Australian Investing Thread

[steveo]

Is anyone here considering changing their investment strategy based on the current environment?

Good question. The answer is no.

The question really is can you have an investment strategy that is specific to our environment ? When I ask this question it makes me think that in reality that there is no difference between now and in the past. Of course there are tonnes of differences but a diversified low cost portfolio should work as well as any other option.

[bigchrisb]

I concur that it looks like the world is going to be "lower for longer", from inflation, to interest rates to investment returns.  My thoughts are:
- Lower nominal returns are partially offset by lower inflation, with a smaller impact on real returns.
- There isn't a lot I can do about it, as all asset classes seem to be impacted.  In accumulation phase, it isn't changing a lot.
- Perhaps the one difference is from how cheap debt and leverage is.  I'm less focused on paying down investment debt at the moment - I'm paying 4% interest and getting 6+% yield (including franking etc). That means I can bank a 2% spread per year, and keep exposure to any potential upside
- It might impact on how I feel about draw down rates.  However, I've been aiming at having a ~2% SWR rather than 4%, so not intending on changing this.  Even with no real returns, 2% SWR gives 50 years coverage.

(for anyone interested, the rationale for a lower SWR for me is mostly because I feel I'm on a very high income at the moment, and for various reasons I'd struggle to replicate it if I came back to work after FIRE.  An extra year working now would be like 3-4 extra years working then.  Hence I'd rather have a couple more years padding now, and lower risk of needing to return to work).

[insolent librarian]

However, as I am 7+ years away myself, I have thought 'Is there any action I can take if I believe  this to be true?' and for me the answer is no. I don't want higher risk investments, and I don't want to stop investing and buy a giant TV instead. So I will worry about it closer to the day.

Is anyone here considering changing their investment strategy based on the current environment?

Much like yourself, I've considered the risks, and there really isn't much I can do. I'm staying the course, which I think reflects well on past-me, who decided to setup the current strategy.
Two things I am thinking about are:
* With such low interest rates, is it worth getting the guaranteed 5% for paying off part of my HECS debt, as compared to the 3% I get for leaving it in the bank? Especially as that 5% option goes away at the end of the year.
* Is P2P lending something that could take up part of the Australian higher-risk part of my portfolio? (RateSetter had a promotion a few weeks back which was an almost guaranteed 10% return (invest $1000 and they gave you $100, assuming you got your capital back, you got $1100 + interest on the $1000 of ~6%). I'm still kicking myself slightly for not throwing some money in.)

[FFA]

yup I agree, no change to strategy, just exit timing and how much margin for error you might want. If I'd have quit on the cusp of 4% and with no desire to work ever again, I might be a bit stressed now. However having a bigger stash (lower WR) and open to consult or work part-time (which I've been doing), it's not a bother for me. But certainly the logic that returns are lower therefore one should take more risk is flawed. I wouldn't be adjusting asset allocation for such reasons, it is no different to market timing and on average unlikely to have a positive outcome.

[BattlaP]

* With such low interest rates, is it worth getting the guaranteed 5% for paying off part of my HECS debt, as compared to the 3% I get for leaving it in the bank? Especially as that 5% option goes away at the end of the year.

I would totally take advantage of this man, I paid off a 30k HECS over a couple months in 2015 and I look back on it as a highlight of the year. The numbers will never make it the mathematically best direction but fuck it feels good being totally debt free.

[Juan Ponce de León]

Thread has gone a bit quiet.

Seems like the LICS (AFI and ARG anyway) are trading very close to NAV now, after quite some time trading at a premium.  I'm due to make an ETF purchase tomorrow and was going to get some more STW, but now I'm weighing up if it may be time to make my first LIC purchase for a bit of active managed diversification and to take advantage of their discounted DRP schemes etc.  Any thoughts?  And which is the better of the two?

[hodor]

Thread has gone a bit quiet.

Seems like the LICS (AFI and ARG anyway) are trading very close to NAV now, after quite some time trading at a premium.  I'm due to make an ETF purchase tomorrow and was going to get some more STW, but now I'm weighing up if it may be time to make my first LIC purchase for a bit of active managed diversification and to take advantage of their discounted DRP schemes etc.  Any thoughts?  And which is the better of the two?

Sounds like a good plan. Pick up an (old school) LIC when trading near/at a discount and the index when they are at a premium.

