23]

Ubank USaver with Ultra

Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)

I just saw this new account as well, do you know how it works? I was a little confused with the details.

If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?

[This_Is_My_Username]

1. If I want to buy VAS / VHY or ARGO etc. what is the best way to do so? I have an eTrade account, should I purchase through there?
2. Also was thinking of purchasing under my wife's name as she earns less than I do, is it easy to transfer them to my own name later on? Any other potential drawbacks of purchasing under the wife's name that I should be aware of?

1. simply buy them with your online brokerage account.   not sure if ARGO is available via that method(?).

2a. risks: divorce, change in annaul earnings e.g. if you become a stay at home parent, is she the type of person to make transactions without your knowledge.

2b. That is an "off-market transfer".  You just need to fill in the hard-copy form and pay the fee, which is approx $50 - 70.  Not sure if the fee is higher for larger transfers?

[potm]

Ubank USaver with Ultra

Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)

I just saw this new account as well, do you know how it works? I was a little confused with the details.

If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?

The ultra is the transaction account so you don't get any interest on amounts in there. Having one though gives you the bonus interest on your saver account.

[AustralianMustachio]

Question about currency risk in international ETFs such as VTS:

From the Vanguard website:

The Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar.

Is it simply dividends that are "exposed to the fluctuating values"? I understand that my dividend payments will come in USD, and thus whatever I receive in AUD will depend on the exchange rate at the time. Or does the price of the fund itself move in line with currency changes? E.g when the AUD is higher vs the USD the price of the ETF (listed in AUD) falls, because we can buy more with more AUD?

[Notch]

Question about currency risk in international ETFs such as VTS:

From the Vanguard website:

The Vanguard US Total Market Shares Index ETF is fully exposed to the fluctuating values of foreign currencies as there will not be any hedging of foreign currencies to the Australian dollar.

Is it simply dividends that are "exposed to the fluctuating values"? I understand that my dividend payments will come in USD, and thus whatever I receive in AUD will depend on the exchange rate at the time. Or does the price of the fund itself move in line with currency changes? E.g when the AUD is higher vs the USD the price of the ETF (listed in AUD) falls, because we can buy more with more AUD?

Both.  If it's unhedged, the price of units and dividends will be affected by currency fluctuations - which can be good or bad.

[superannuationfreak]

Ubank USaver with Ultra

Currently offers 4.17% p.a. if you deposit $200 per month or more (which you can then transfer elsewhere or withdraw if you wish)
You need to keep $100 minimum in the Ultra (0% transaction account) but it still beats everything else I've found (and I find the transaction account useful too)

I just saw this new account as well, do you know how it works? I was a little confused with the details.

If I have a Usaver account and open an Ultra, do I only get the bonus on the amount in the Ultra and lose the bonus interest on the Usaver?
Or do I get the 1.06% bonus rate on both the Usaver and Ultra accounts and forfeit the lower Usaver bonus rate of 0.70%?

You get the 1.06% bonus interest (total currently 4.17%) on the linked USaver and 0% interest on the Ultra.
Incidentally the lower USaver bonus by itself will vanish shortly anyway.

The only costs are you have to keep at least $100 in the Ultra account (you can change the minimum but only down to $100) and you have to deposit at least $200 per month into one of the two accounts.  You can then choose to use the Ultra account as a transaction account or just ignore it.

I found it was a better-value option than the next-best (4.11% with RAMS but to keep the high interest rate you can't withdraw at all during the month).

[Sky23]

Username, ptom and superannuationfreak,

Thanks guys for the info / advice =)

Will set up my Ultra account then and look into these index funds a little more closely (still don't know which to start off with)

[KaosAD]

Greetings to all the Australian Mustachians.

I have been following MMM for a long time now and have worked my way up from post number one.

I would humbly like to ask some advice on where to put the $25k that I have currently sitting in cash as well as a $1k per week ongoing investment.

