Australian Investing Thread

[actionjackson]

Agree, it's different in AUS - I think the rent vs. buy discussion, which is related, is more important in Australia for those without RE. I'm in the, if you don't already have RE in Australia, avoid it until the market corrects, as the downside risk is too significant. If I did have RE in Aus, I'd be paying it down.

[iloveanimals]

So this is going to sound like a question around market timing to which I think I know the answer to...but here goes.

I currently have 10k to purchase VHY shares. I have been waiting for them to reduce, but they are now on the increase due to trump stuff (I think). I did some reading and hear that Feb & March are the biggest payout for dividends, therefore I was thinking should I just bite the bullet and pay the extra in the hope to get the first lot of returns in Feb/ March? Thanks!

[misterhorsey]

I'm not going to suggest you buy now, or wait a while, but perhaps some context would be useful.

If you have $900k invested, then $10k is 1.111% of that.
VHY is currently sitting at around $59, having achieved a recent 52 week high of $61.59.

The difference in buying $10k of VHY @ $59 and $61.59 is about 7 units (or $364).  Which is the equivalent of 0.04% of the amount already invested ($900k).

If your investment horizon is 10-25 years+, then it's possibly not worth worrying too much about this 0.04% difference.  Particularly if the name of the game is to allow it to grow via steady capital appreciation and reinvestment of dividends.

I think we all tend to worry a bit about maximising our investment.  And also think that we can successfully time the market as well.  I know I do.  Which is one of the reasons why I've written this post to also convince myself just to buy some VGS without worrying too much about recent post Trump peaks.

Others may be able to express the maths a little more elegantly than I have.

(edited for spelling/typos)

[Anatidae V]

I know it was for someone else, but Misterhorsey that was just what I needed to read to calm me down. I can now stop feeling like I have to invest exactly right, and just get back to stashing. I am on the edge of my seat to finish saving for our next share purchase, but we'll get there when we get there. Thanks!

[iloveanimals]

I'm not going to suggest you buy now, or wait a while, but perhaps some context would be useful.

If you have $900k invested, then $10k is 1.111% of that.
VHY is currently sitting at around $59, having achieved a recent 52 week high of $61.59.

The difference in buying $10k of VHY @ $59 and $61.59 is about 7 units (or $364).  Which is the equivalent of 0.04% of the amount already invested ($900k).

If you're investment horizon is 10-25 years+, then it's possibly not worth worrying too much about this 0.04% difference.  Particularly is the name of the game is to allow it to grow via steady capital appreciation reinvestment of dividends.

I think we all tend to worry a bit about maximising our investment.  And also think that we can successfully time the market as well.  I know I do.  Which is one of the reasons why I've written this post to also convince myself just to buy some VGS without worrying too much about recent post Trump peaks.

Others may be able to express the maths a little more elegantly than I have.

You make perfect sense, of course! But I just keep reading all this information about not to let money slip out of your hands. Which leads me to my other thing I have been also lamenting over and that is whether I should just go via the VHY wholesale fund (0.34% management fee) or via the EFT (trade costs & 0.24% management fee) route. I just spoke to Vanguard who told me that if I go down the EFT route that they do not manage the admin side of things. I know I will only do about 4 trades per year for maybe the next 2-3 years - so trade costs are low, but wondering if I would prefer the convenience  of just having everything with Vanguard as I am not sure about what to expect through the group they outsource their admin too.  Overall I think that EFT will be a slightly better performer. Aghhh so much to consider :)

[misterhorsey]

I know it was for someone else, but Misterhorsey that was just what I needed to read to calm me down. I can now stop feeling like I have to invest exactly right, and just get back to stashing. I am on the edge of my seat to finish saving for our next share purchase, but we'll get there when we get there. Thanks!

Hey glad you found it useful.

The hardest thing about investing and what causes many people to be unstuck is the emotional/irrational side of it.

