Australian Investing Thread

[limeandpepper]

Question: How does the going down of the Australian dollar affect the value we get when we buy ETFs for overseas markets like VTS and VEU? Would these ETFs still be considered cheap right now given our currency is no longer as strong as it used to be?

[faramund]

I believe its better to buy overseas when the local currency is on an unsustainable high - but if you can tell when that is - you are doing very well.

[qwerty8675309]

Agree with faramund. It's hard to time the market, and know when it is high or low. The best you can do is to stay the course - if your target asset allocation has an international holding, buy / sell to maintain that target allocation, regardless of weather you feel its high or low.

[povertystrickenbastard]

No need to sell anything to maintain an asset allocation and trigger a CGT event.  Just buy the other elements to get the AA into line.

[qwerty8675309]

No need to sell anything to maintain an asset allocation and trigger a CGT event.  Just buy the other elements to get the AA into line.

Yup - If you can, contribute more to re-balance. You would only sell to rebalance when you're no longer contributing (eg, at retirement)

[dungoofed]

Question: How does the going down of the Australian dollar affect the value we get when we buy ETFs for overseas markets like VTS and VEU? Would these ETFs still be considered cheap right now given our currency is no longer as strong as it used to be?

"Stick with your asset allocation as defined by your IPS" is the short answer : )

A decreasing AUD could have any number of effects. eg

- you would expect each Australian dollar would buy less VTS than it did previously.
- however as the AUD slides against the USD, people holding VTS might decide that the Australian stock market is better value for money, and liquidate some of their VTS in order to buy Australian stocks, thus lowering the price of VTS (and letting us buy more with each Australian dollar)

There are lots of these effects, and together they determine how a country's market moves as a whole when compared to their currency. VTS is just coming off several years of increasing stock indices and increasing USD. Australia is seeing weakness in both at the moment.

Your asset allocation should have moved over the last 12 months. VTS should be up a bit, VEU should be down a bit and VAS should be down a bit too, so you're possibly overweight VTS, and if you were looking to rebalance with say $10,000 you'd buy less VTS than the other two. Part of the reason is because of how the exchange rates have moved, part is due to how the stock indices have moved.

[Primm]

I believe its better to buy overseas when the local currency is on an unsustainable high - but if you can tell when that is - you are doing very well.

Did that. Totally accidentally, but bought my first VTS when the dollar was at parity and have watched it blossom ever since.

PS Did we all catch the news that ASX settlement is changing from T+3 to T+2 as of 7/3/16?

[faramund]

I believe its better to buy overseas when the local currency is on an unsustainable high - but if you can tell when that is - you are doing very well.

Did that. Totally accidentally, but bought my first VTS when the dollar was at parity and have watched it blossom ever since.

PS Did we all catch the news that ASX settlement is changing from T+3 to T+2 as of 7/3/16?

I saw that, and thought, well if you sell and buy in equal amounts - it doesn't really matter, but then I thought, but I pretty much never sell, so now I have to transfer money in one day earlier... OH THE INJUSTICE OF THE WORLD!!!!

[englyn]

PS Did we all catch the news that ASX settlement is changing from T+3 to T+2 as of 7/3/16?

No. (beginner question) what does that mean?

[limeandpepper]

Thanks everyone for your thoughts/advice on the currency/ETF situation! :)

[povertystrickenbastard]

PS Did we all catch the news that ASX settlement is changing from T+3 to T+2 as of 7/3/16?

No. (beginner question) what does that mean?

It means you need to have the $$$ in your settlement account a day earlier and when you sell you get your money a day earlier.  In reality it should make bugger all difference to anyone except T+3 'traders' who are now going to have to be T+2 traders.

[marty998]

There is an additional change with the T+2 thing (at least for people who use commsec). If you buy and sell on day 0 and day 1, your net position for both days may in some circumstances be net settled on day 2.

[marty998]

Just got February's Money issue in the mail today.

Mentions State Street has reduced the fees on the SPDR ETF index fund series.

SPDR ASX 200 (STW) down from 0.286% to 0.19%
SPDR S&P World ex Aus (Hedged) Fund (WXHG) down from 0.48% to 0.35%
SPDR S&P World ex Aus (Unhedged) Fund (WXOZ) down from 0.42% to 0.30%

[qwerty8675309]

Mentions State Street has reduced the fees on the SPDR ETF index fund series.

Nice! I was about to sell some of my STW and buy VAS because of the fees, but I was reluctant due to the CGT. Now I don't have to :)

[FFA]

I was wondering when SPDR would make a move. Good for us to have another option and hope it puts a bit of pressure on Vanguard to nudge even lower. SPDR products tend to have better liquidity, so at that differential they might be the preferred option for some.