I am interested in the Vanguard mechanisms and would like to understand more about the pros and cons of buying the ETFs (lower management costs but will incur brokerage each way) versus the Retail Managed Funds (higher management costs and spread each way).

I have previous experience in both share and forex trading and have quite a healthy risk apatite (but not crazy casino style) as I am young, have no debts and no family.

At this stage I am leaning towards the RMFs specifically a mix of:

Vanguard® Index Australian Property Securities Fund
Vanguard® Index Australian Shares Fund
Vanguard® High Yield Australian Shares Fund
Vanguard® Index International Shares Fund
Vanguard® Index Hedged International Shares Fund

The question is now what allocation should I go with?

Thanks in anticipation - NS

[AustralianMustachio]

 How do people think the mining tax repeal will affect mining company prices, such as BHP?

http://www.reuters.com/article/2014/09/02/us-australia-mining-tax-idUSKBN0GX0LD20140902

Surely not having to pay that tax will make the companies much more profitable and drive the share prices up? BHP has been quite low for a while, too. Just some pure uneducated speculation. I don't own any BHP, apart from in VAS (BHP makes up about 9% of VAS).

That being said, politically I am against the move and think it's going to be bad for Australia

[drspaceman]

In reply to AustralianMustachio I am guessing that by now the stock price of the mining companies would already reflect this, as the price represents future growth as well as current value/assets of the business.

On a separate note I have some questions of my own.

My Situation
So I am 23 and currently have 50k sitting in cash earning 4.17%
3k of Vanguard VTS, 3k of Vanguard VAS, and a random 3k of rio (as a while ago my father thought the price was low an suggested it wouldn't be a bad time to buy).

I want to start moving out some of the 50k into index funds but as I have already found out, the etfs incur brokerage fees I was wondering what brokers people here are using e.g. commsec, nabtrade, etrade? Is there any way to avoid brokerage? Or is the only option the managed fund style but then your charged per annum( for Vanguard High growth I think it was 0.9%).

If I wanted to dollar cost average and buy parcels of say 5k this would be(for my current broker):
50/5 = 10 = 10*19 = $190
as a percentage of 50k = 190/50000*100 = 0.38percent
Which is not terrible and is a once off fee, but I will also want to keep buying in the future every time I have 5k set aside costing brokerage each time.

My other question is can anyone explain the how the taxing of the VTS(US Total) is compared to the VAS? It incurs 15% withholding tax but i'm not sure how that compares to australian franked dividends.

[potm]

CMC markets is the cheapest Australian broker at 11 dollars a trade, that should make things a bit cheaper. Depends how fast you are saving, can always buy less often and wait until you have 10k.
And like you said, it's only a one off fee so in the long run it works out cheaper than paying a higher MER per year.

15% with holding tax can be claimed as a tax offset when you do your Australian tax return. This is after the companies have paid corporate tax in the US though. You don't get an offset on the corporate tax like you do with franked dividends here.

[dusty]

Thanks for the Australian Dividends website Hamster, just registered but it looks like a fantastic resource.


Drspaceman - I have an onlinebroker account with 'Bell Direct' their brokerage fee is $15 per trade.

[Wadiman]

Hi everyone -

So happy that I found this site and some fellow Aussies to provide some regionally-tuned feedback.

Apologies if this is the wrong thread for this but would be keen to hear others' experiences/opinions re Au investment strategy for someone who is about 10 years off FI.

Here's my situation:

Age: 49
Family:  Wife and 1 son (20 months)
Assets: PPOR (valuation 1.3M); IP1 (valuation 600k); Charter hall unlisted property trust ($50k), Super ($270k), Car and scooter ($20k)  - total = $2.85M
Liabilities:  Mortgage 1 (PPOR - $230k; investments - $180k); Mortgage 2 (IP1 - $448k) - total = $858k
Net worth: say $2M
Salary: $200k (gross inc super)
Current debt repayment/saving rate: 68%

I've been thinking about the best way forward from here on to hit FI (target is around $1.4M invested in addition to retaining PPOR, plan to sell IP1). I've identified three broad options (there are minor tweaks of course to each):