I think from your post above you made your first purchase of some ETFs and it may be down a % or two since you bought.  But overtime that decline will be overwhelmed by the long term gains (what does a purchase price of $60 v $58 matter when the current price is $200 in x years?).  But also, declines can also be opportunities to be celebrated (if you have spare cash) as it's a good opportunity to buy more.

[Anatidae V]

I know it was for someone else, but Misterhorsey that was just what I needed to read to calm me down. I can now stop feeling like I have to invest exactly right, and just get back to stashing. I am on the edge of my seat to finish saving for our next share purchase, but we'll get there when we get there. Thanks!

Hey glad you found it useful.

The hardest thing about investing and what causes many people to be unstuck is the emotional/irrational side of it.

I think from your post above you made your first purchase of some ETFs and it may be down a % or two since you bought.  But overtime that decline will be overwhelmed by the long term gains (what does a purchase price of $60 v $58 matter when the current price is $200 in x years?).  But also, declines can also be opportunities to be celebrated (if you have spare cash) as it's a good opportunity to buy more.

Yup. I'm firmly in the "oh no, share price is down, I need to buy while it's on sale!" Just as emotional as the opposite (price is down = need to sell). Really I need to remind myself that over our investing timeline, it's barely a drop, and we've only just started.

[misterhorsey]

Which leads me to my other thing I have been also lamenting over and that is whether I should just go via the VHY wholesale fund (0.34% management fee) or via the EFT (trade costs & 0.24% management fee) route.

Only you can make this decision as it's up to you how you prefer to manage your investments.

I went the ETF route for a few lump sums I wanted to invest early on. But for ongoing management I went down the wholesale fund route  as it means that you can easily make contributions immediately after you get paid - and takes away the discretion of market timing. 

I know the temptation of having money on the sidelines and giving you the discretion to choose when you invest it can result in analysis paralysis.

My view was that I would probably benefit more from the discipline of having my money invested, instead of waiting for big dips to buy.  While you can make some great gains from buying in dips, you can also mistime them and miss out.

So ultimately, I thought I would be better served by paying the slightly higher management cost.

I'm actually quitting my job for an indefinite sabbatical and won't have any more salary coming in.  Possibly forever if I go all out Early Retirement Extreme.  So I will miss the discipline of getting money coming in, and then immediately transferring to vanguard.  Actually, I think I will just miss money coming in!

(edited: more typos!)

[limeandpepper]

I'm actually quitting my job for an indefinite sabbatical and won't have any more salary coming in.  Possibly forever if I go all out Early Retirement Extreme.  So I will miss the discipline of getting money coming in, and then immediately transferring to vanguard.  Actually, I think I will just miss money coming in!

Well that's exciting!! I would be interested in reading a journal if you start one! :)

[iloveanimals]

Which leads me to my other thing I have been also lamenting over and that is whether I should just go via the VHY wholesale fund (0.34% management fee) or via the EFT (trade costs & 0.24% management fee) route.

Only you can make this decision as it's up to how you prefer to manage your investments.

I went the ETF route for a few lump sums I wanted to invest early on. But for ongoing management I went down the wholesale fund route  as it means that you can easily make contributions immediately after you get paid - and takes away the discretion of market timing. 

I know the temptation of having money on the sidelines and giving you the discretion to choose when you invest it can result in analysis paralysis.

My view was that I would probably benefit more from the discipline of having my money invested, instead of waiting for big dips to buy.  While you can make some great gains from buying in dips, you can also mistime them and miss out.

So ultimately, I thought I would be better served by paying the slightly higher management cost.

I'm actually quitting my job for an indefinite sabbatical and won't have any more salary coming in.  Possibly forever if I go all out Early Retirement Extreme.  So I will miss the discipline of getting money coming in, and then immediately transferring to vanguard.  Actually, I think I will just miss money coming in!

Thanks yet again. I  really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it  - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!

Congratulations on quitting your job! Sounds like you have mixed emotions about it? Would love to know how you go with it all! Enjoy! Please keep us updated.