Just a reminder to NAB shareholders to consider making a sale election if you have less than 2,000 shares and want to avoid getting stuck with CYBG shares or CDI's. After the S32 debacle (which I am the fortunate owner of two small, useless parcels), I am going to take the cash this time ! the election can be done online and is due by tomorrow.

[limeandpepper]

FFA, thank you so much about the reminder for NAB! I received an e-mail about the CYBG thing back in December but haven't received any communications since, would totally have done nothing if I hadn't happened to read this thread. I just opted for the "sell" option, too. :)

[FFA]

my pleasure, lime and pepper,
I was a bit the same, luckily something made me think of it yesterday, so I googled and checked and said phew when I saw the deadline was 3 Feb. I thought others might be the same....

[povertystrickenbastard]

I was wondering when SPDR would make a move. Good for us to have another option and hope it puts a bit of pressure on Vanguard to nudge even lower. SPDR products tend to have better liquidity, so at that differential they might be the preferred option for some.

I don't mind STW at all.  I bought some in June with my margin loan and landed 6 months worth of distributions before I'd barely accrued a cent of interest.

[Aussiegirl]

I don't mind STW at all.  I bought some in June with my margin loan and landed 6 months worth of distributions before I'd barely accrued a cent of interest.

Nicely timed PSB.  I've got STW as well in our superfund.  I'm glad to see the decrease in fees.   The only thing that does concern me on this fund is the massive weighting towards the banks.  The top 4 holdings are the big 4 and make up ~30% of the index, with 47% being financials.     It's quite different to an S&P500 fund that the US based peeps on here would hold.    For that reason I am not putting any more funds into this one and slowly building up small cap, international and European based ETFs.

[AustralianMustachio]

Just a reminder to NAB shareholders to consider making a sale election if you have less than 2,000 shares and want to avoid getting stuck with CYBG shares or CDI's. After the S32 debacle (which I am the fortunate owner of two small, useless parcels), I am going to take the cash this time ! the election can be done online and is due by tomorrow.

I have a friend who i have disagreements with (he actively invests in resource companies, I like to avoid picking stocks and especially avoid resources due to their cycles) and he has been telling me S32 is currently offering incredible value. He generally seems to have good ideas here and there, so I hope they tick up a bit in the future for you!

[marty998]

S32 is apparently going to take a $1.7 billion impairment charge against some of their assets...

[Wadiman]

Just a reminder to NAB shareholders to consider making a sale election if you have less than 2,000 shares and want to avoid getting stuck with CYBG shares or CDI's. After the S32 debacle (which I am the fortunate owner of two small, useless parcels), I am going to take the cash this time ! the election can be done online and is due by tomorrow.

I have a friend who i have disagreements with (he actively invests in resource companies, I like to avoid picking stocks and especially avoid resources due to their cycles) and he has been telling me S32 is currently offering incredible value. He generally seems to have good ideas here and there, so I hope they tick up a bit in the future for you!

Also in this month's Money there's an interesting article about resources shares by Greg Hoffman - thinks South32 makes sense given current share price as part of a smallish (10%) holding of resources stocks - if you are into direct equities.

[Wadiman]

Self Funding Instalments (SFI) - anyone looked into them for direct equities? 

Looks like a reasonable way to get some more exposure to a particular equity (if supported by the issuer of the SFI). This is a bit of a contrarian option given current volatility but I am thinking of trialling this with a small investment.

SFIs have some similarities to a margin loan but without the potential for a call.  50% of share price down as part-payment, Interest deductible, dividend stream pays down remaining 50% of share price over period of time.  Obviously only makes sense if the equity in question has a relatively stable and highish dividend but could make sense for some of the banks at present - yield around 9% for a few of them. 

A number of providers for this kind of arrangement (eg Westpac - http://www.westpac.com.au/personal-banking/investments/instalment-warrants/self-funding-instalments/)

[dungoofed]

Hi Wadiman - I have also thought about getting some of these. The facility is limited to a few blue chip stocks only but I've often thought that if you were 10 years from retirement and knew that you wanted the engine of your retirement portfolio to come from about five high yield stalwarts then you could "lock in" that exact portfolio now and then pay it off with tax deductible dividends over the 10 years.

One thing I haven't seen answered is what happens if the dividends end up covering much more than the loan amount. Is the excess just "lost"?