Options, pros and cons:
OPTION 1 - Continue paying down PPOR mortgage aggressively with all savings allocated to same (due to clear in 3 years at current rate) then when PPOR mortgage cleared invest into ETF/LIC/direct share portfolio and maintain super contributions at $25k for next 9 years or so. 
Pros - low risk, psychologically rewarding to see the mortgage drop quickly, guaranteed return of 4.8% (current mortgage rate) 
Cons - conservative, could be better off with increasing super but concerned about legislative risk

OPTION 2 - Reduce PPOR mortgage repayments slightly to allow for max super contributions (currently $30k) and then invest as per Option 1.
Pros - low risk, tax-advantaged super contributions
Cons - conservative, concern about legislative risk on super and not being able to access at 60 (if changes)

OPTION 3 - Reduce PPOR mortgage repayments by 50% (or some other percentage), invest balance in EFT/LIC/Direct share portfolio (no leverage), continue super contributions at $25k p/a
Pros - potentially better returns (say 3-5%) than mortgage rate
Cons - increased risk, psychologically perhaps not as rewarding seeing mortgage paid out as quick (perhaps could take another 2 years to clear).

I would love to hear fellow aus mustachians thoughts on the above options or perhaps there are others that I haven't considered - would love to hear those as well!

Thanks!

[dungoofed]

Australian Online Brokers
CMC Markets - $11/trade
Bell Direct - $15/trade
HSBC Australia - $15.95/trade


Australian Term Deposits
HSBC. Min Deposit: $5000. Term: 3 months. Rate: 3.10%


Australian Saver Accounts
Ultra Ubank USaver. Min Monthly Deposit: $200. Rate: 4.17%
RAMS. Rate: 4.11%


Australian Cash ETF
AAA.AX 3.29%


World Equity ETFs
WXOZ.AX SPDR S&P World ex Australia (Australian-domiciled)
VGS.AX Vanguard MSCI Index International Shares (Australian-domiciled, dividends reinvested, 0.18% MER)
IOO.AX iShares S&P Global 100 (US-domiciled)


US Equity ETFs
VTS.AX Vanguard US All Market. 
IVV.AX iShares S&P 500


Australian Equity ETFs
VAS.AX Vanguard Index Australian Shares. (traditional market cap weight)
VHY.AX Vanguard High Yield Australian Shares.
IOZ.AX iShares MSCI Australia 200 ETF. MER 0.19
STW.AX SPDR S&P/ASX 200 Fund
16885.AX Realindex Australian Share
QOZ.AX BetaShares FTSE RAFI Australia 200 ETF (fundamental weight)
etc

Australian LICs
MLT.AX Milton Corp. MER: 0.125%
CIN.AX Carlton Investments. MER: 0.9%
AFI
ARG
BKI
CIN

Emerging Markets ETFs
VGE.AX Vanguard FTSE Emerging Markets Shrs ETF (Australia-domiciled)
IEM.AX iShares MSCI Emerging Markets Index ETF (US-domiciled)


Bond ETFs - Australian
VGB.AX Australian Government Bond Index. MER 0.20%
VAF.AX
RCB.AX Russell Australian Select Corp.
IAF.AX
etc


PMs - Physical, Onshore
Perth Mint

PMs - ETFs, Onshore
PMGOLD-A.AX
GOLD.AX
QAU.AX

PMs - Physical, Offshore
http://silverbullion.com.sg


Roboinvestment SaaS for Australians
http://www.stockspot.com.au/


Portfolio Management SaaS for Australians
http://www.sharesight.com.au/


Resources - Essential reading
A Random Walk Down Wall Street
Bogleheads Guide to Investing
http://mrmoneymustache.com
Failsafe Investing
http://crawlingroad.com


Resources - Australian Investing


Resources - Australian Superannuation
http://superannuationfreak.blogspot.com


Resources - Dividends
http://www.australiandividends.com.au/



etc

Very rough skeleton based on what's in this thread. Maybe put all this information onto Bogleheads Wiki eg http://www.bogleheads.org/wiki/Investing_in_Japan (Australian page conspicuously lacking). Just trying to think like a Boglehead, the info that we're really interested in is cost, liquidity, taxation issues, etc.