Both are very similar and have a long history of outperforming the index. Maybe pick up the one with the greatest discount...? ARG has less mining exposure than AFI which in my mind makes it preferable.

[englyn]

I have some ARG, bought when it was at a discount. Haven't quite got my head around whether to buy more when it's near equal to NAV. Problem being that the value of ARG hasn't changed that much (since February) but the value of the index (and hence NAV) has climbed to match it. So is it that they're both overpriced now and I should go buy more VEU instead?
This decision would be easier if I had a target % domestic/international allocation, but I don't. I haven't seen a sufficiently good argument for any particular setpoint yet. Currently 25% international split evenly between VTS/VEU.

[Juan Ponce de León]

Thanks guys, I have a bit to think about.  Probably leaning towards the original plan (STW) and I'll think about the LICs when they're trading at a more obvious discount.

[faramund]

I have some ARG, bought when it was at a discount. Haven't quite got my head around whether to buy more when it's near equal to NAV. Problem being that the value of ARG hasn't changed that much (since February) but the value of the index (and hence NAV) has climbed to match it. So is it that they're both overpriced now and I should go buy more VEU instead?
This decision would be easier if I had a target % domestic/international allocation, but I don't. I haven't seen a sufficiently good argument for any particular setpoint yet. Currently 25% international split evenly between VTS/VEU.

I hadn't really thought about ARG, so after reading this I looked at their web page, and from what I saw, they seem reasonable. But they gave their performance as:
   Argo Share Price   S&P/ASX 200 Acc. Index
1 Year   -5.7%   -2.4%
3 Years    7.7%    7.7%
5 Years    8.9%    7.5%
10 Year    4.8%    5.3%

I'm pretty sure VAS is about the same as the ASX200 Acc Index, so what's the point of something like ARG over VAS?

[hodor]

I have some ARG, bought when it was at a discount. Haven't quite got my head around whether to buy more when it's near equal to NAV. Problem being that the value of ARG hasn't changed that much (since February) but the value of the index (and hence NAV) has climbed to match it. So is it that they're both overpriced now and I should go buy more VEU instead?
This decision would be easier if I had a target % domestic/international allocation, but I don't. I haven't seen a sufficiently good argument for any particular setpoint yet. Currently 25% international split evenly between VTS/VEU.

I hadn't really thought about ARG, so after reading this I looked at their web page, and from what I saw, they seem reasonable. But they gave their performance as:
   Argo Share Price   S&P/ASX 200 Acc. Index
1 Year   -5.7%   -2.4%
3 Years    7.7%    7.7%
5 Years    8.9%    7.5%
10 Year    4.8%    5.3%

I'm pretty sure VAS is about the same as the ASX200 Acc Index, so what's the point of something like ARG over VAS?

It appears you're comparing an accumulation index to a share price without dividends. If both came from their site it is strange that didn't mention if the share price included dividends. I have their 10 year performance (NTA) at 6.5%pa to December 2015 per bell Potter report.

[faramund]

I have some ARG, bought when it was at a discount. Haven't quite got my head around whether to buy more when it's near equal to NAV. Problem being that the value of ARG hasn't changed that much (since February) but the value of the index (and hence NAV) has climbed to match it. So is it that they're both overpriced now and I should go buy more VEU instead?
This decision would be easier if I had a target % domestic/international allocation, but I don't. I haven't seen a sufficiently good argument for any particular setpoint yet. Currently 25% international split evenly between VTS/VEU.

I hadn't really thought about ARG, so after reading this I looked at their web page, and from what I saw, they seem reasonable. But they gave their performance as:
   Argo Share Price   S&P/ASX 200 Acc. Index
1 Year   -5.7%   -2.4%
3 Years    7.7%    7.7%
5 Years    8.9%    7.5%
10 Year    4.8%    5.3%

I'm pretty sure VAS is about the same as the ASX200 Acc Index, so what's the point of something like ARG over VAS?

It appears you're comparing an accumulation index to a share price without dividends. If both came from their site it is strange that didn't mention if the share price included dividends. I have their 10 year performance (NTA) at 6.5%pa to December 2015 per bell Potter report.

No, I used http://www.argoinvestments.com.au/portfolio-performance/share-price-performance
which says that they are showing ARG while assuming that they reinvested dividends.
If Potter in 2015 has a different figure, I assume that's because ARG is showing the latest results (do you know what 10 year annual performance for the ASX in 2015 was?). In any case, if ARG shows worse performance than a report, I'd trust ARG.