[Wadiman]

Dungoofed - will look into this and post back.  I'm thinking that once the 'loan' on the 50% portion is paid then any surplus reverts to you.

[faramund]

I also looked at this, but I couldn't find out their interest rate. I'm with commsec with a margin loan that varies between 6 and 7%. So I wondered how it compared.

[Wadiman]

Around 4.65% - check out the indicative pricing sheet towards the bottom of the page on the url I provided above.

[faramund]

Around 4.65% - check out the indicative pricing sheet towards the bottom of the page on the url I provided above.

Are ok, thanks. I can now see you get the 4.65 from the headline interest rate column (which seems very good), but I notice there's also a indicative cost p.a as % of loan amount which is much higher (up to 90.11% for BHP). I wonder what the heck that is?

[Aussiegirl]

I have a friend who i have disagreements with (he actively invests in resource companies, I like to avoid picking stocks and especially avoid resources due to their cycles) and he has been telling me S32 is currently offering incredible value. He generally seems to have good ideas here and there, so I hope they tick up a bit in the future for you!

Does he have a crystal ball to say that resources are going to recover any time soon?  S32 has some assets which really don't make sense at this point in the cycle.  It won't go bust, but it may not recover any time soon.   If you want to play this theme, I'd suggest you wait until it starts going up and then buy in.   There is a saying "don't try to catch a falling knife"....

SFIs have some similarities to a margin loan but without the potential for a call.  50% of share price down as part-payment, Interest deductible, dividend stream pays down remaining 50% of share price over period of time.  Obviously only makes sense if the equity in question has a relatively stable and highish dividend but could make sense for some of the banks at present - yield around 9% for a few of them. 

That 9% is basis their historical dividend and their current price.  It doesn't take into consideration any dividend cuts, which are most certainly coming.  I saw an article by the ratings agencies yesterday that indicated BHP, for example, needed to make a sizeable cut to its dividend in order to avoid another ratings downgrade.  And the banks source of growth, investment lending, has been curtailed by the new APRA guidelines plus they have exposure to the resources industry (which is in a state of contraction), so I'd think they're in the same position.    I'd wait until after earnings seasons and dividend announcements before I went into a strategy that was basis a dividend. 

Costs on instalments are higher than a margin loan.   If you read the fine print, only a percentage of the implied interest will be tax deductible.  The rest is seen as an insurance cost which allows you to walk away from the second instalment if the price tanks.   

[povertystrickenbastard]

I also looked at this, but I couldn't find out their interest rate. I'm with commsec with a margin loan that varies between 6 and 7%. So I wondered how it compared.

Check out Westpac Online Investment loan.  4.70% fixed interest when you prepay 12 months.

[AustralianMustachio]

I have a friend who i have disagreements with (he actively invests in resource companies, I like to avoid picking stocks and especially avoid resources due to their cycles) and he has been telling me S32 is currently offering incredible value. He generally seems to have good ideas here and there, so I hope they tick up a bit in the future for you!

Does he have a crystal ball to say that resources are going to recover any time soon?  S32 has some assets which really don't make sense at this point in the cycle.  It won't go bust, but it may not recover any time soon.   If you want to play this theme, I'd suggest you wait until it starts going up and then buy in.   There is a saying "don't try to catch a falling knife"....

You're preaching to the converted here re: investing in resource companies (or not doing so).

No one said anything about resources recovering or suggesting people buy in. I was passing on a comment about the current price, that is all.

[FFA]

Yeah thanks Australianmustachio, although with the size of my holdings it won't make much difference, just an annoyance. I wasn't paying that close attention through the bhp demerger and missed the option of sale facility there...

Povertystrickenbastard, just to clarify on dividend/distribution timing, that you don't necessarily benefit when buying immediately before (as opposed to immediately after). On the day the share or ETF goes ex-dividend, the price will adjust downwards by the same amount. Sometimes this effect might be obscured by other market movement. For shares with high dividend yield it is more noticeable. Most likely it will depend on your tax rate too. Higher marginal tax rate, likely better to buy after the dividend (and get more shares/units for the same $$). Lower marginal rate, maybe better to buy before dividend.

[povertystrickenbastard]

Povertystrickenbastard, just to clarify on dividend/distribution timing, that you don't necessarily benefit when buying immediately before (as opposed to immediately after). On the day the share or ETF goes ex-dividend, the price will adjust downwards by the same amount. Sometimes this effect might be obscured by other market movement. For shares with high dividend yield it is more noticeable. Most likely it will depend on your tax rate too. Higher marginal tax rate, likely better to buy after the dividend (and get more shares/units for the same $$). Lower marginal rate, maybe better to buy before dividend.