Books too - there are so many resources out there, but there are a few books and websites which are so good they keep bubbling to the top.

Apologies if this already exists somewhere in one place, and would appreciate your thoughts.

[lolzmonster]

Hi guys,

Just a curious question. Is anybody here using leverage to invest in shares? From what I've seen on my bank website (ANZ), the rate is something silly like 7%.

If you do, could you outline how that has been working for you?

Thanks

[marty998]

How do people think the mining tax repeal will affect mining company prices, such as BHP?

http://www.reuters.com/article/2014/09/02/us-australia-mining-tax-idUSKBN0GX0LD20140902

Surely not having to pay that tax will make the companies much more profitable and drive the share prices up? BHP has been quite low for a while, too. Just some pure uneducated speculation. I don't own any BHP, apart from in VAS (BHP makes up about 9% of VAS).

That being said, politically I am against the move and think it's going to be bad for Australia

Iron Ore price is having a much bigger effect. Currently at a 5 year low of US$80 and most IO stocks are getting hammered.

BHP, RIO and FMG on the other hand are carrying on pumping out record volumes. They were never going to pay a material amount of tax anyway based on how it was designed.

[dungoofed]

I would love to hear fellow aus mustachians thoughts on the above options or perhaps there are others that I haven't considered - would love to hear those as well!

Hi Wadiman -

Assets: PPOR (valuation 1.3M); IP1 (valuation 600k); Charter hall unlisted property trust ($50k), Super ($270k), Car and scooter ($20k)  - total = $2.85M
Liabilities:  Mortgage 1 (PPOR - $230k; investments - $180k); Mortgage 2 (IP1 - $448k) - total = $858k
Net worth: say $2M

Firstly, I get Assets at $2.24m, which brings your net worth down to about $1.4m (and unless you're thinking of selling your car/scooter you might want to remove it from these calculations).

Also, what is that "investments" liability? Did you forget to include some stocks bought with the bank's money in your Assets perhaps?

[Wadiman]

Dungoofed

You're right re the assets calc - circa $2.2M is correct.

The liability is for the deposit on the IP and purchase costs and past misadventures with equities when I got cold feet and wore some losses.

Any thoughts re options?

Thanks

[dungoofed]

Hi Wadiman -


The preservation age being increased, the stock market taking a dive, and you losing your job are the three biggest risks on the horizon for which you need to plan.

The second and the third are unfortunately often linked, so at risk of sounding like a bit of a nutter I'm going to suggest you put some money outside of your super into PMs and bonds. More on that later.

Regarding the preservation age being increased, the key point to remember is, you will be able to access your money in super at some stage, it's just a matter of having enough outside of your super account from FI to survive until preservation age (assuming you fully retire at that point).

Assuming preservation age remains at 60 and you continue living on the inflation-adjusted equivalent of $64,000 a year you'll only need to cover one year's expenses ie $64,000 - the rest will be better off in your super account.

Assuming preservation age goes up to 65, you'll need about six years worth of salary or $384,000 in today's dollars. If you are saving $111,000 a year (ie after-super income) then this is three or four years' worth of savings/investments outside of super.

Just given your age and investing horizon I'd be looking to pay the minimum on your loan for the next four years and put about 100K/year into maybe 70% stocks, 20% bonds, 10% PMs.

If only preservation age goes up but the stock market doesn't crash and you keep your job then you're set.

If preservation age stays the same but the stock market crashes then you should still be fine. Sell the bonds/gold as appropriate and buy up stocks, pay off your debt, etc.

If preservation age is increased, the stock market crashes, and you lose your job then I think you could still get out of this ok, but you might need to sell your investment property if the bonds and gold don't give you enough to weather the storm.