In general, ARG seems very 'honest', but looking at their share holdings, it really just seems to be an ASX index fund... so I don't understand why one would buy it, instead of VAS that does the same, with lower management costs.

[hodor]

Fair points. I would think the ARG website would be more accurate too.

VAS and ARG both have a MER of 0.15%

[Juan Ponce de León]

Maybe this is why someone would buy it:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1465607597889&chddm=1484793&chls=IntervalBasedLine&cmpto=ASX:ARG&cmptdms=0&q=INDEXASX:XJO&ntsp=0&ei=mGVbV8i-DYOB0gSyqquIBA

[faramund]

Maybe this is why someone would buy it:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1465607597889&chddm=1484793&chls=IntervalBasedLine&cmpto=ASX:ARG&cmptdms=0&q=INDEXASX:XJO&ntsp=0&ei=mGVbV8i-DYOB0gSyqquIBA

This was interesting to look at, although if you change the time scale, sometimes ARG is better and sometimes VAS - but, given as pointed out in the previous reply, ARG has the same MER as VAS, I've softened my opinion about it. ARG probably isn't too bad, it has a low MER, they seem to be an honest company - so buying some of it for diversity seems like a fair enough idea.

[hodor]

Maybe this is why someone would buy it:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1465607597889&chddm=1484793&chls=IntervalBasedLine&cmpto=ASX:ARG&cmptdms=0&q=INDEXASX:XJO&ntsp=0&ei=mGVbV8i-DYOB0gSyqquIBA

That is what I meant by a long history of out performance. I hadn't seen the comparison on their website which showed them trailing the index so it came as a surprise.

LICs like ARG appear to hold a lot of the index with a few exceptions and different weightings, which is what appears (I presume) to have given them the edge long term. I am fairly new to a lot of this, however my reading and understanding of things points to buying one of the low MER (similar to indexing) LICs when they are at or at a discount to NTA and picking up the index if they are trading at a premium. Given ARG has been around since the 1940's I am not concerned about them going anywhere.

If anyone has an argument against this kind  of strategy I would be happy to hear it.

[marty998]

Anyone think the market is going to be flat/neutral to negative until the election is over?

Thinking it gives time to keep powder dry for some buying in September/October.

Very low inflation/deflation is going to hurt the Banks, Wesfarmers/Woolworths, most industrials who will struggle to get revenue growth in this environment. The only way costs can be managed is by staff cuts or wage freezes so it is likely many firms profits will be steady or down.

Reporting season will give us a better idea. I've moved my super from 80/20 equities/cash to 45/55, and am holding onto cash and margin loan capacity in anticipation.

[faramund]

Anyone think the market is going to be flat/neutral to negative until the election is over?

Thinking it gives time to keep powder dry for some buying in September/October.

Very low inflation/deflation is going to hurt the Banks, Wesfarmers/Woolworths, most industrials who will struggle to get revenue growth in this environment. The only way costs can be managed is by staff cuts or wage freezes so it is likely many firms profits will be steady or down.

Reporting season will give us a better idea. I've moved my super from 80/20 equities/cash to 45/55, and am holding onto cash and margin loan capacity in anticipation.

I have no confidence in my ability to predict the future - so I just average in, any investment money I get, regardless of the market, but this is a bit of an interesting idea.

So, September 1, is just on 3 months away, the long term average growth rate of the all ords is about 7%, so I'd guess, 2% or so growth by then... So allords is now 5391.6. So my guess for 1 September is 5500. Does anyone else want to make a claim for fame or ignominy?

[marty998]

I'm actually starting to believe the whole "sell in May and go away" and "santa rally" evidence.

The market does have a mood and can be seasonal in nature. Confidence comes in waves.

Dow went above 18,000 last week before pulling back slightly. We got to 5400 and started teetering... the insurers will cop a hammering for the storms that hit the east coast - Suncorp, IAG fell but they should be adequately reinsured to limit the losses somewhat.

[marty998]

I don't have anything to say right now. Just thought I'd post to at least keep this thread on the 1st page of the IA sub.

[bigchrisb]

Yeah, there isn't a lot to say at the moment!  Valuations keep swinging around, but not moving a long way.  The world is in a low rates / low growth funk and looks to be there for a while.  My portfolio keeps reinvesting dividends, and I'm putting my spare cash into a mix of debt reduction and increasing passive holdings.  Ticking along really - boring is probably good for long term personal wealth!