I get your point FFA but in my case leveraging with my margin loan I am using the dividends to pay the interest costs, so it's nice to buy a parcel and get the dividend a few weeks later before that parcel has really accrued any interest.  Especially so buying STW and getting a whole 6 months worth of divi up front.  You're totally right about the price effect, really it's just a transfer of wealth out of your equity portfolio into your bank account, it's not free money that's for sure.

[FFA]

Ah yes i see your point from a cash flow perspective (to pay off interest). I just didn't want anyone to get the wrong idea that it's free money (if only!).

[oysters]

Sounds like I should get around to buy that first Vangaurd Aussie ETF. I've been lazy and putting it off the last few days.

http://www.abc.net.au/news/2016-02-09/asx-australian-shares-fall-in-early-trade/7151508

(Market timing, but hey, I'm setting up a regular calendar entry to do inputs in the future no matter what).

[faramund]

Povertystrickenbastard, just to clarify on dividend/distribution timing, that you don't necessarily benefit when buying immediately before (as opposed to immediately after). On the day the share or ETF goes ex-dividend, the price will adjust downwards by the same amount. Sometimes this effect might be obscured by other market movement. For shares with high dividend yield it is more noticeable. Most likely it will depend on your tax rate too. Higher marginal tax rate, likely better to buy after the dividend (and get more shares/units for the same $$). Lower marginal rate, maybe better to buy before dividend.

But you know, its not equivalent, because its not the same amount for everyone. For some people, a dividend is worth what it is, plus its franking credit, and for others, its worth less than the entire dividend, because they're in a high tax bracket. So really, it drops by a sort of weighted average of what the dividend is worth.

I'm in the second highest tax bracket, so dividends aren't worth so much for me. So its more worthwhile for me to buy after a dividend is paid. Oh, and just to be clear, I don't actually do this, I just buy a new packet of shares each fortnight...

[marty998]

So.

Who got fucked today? 3% down! Westpac down 5%!

CBA reports tomorrow... make or break for the ASX...

[faramund]

So.

Who got fucked today? 3% down! Westpac down 5%!

CBA reports tomorrow... make or break for the ASX...

I only check my shares, once a fortnight, and I do hold Westpac, so maybe me, but really, its only one of my many shares, so who really cares..... I'm sure they'll still pay a dividend.

[dungoofed]

I just can't believe it has taken so long for investors to acknowledge that (global) banks are on the ropes.

A peek under the hood at most banks and the biggest problem is sticky wages causing the incompetent to cling on to their over-paid pre-2008 jobs, hoovering up the HR budget and any chance of being able to attract talent required to get them out of this mess. Tech pays much better these days and isn't riddled with sociopaths to the same extent banking is.

The only way I see banks surviving the next 10 years is by acknowledging that they can't be all things to all men and scaling down operations massively. There are a lot of fights they should just walk away from. And the funniest irony of all is that their one structural advantage - having physical branches across the country - they worked for decades to destroy, and now that it's all online the entire market is there for the taking by whichever young and nimble startup can build a better mouse trap. 

/rant

[FFA]

markets certainly seem wobbly these days.... i'm starting to wonder if this is just the volatility everyone said to expect around Fed liftoff, or something a bit more

[AustralianMustachio]

Certainly was a savage down day. It'd be good to have some spare cash to put to work now. Things might get a lot cheaper still if we head into a bear market, but I'd happily DCA in over the coming months and years.

It's times like this it really pays to have a clear strategy you have faith in.

I have changed my mind many times over the last year or so of my strategy, which hasn't worked out so bad since the Australian market has been down so I've missed out on some down moves. However I'm now approaching something I feel like I can stick to. Because if I want to participate in the up moves over longer periods, which is the norm for markets, I'll have to!

At the moment I have a little cash spare and some investments which are less correlated to "the market" (small cap and absolute return LICs), which allows me to be less concerned should my VAS holding continue to fall.

But I would imagine most people wouldn't do this, or need to. Peter Thornhill, who some of you may have seen before, has an approach that resonates well with me. He just invests in the ASX from what I can tell, and his advice is to just be tough and buy more when things look really dire!

"I look forward to a GFC"
https://www.youtube.com/watch?v=sCDcrw1qBAw

[chasingthegoodlife]

Just put in an order for VAS!

Psychologically, I'm finding it easy to continue investing in the ASX  and 'sleep at night'  despite my paper losses, knowing I am in it for the long term I can see these falls as 'sales'.

What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?