[Wadiman]

Hi Wadiman -


The preservation age being increased, the stock market taking a dive, and you losing your job are the three biggest risks on the horizon for which you need to plan.

The second and the third are unfortunately often linked, so at risk of sounding like a bit of a nutter I'm going to suggest you put some money outside of your super into PMs and bonds. More on that later.

Regarding the preservation age being increased, the key point to remember is, you will be able to access your money in super at some stage, it's just a matter of having enough outside of your super account from FI to survive until preservation age (assuming you fully retire at that point).

Assuming preservation age remains at 60 and you continue living on the inflation-adjusted equivalent of $64,000 a year you'll only need to cover one year's expenses ie $64,000 - the rest will be better off in your super account.

Assuming preservation age goes up to 65, you'll need about six years worth of salary or $384,000 in today's dollars. If you are saving $111,000 a year (ie after-super income) then this is three or four years' worth of savings/investments outside of super.

Just given your age and investing horizon I'd be looking to pay the minimum on your loan for the next four years and put about 100K/year into maybe 70% stocks, 20% bonds, 10% PMs.

If only preservation age goes up but the stock market doesn't crash and you keep your job then you're set.

If preservation age stays the same but the stock market crashes then you should still be fine. Sell the bonds/gold as appropriate and buy up stocks, pay off your debt, etc.

If preservation age is increased, the stock market crashes, and you lose your job then I think you could still get out of this ok, but you might need to sell your investment property if the bonds and gold don't give you enough to weather the storm.

Thanks DF -  I like your ideas and will carefully think them through.

[The Hamster]

Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

[bigchrisb]

Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

I used to do this through Interactive Brokers.  Was very cost effective, but the interface and tax treatment took a bit of getting used to (not bad, just very different from Aust brokers/chess sponsorship).  However, their margin lending rates were probably too low compared to the AUS financials, and a bit of lobbying got APRA involved to ban them from providing margin debt to individual accounts.  Or at least that's what the inner skeptic in me thought!

I've since just stuck with the cross listed versions, and they have been OK for me.  I'd like a lower cost option for exposure to emerging markets though.

[superannuationfreak]

Is anyone here buying US ETF's directly from US exchanges ie VT, VOO etc?  If so, what broker are you using?

I've recently started this with optionsxpress.  As I'm not planning to purchase/trade frequently they were better value for me (interactive brokers have a minimum $10 per month but their fees are very low so they're very good value if you are purchasing every month, less so if purchasing only a couple of times per year).

They offered me five free trades and live data if I funded my account ($500 minimum) within five days.  They also have an Australian bank account you can transfer into and the foreign exchange spread was surprisingly reasonable (0.5 - 1c rather than the 3% or so with an Australian bank).  However they will only send out wire transfers in USD (and not to third parties such as ozforex) so think about having a plan to get the money back in a cost-effective manner.  For my needs Citibank will probably suffice there.

[bigchrisb]

The almost no-spread forex, and the (one a month) free withdrawal to any bank globally (in local currency) were one of the reasons I was keen on IB.  I was able to make use of that to transfer a reasonable sum to a friend in the UK, effectively with no transaction costs (just the spread on the GBP.AUD, which was about 0.02%)  The other was the super cheap leverage - sadly the access to leverage is now gone for individual investors.  It doesn't really make sense to me to leverage in my trust or company account, so I've shut down my IB account.

[The Hamster]

Thanks guys!  Superannuationfreak it must have been a post of yours where I saw Optionsexpress mentioned before.  I will check both of them out.  Like yourself Chris, I would like to get exposure to a few more ETFs than Vanguard offer onshore, and I would like to (eventually) invest in a US bond ETF so as to accurately replicate a typical 3 or 4 fund portfolio.  I'm not aware if Vanguard offers this as an Australian ETF or not. 

[superannuationfreak]

If you are planning to spend AUD in retirement rather than USD then US bonds seem counterproductive.  A large part of the value of bonds is their stability; if you expose them to currency fluctuations they lose that [If you're planning to retire in the US this could make sense, though].