The only tactical change I've made is to swap back from ETFs to LICs for new purchases, as the premium to NTA has come back to about par value. 

[hodor]

I'm actually starting to believe the whole "sell in May and go away" and "santa rally" evidence.

The market does have a mood and can be seasonal in nature. Confidence comes in waves.

Dow went above 18,000 last week before pulling back slightly. We got to 5400 and started teetering... the insurers will cop a hammering for the storms that hit the east coast - Suncorp, IAG fell but they should be adequately reinsured to limit the losses somewhat.

Don't confuse coincidence with a repeating pattern you can take advantage of, human nature means we like to see patterns in randomness.

[micase]

lots of talk these days about deflation, low interest rates, deleveraging etc. 10 year govt bonds at 2% instead of the old 5%. And we should expect 4-5% average returns from shares instead of 7-8%. And this is here to stay for some time.

Any thoughts on this, if it's really different or just another cycle passing. Has a big impact on retirement plans though.

To some extent it's offset by lower inflation, i.e. returns 3% lower, but inflation 1-2% lower too, so the impact on SWR required is maybe 1-2% instead of the full 3%. But that 1-2% can add a lot of years on your working life !

While this doesn't impact me greatly regarding retirement plans (I'm still many years off retiring,) it has a very large impact on me saving for a deposit on a PPOR.  After reading a MMM book recommendation ' The Magic of Thinking Big' and another book 'One Page Financial Plan', I went about setting myself long term financial goals that serve as a compass aiding in shorter term financial decisions.  The biggest goal out of this which many people in Australia share is to own my own house.

Coming up with the goal was the easy part, the tough part I'm finding now is determining what path I will take in order to achieve this goal.  Living and working in Sydney I see RE prices are still climbing higher and higher while the returns I get on my money in a HISA account are getting lower and lower.  Currently 90% of my networth is in cash as I can't justify to myself that taking on extra risk with equities is worth it for what could be like you said 4-5% average returns over the next few years.  It is hard not to feel like I've missed the boat with how much RE prices have increased over the past few years in Sydney and how easy servicing a loan would be at these rates. 

The positive out of this is that the goals I came up with after reading the above mentioned books (which I would recommend to anyone out there) help guide me in making the right financial choices in day to day life.  It feels like I'm treading water now but I've got plenty time to educate myself with all things investing and finance so that one day down the line when an opportunity arises I'll be ready to grab it.

[bigchrisb]

Looks like I spoke too soon!  Watching the red ink from brexit and starting to deploy some additional cash.  A small purchase today, and moved some cash across to deploy on monday

[marty998]

Oh man... this was all we were talking about today at work.

Pound dropping 8% against the USD. It's all a bit ridiculous

ASX down 3.5%, FTSE futures down 6%! Shanghai market down 8%..... Japan down 12%.

Seriously it's such a gigantic overreaction

[faramund]

I had a bit of bad timing, at the moment I'm buying a package of shares about once a month, and I just did that a few days ago. Still, hopefully the market will stay down for a while longer, and I'll get a discount with my NEXT package.

[limeandpepper]

Is there something I'm missing - I had a quick look at the markets and VAS, VTS and VEU are all down, but VGS is up??

[JamesSyd]

Is there something I'm missing - I had a quick look at the markets and VAS, VTS and VEU are all down, but VGS is up??

I saw that as well and it made me think twice. It must be that the aussie dollar weakened strengthened more than the stocks in the ETF weakened.  Still a bit confused about it.

Edit:
I looked into it a bit more and it looks like VGS has a strange closing price. It was down ~3% right before it closed and closed much higher for whatever reason

[FFA]

VGS close on Friday was nonsense. I bought a parcel at 54.80 not long before the close, but then 8x traded at 56.92. No idea why someone wanted to buy 8x at this price but it has artificially inflated the closing price.

[Juan Ponce de León]

Closing prices for these ETFs are often well out, during the middle of the day is when they trade closest to NAV.

[turboslob]

New here, but been a MMM reader for a while.

First question, is there anywhere where all of the acronyms are spelled out? I get some of them, others, not so much.

If I get a few responses, I don't mind editing this post and making a central spot, if it doesn't already exist.

Thanks.

[FFA]

not that I'm aware turboslob.

VGS corrected itself today !