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[Ozlady]

 bought some ANZ shares yesterday.....nearly 11% yield (inc franking credits)....psychologically holding them for my youngest son who is in his teens....he has years to go and hold them:)

[Primm]

Just put in an order for VAS!

Psychologically, I'm finding it easy to continue investing in the ASX  and 'sleep at night'  despite my paper losses, knowing I am in it for the long term I can see these falls as 'sales'.

What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?


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Ha! Me too. :) And in doing so I managed to reduce my losses from 15% to 10%, that's a win, right?

I'm not putting anything into O/S markets while the dollar is tanked. I'm not that brave. I probably should, but I don't know why I should (other than it balances my portfolio). I'm working on the "sleep at night" theory at the moment, and sticking with Aus ETFs for now.

[faramund]

Just put in an order for VAS!

Psychologically, I'm finding it easy to continue investing in the ASX  and 'sleep at night'  despite my paper losses, knowing I am in it for the long term I can see these falls as 'sales'.

What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?


Sent from my iPhone using Tapatalk

Ha! Me too. :) And in doing so I managed to reduce my losses from 15% to 10%, that's a win, right?

I'm not putting anything into O/S markets while the dollar is tanked. I'm not that brave. I probably should, but I don't know why I should (other than it balances my portfolio). I'm working on the "sleep at night" theory at the moment, and sticking with Aus ETFs for now.

If you look at any sort of long term AUS/USD exchange rates, we're actually about now where we've usually been over the last 30 years. I think the last 10 years we've been abnormally high during the mining boom - I don't think we'll go back to parity, maybe ever.

The thing is, our inflation band 2-3%, is higher than almost any other developed country (which tends to be 2%, so over time, if everything's equal, we should depreciate by about 0.5% a year. So I don't think its a bad time to buy overseas.

Although the Australian market seems to perform pretty well, so just staying onshore doesn't seem to hurt too much anyway - and there's all those juicy franked dividends.

[Primm]

If you look at any sort of long term AUS/USD exchange rates, we're actually about now where we've usually been over the last 30 years. I think the last 10 years we've been abnormally high during the mining boom - I don't think we'll go back to parity, maybe ever.

The thing is, our inflation band 2-3%, is higher than almost any other developed country (which tends to be 2%, so over time, if everything's equal, we should depreciate by about 0.5% a year. So I don't think its a bad time to buy overseas.

Although the Australian market seems to perform pretty well, so just staying onshore doesn't seem to hurt too much anyway - and there's all those juicy franked dividends.

Food for thought, thanks.

I think I'm spoiled by the fact that my one and only foray into US ETFs was when the dollar was at parity, so while the underlying shares have gone down my investment has actually appreciated. I want that all the time!

Anyone who tells you money and investment are devoid of emotion is lying through their teeth.

[faramund]

If you look at any sort of long term AUS/USD exchange rates, we're actually about now where we've usually been over the last 30 years. I think the last 10 years we've been abnormally high during the mining boom - I don't think we'll go back to parity, maybe ever.

The thing is, our inflation band 2-3%, is higher than almost any other developed country (which tends to be 2%, so over time, if everything's equal, we should depreciate by about 0.5% a year. So I don't think its a bad time to buy overseas.

Although the Australian market seems to perform pretty well, so just staying onshore doesn't seem to hurt too much anyway - and there's all those juicy franked dividends.

Food for thought, thanks.

I think I'm spoiled by the fact that my one and only foray into US ETFs was when the dollar was at parity, so while the underlying shares have gone down my investment has actually appreciated. I want that all the time!

Anyone who tells you money and investment are devoid of emotion is lying through their teeth.

Well, investing is full of moments when you look back and see how things could have been better. About 8 years, I bought a no-dividend, no profit company, that fell something like 97%, and cost me around $14000. 2 years ago, I bought a no-dividend, but with profits company, and its quadrupled and made me $30000.

If only the money I put into the first one, I'd only put into the second one. Still, live and learn, I don't intend to ever buy a no profit company again, and I'm very wary of no dividend ones.

[steveo]

What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?

I'm struggling with this as well.

[FFA]

It's times like this it really pays to have a clear strategy you have faith in.

fully agree !

[FFA]

What I am struggling with is continuing to pump money into VGS while the dollar is falling - part of my brain is saying 'Those same shares now cost you a lot more and the value of the underlying companies hasn't changed!' Abort!' I need to mull this over, decide what makes sense and then stick with it. Thoughts anyone?

I'm struggling with this as well.

I struggle too but for a different reason, namely the ASX dividend yield (with franking) is just too tempting