To be honest, I don't see much value in government bonds in 'taxable' accounts in Australia right now.  uBank or RAMS online savings accounts have a higher expected yield without risk if interest rates rise.  This may not always be true, of course.  In Super, though, many industry funds provide Australian and/or AUD hedged bond funds at very low cost and, given the relative tax advantages of holding your fixed interest in Super and your equities in 'taxable' accounts, those are certainly worth exploring.

[This_Is_My_Username]

Did IHD really give a 12% dividend payment in 13-14 ?

iShares S&P/ASX Dividend Opportunities ETF (IHD)

http://au.ishares.com/fund/fund-distributions-IHD-ASX.do

The price is currently $16. 

The previous four quarterly dividends were 125c, 18c, 18c, 29c = 190c = 12% return.

????

That sounds too good to be true?

[superannuationfreak]

Did IHD really give a 12% dividend payment in 13-14 ?

Yes they did.  I checked with iShares and it appears largely due to turnover, i.e. capital gains from selling shares which no longer offered as good a dividend yield.  This part of the distribution is not franked (although at least it looks like most of the capital gains were eligible for discount: http://au.ishares.com/fund/fund-distributions-IHD-ASX.do ).  You'll note the price of the ETF dropped substantially when it went ex-dividend: https://au.finance.yahoo.com/echarts?s=IHD.AX#symbol=IHD.AX;range=3m

I'm not sure how comfortable I [personally] would be now with this fund outside Super.  The tax implications are unpredictable.

[potm]

If we could somehow invest in the unlisted US Vanguard funds with a .05% MER, that would be amazing.

Was also a former IB customer until the the margin lending was removed. Luckily I was able to sell out and rebuy some shares with a different broker without any impact on my portfolio.

Just a question for those invested in the cross listed US ETFs, are the tax implications a problem?
I see state street have WXOZ which is a world ex Australia ETF made for the Australian market and they tout simpler tax as one of the advantages over the CDI cross listed funds.
The world ex Australia compisition is nice though whilst most international ETFs are US or world ex US but it is probably not worth the higher management fee over Vanguard funds.

[bigchrisb]

Just a question for those invested in the cross listed US ETFs, are the tax implications a problem?
I see state street have WXOZ which is a world ex Australia ETF made for the Australian market and they tout simpler tax as one of the advantages over the CDI cross listed funds.
The world ex Australia compisition is nice though whilst most international ETFs are US or world ex US but it is probably not worth the higher management fee over Vanguard funds.

The implications of the cross listed funds haven't been an issue for me to be honest.  I held the US variant through my IB account, and the AUS  variant through my Etrade account at the same time, and for all intents and purposes they achieved the same outcome.

The Ex-Aus feature is nice - one of my gripes of holding VEU is that AU shares compose about 6% of the index, and because of our higher yields, about 10% of the distributions.  From what I can see, the franking credits on the Aus earnings in there are lost.  So, if VEU yields 3%, and of that 0.3% is from AU distributions, that's something in the order of of 13 basis points in lost franking credits. Add that to the cost base (15 basis points), and you are getting up 0.28% - not all that far from the fees of the  WXOZ fund.  Howeve,r two things I don't like about it are:
- Its just developed markets.  No emerging markets in there.  (see http://www.spdrs.com.au/etf/fund/fund_detail_WXOZ.html for a country breakdown)
- Its not a full replication ETF - it tried to match the sector allocation of the index, rather than owning the whole index.  The index has only ~350 of the 1700 companies in the index.  Just comparing the top 10 from the index and the fund, it would seem to be missing: Nestle, Berkshire - B, Wells Fargo and Chevron.   If I'm indexing, I want the whole index, not some fund managers view on an equivalent asset allocation.