[stashgrower]

turboslob - while you are reading do you want to compile the acronyms that are unclear to a newbie...and then put them under a different thread (label it Aussie in some way), and hopefully a couple of us will pipe up and expand on them? or would it get lost to have it separate from this thread?

[deborah]

The ASX has a glossary of terms - http://www.asx.com.au/education/glossary.htm

[happy]

or you can ask questions on Deborah's thread:

http://forum.mrmoneymustache.com/investor-alley/basic-australian-investing-thread/

[cakie]

So... Vanguard released dividend estimates today. But I have a question about MVW - apparently there was a distribution in January? Looks as if it is part of a DRP. (I don't have a record of getting a dividend from them like I do Vanguard). How do I set this up to get the cash for the upcoming one? I was trying to avoid DRPs to keep things simpler! No idea how I set it up last year with Vanguard though, I've already forgotten.

[cakie]

So... Vanguard released dividend estimates today. But I have a question about MVW - apparently there was a distribution in January? Looks as if it is part of a DRP. (I don't have a record of getting a dividend from them like I do Vanguard). How do I set this up to get the cash for the upcoming one? I was trying to avoid DRPs to keep things simpler! No idea how I set it up last year with Vanguard though, I've already forgotten.

I think I've figured it out! I've got to go through the registry - Link Market Services in this case.

[bigchrisb]

Anyone else struggling to understand the VAS dividend?  15.5 cents.  Less than a third of last year's.  I know that some payers such as BHP, ORG, STO and WPL slashed payouts, but I'm surprised the change was this large?   

[marty998]

Computershare for Vanguard...

[marty998]

Anyone else struggling to understand the VAS dividend?  15.5 cents.  Less than a third of last year's.  I know that some payers such as BHP, ORG, STO and WPL slashed payouts, but I'm surprised the change was this large?   

There will be a revision to the estimate on 30 June and another revision when it goes ex.

Don't know why they even bother publishing the estimate....

[bigchrisb]

Anyone else struggling to understand the VAS dividend?  15.5 cents.  Less than a third of last year's.  I know that some payers such as BHP, ORG, STO and WPL slashed payouts, but I'm surprised the change was this large?   

There will be a revision to the estimate on 30 June and another revision when it goes ex.

Don't know why they even bother publishing the estimate....

Indeed!  The error in the estimates seems to be pretty volatile too.  Given that its all for dividends/distributions declared in the past, I don't see how they can get it so wrong?  Makes me like the more open accounting in the LICs annual reports!

[terrier56]

Are the ones that have come out today still an estimate?

VAS still in the gutter at 0.19C and surprise hit for VGS.

[FFA]

yeah I don't know why they can't estimate more accurately.

I wonder if it's a timing issue especially with ANZ, WBC and NAB payments due on 1, 4, 5 july. (last year was 1, 2, 3 july instead). So maybe this year WBC and NAB are out in 3q instead of 2q, whereas last year they were all in 2q. I wouldn't be rushing to conclusions on the quarterly dividend due to these effects

[coin]

Are the ones that have come out today still an estimate?

VAS still in the gutter at 0.19C and surprise hit for VGS.

Really surprised by the estimate for VGS, none of my ETF's before today have given a dividend over a dollar before.  I genuinely thought it was a typo when I first saw it, but I doubt it'd still be up there if it were.

[marty998]

Maybe the work experience kid at the fund accounting/administrators has mixed them all around.

The dividends in theory should get accrued in the index fund when the companies go ex, not when they get paid (at least I thought so)... ANZ, WBC, NAB all should be in the June Qtr...?

Either way...$0.19 is still way too low

[Juan Ponce de León]

Anyone asked Vanguard what is going on with their divs?

[Abundant life]

Anyone asked Vanguard what is going on with their divs?

I haven't, but I was comparing various efts and lics last night and most are down by about half compared to their dividends of the last couple of years.

[Juan Ponce de León]

Glad I bought STW a few weeks back and got in on the 84c 6 monthly div.  That VAS payout just makes no sense at all.

[Abundant life]

STW was one of the ones that had an excellent dividend, glad you got in in time!

[PDM]

Glad I bought STW a few weeks back and got in on the 84c 6 monthly div.  That VAS payout just makes no sense at all.

Hey Trevor - good to see a familiar name around here (I'm pretty new) but recognise you from Whirlpool. Particularly dropping truth bombs on fools wanting huge mortgages and to speculate on property.