[potm]

Thanks for the detailed insights. Very interesting points about the index replication. My understanding is that any ETF is only attempting to match the underlying index instead of holding exactly what is in the index. I haven't thought about how closely ETFs match the index before. There's always a little bit of judgement required by the managers as indexes change around and they have to adjust. Looking at performance of funds compared to the index in the past might be a useful way to judge ETF managers but of course it's not a reliable indication of future performance. I think Vanguard has a very good reputation for the performance of their funds relative to the index.

Just comparing the two here, it seems like in both cases, there is slight underperformance compared to the index but the gap is narrower with Vanguard. Maybe can be considered another hidden cost of ETFs that isn't talked about much.
https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#performancetab
http://www.spdrs.com.au/viewall/index.html

I also like the World-Ex Aus compisition because it means we only need two ETFs to cover global exposure.
If it wasn't for franking credit complications then a total world index would be sufficient. If you have a portfolio of 5 ETFs you are buying regularly then the brokerage fees have to be considered in the overall picture as well.

[bigchrisb]

I'd be happy to stand corrected, however I suspect the vanguard funds are full replication funds - e.g. from the US vangaurd site, VEU holds 2399 different securities, where as the index has 2317.  I don't know what the additional ~80 are - I suspect probably shares that have fallen out of the index that they are taking an orderly disposal of?

The main reason I prefer full replication vs representative allocation is for lower portfolio churn.  With replication, price movements of a share will not change the number of shares needed to be held (unless the price means it comes in / goes out) of the index.  This means that transactions are pretty much limited to the issue or cancellation of shares, to the extent that the market is not efficient.  (for example, in an efficient market a buyback would not impact an ETF, as while the number of shares reduces, the stock price increases and the market cap stays the same). 

With representative sampling, there is the potential for individual stocks to out/underperform and result in additional stock re balancing within the ETF.  This would be a realized capital gain and taxed, where as in full replication, it wouldn't occur.  To give an example that would have effected WXOZ:  WXOZ seems to represent large cap US oil producers through holding Exxon, and doesn't hold Chevron.  Over the long term, these two stocks have been highly correlated.  However, over the medium term, there have been large disparities in price growth.  For example, if you looked at the period 1970-1976, Exxon grew 40% while chevron flat lined.  That would result in the ETF being over represented in US energy, so sell off some Exxon to get that sector allocation back to the right %.  Then take the period 1976-1980.  over this time, Exxon grew 20%.  Chevron grew 120%.  Our US large cap oil exposure is now underweight compared to the average, and I end up buying more Exxon.  Sure, I've cherry-picked that particular example, but I think this effect will result in a performance drag for representative funds compared to full replication funds, unless the benefit of holding fewer stocks is represented in lower management costs.  Sadly, the MER for this ETF is higher, not lower than holding the full replication equivalents.

I see why fund manages do this, to keep the number of stocks in an ETF down.  However,  to me it destroys one of the key reasons for index investing, which is reduced portfolio churn.

Again, happy if someone can show otherwise?

[potm]

I agree with you that Vanguard attempt to replicate the entire index. I was just noting that it will always be just an attempt and never an exact replication because of indexes changing. There's a disclaimer in their documentation somewhere which says as much.
I believe the fund managers will attempt to predict future changes to the indexes to start adjusting the ETFs. It makes sense as everyone rushing to buy a sell a particular stock on the day the index change is announced would be disastrous.
Thanks on your points on partial replication negatives, I hadn't thought about it before and has put me off WXOZ.
Vanguard do have a world ex Australia unlisted fund but no ETF version which is a shame.

[potm]

I just had a chat with Vanguard to ask about VEU and VTS and the associated franking credits and I was assured that those would be passed onto investors and would be detailed in the annual statement. I even specifically enquired about the cross listed funds and was assured that it was no problem.

Have you received a statement for VEU yet and can you confirm whether this is the case?

[superannuationfreak]

I just had a chat with Vanguard to ask about VEU and VTS and the associated franking credits and I was assured that those would be passed onto investors and would be detailed in the annual statement. I even specifically enquired about the cross listed funds and was assured that it was no problem.

Have you received a statement for VEU yet and can you confirm whether this is the case?

That's not the case.  I held VEU last tax year - we get told what foreign tax has been paid (for foreign tax credit which can offset 15% US withholding tax) but there are no franking credits.  The component of VEU distributions which is franked Australian dividends will be taxed at 0% for the fund but there's no way to get that 30% (or soon 28.5%) Australian bonus.

[bigchrisb]

I just had a chat with Vanguard to ask about VEU and VTS and the associated franking credits and I was assured that those would be passed onto investors and would be detailed in the annual statement. I even specifically enquired about the cross listed funds and was assured that it was no problem.

Have you received a statement for VEU yet and can you confirm whether this is the case?

That's not the case.  I held VEU last tax year - we get told what foreign tax has been paid (for foreign tax credit which can offset 15% US withholding tax) but there are no franking credits.  The component of VEU distributions which is franked Australian dividends will be taxed at 0% for the fund but there's no way to get that 30% (or soon 28.5%) Australian bonus.

Ditto.

I called vanguard maybe 18 months ago about it.  I'm pretty sure the person on the other end of the phone had no idea what I was talking about, but they reassured me that it was included in the annual tax statements.  As far as I can tell it isn't - my tax statements only show US tax withheld - and I can see no reason why franking would be recovered through that.

I've written it off as one of the trade-offs of VEU, and factor it in to the total cost of holding.  Even with it, its still the cheapest alternative for that kind of asset exposure that I've been able to find.

It, along with the full/partial replication issues above should remind us that headline "expense ratio" isn't the only cost we bear in fund based investments. I think Malkiel alluded to a lot of this in part of "a random walk down wall st"?

[bigchrisb]

Speaking of the change in company tax rate, has anyone heard anything about this since the budget?  Getting Australian company tax rates to be more globally competitive is long overdue (as evidenced by the number of companies structuring to avoid them), but successive governments have promised on this and not delivered. 

There has been lots of press on the paid parental leave associated with this, but as far as I can see, nil on the company tax rate issues?

[Primm]

I haven't seen anything recently (and I just checked my usual suspects to see if there were updates - nada) but it's my understanding that this is tied in with PPL, so one without the other won't happen. It's just that the majority of everyday Australians are more invested in PPL than company tax rates, so that's the part that makes the news.

[potm]

Yeh, I think it will only come in with the PPL levy on the companies which is looking increasingly unlikely at this stage.
Good for us investors, don't want to be losing 1.5% in tax that is not included as a franking credit.

[AustralianMustachio]

I have a newbie question about dividends.

What determines the exact dividend a company will pay in the future? People talk about Company X being attractive with a 6% dividend yield.... and these amounts are listed on Google Finance etc as percentage yields... but are they simply going off the past dividend amount, divided by the current share price?

Or is there something else that can tell you what the future dividend will be?

[potm]

A lot of companies will have a certain payout ratio, ie a percentage of profits they will pay as dividends.
Of course future profits is only a guess as well and even then there's no guarantee that the payout ratio will remain the same.
Predicting a companies future dividends is the essence of valuing a company as it is worth the present value of future cash flows.

Companies with stable earnings that are growing and have a long history of dividends might have a higher chance of paying increasing dividends in the  future and the market usually prices these companies highly.
Another important thing is to look at the company's ability to keep paying dividends. How are the dividends financed, from operating earnings or from borrowings, how much debt does the company have, how much capital expenditure will it have in the future.

[Jim from QLD]

Hi guys,

Just a curious question. Is anybody here using leverage to invest in shares? From what I've seen on my bank website (ANZ), the rate is something silly like 7%.

If you do, could you outline how that has been working for you?

Thanks

10/10 name.

You are right margin loan rates are crazy, the clever thing to do IMO is use a line of credit redraw that is secured by a property, (PPOR normally) this gives access to the home loan 5~% rates.

I personally have used the 4.88% rate on my home loan to invest in shares yielding similar amounts and then relying on thefranking credits to put me firmly in the green.