[misterhorsey]

ETF - don't have any capital gain impact unless you trigger it  - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee.

Yes, this is true.  The CGT is a bit of a pain, and a bit of a drag, but it's not a deal breaker for me.  Although I do have a few shares that are still underwater and that I have used to offset against gains.

Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!

I think the advantages here are overstated. You can't get money out of a ETF in one day as settlement on trades is like any share - 3 days, or is it 2 now.  Also, I've never taken money out of the fund, but I actually see the fact that you can't get money out over a few days as an advantage.  Stops you from acting on impulse and cashing out your investments to plunge into that amazing Alpaca/Emu Oil Time Share investment that sounds too good to be true!

Congratulations on quitting your job! Sounds like you have mixed emotions about it? Would love to know how you go with it all! Enjoy! Please keep us updated.

Yes, thanks! Very excited actually to be quitting a frustrating and boring job.  The mixed feelings are because I'm shocked to be voluntarily walking away from a decent salary. Before I discovered MMM I had assumed that one would need to achieve a passive income equivalent to your final salary to be 'comfortable', or some silly metric like that, but in the interests of bringing forward my FI i've dramatically cut my expenses down without really feeling like I'm missing out on anything.  My passive income is still not as high as I would like, but my expenses are about 2/3 of my passive income so I'm using the maths to convince me to take a break for a little while.

[misterhorsey]

I'm actually quitting my job for an indefinite sabbatical and won't have any more salary coming in.  Possibly forever if I go all out Early Retirement Extreme.  So I will miss the discipline of getting money coming in, and then immediately transferring to vanguard.  Actually, I think I will just miss money coming in!

Well that's exciting!! I would be interested in reading a journal if you start one! :)

Thanks limeandpepper - I did think about starting a journal asking the MMMhivemind for advice but I ended up making my decision before I had the energy to lay it all out on the forums.  I might start up a random blog shortly and I'll share that with you and others that may be interested.  I should perhaps call it MMMM just to steal traffic from clumsy typists.

I don't really think of this as a early retirement - but as I've resigned from work I've also resigned myself to the fact that I lack any motivation to find another job for the foreseeable future. I do want to remain busy and active and productive however. We'll see what the next year brings hey.

[FFA]

good posting misterhorsey! I certainly feel I should know better, but often find myself logging into nabtrade and drift into watching the bid/offer and trying to nickel and dime the buy order. Investing routinely on BPay and just taking whatever price comes is a much better habit to get into for the majority of people (self included!).

[mjr]

Thanks yet again. I  really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it  - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!

I don't think you're quite correct about ETFs and capital gains.  Take VAS for an example, it is just an exchange-traded fraction of the overall Vanguard ASX 300 fund.  If that fund makes a capital gain, then the ETF will also return capital gains as part of the distribution.

Of course, that particular fund rarely makes a capital gain, but the ETF is not immune from the possibility.

Unless you're comparing ETFs with more traditional actively-managed funds, which return capital gains far more frequently.

[Adventures With Poopsie]

Hi everyone, fellow Aussie here. I didn't want to clog up this thread so have started another one with a specific investing question. If any of you wise folks have the time, I'd really appreciate your input/suggestions.

Thread: http://forum.mrmoneymustache.com/investor-alley/australian-specific-investing-question/msg1404413/#msg1404413

[iloveanimals]

Thanks yet again. I  really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it  - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!

I don't think you're quite correct about ETFs and capital gains.  Take VAS for an example, it is just an exchange-traded fraction of the overall Vanguard ASX 300 fund.  If that fund makes a capital gain, then the ETF will also return capital gains as part of the distribution.

Of course, that particular fund rarely makes a capital gain, but the ETF is not immune from the possibility.

Unless you're comparing ETFs with more traditional actively-managed funds, which return capital gains far more frequently.

Thanks MJR - have you had any direct experience with Capital Gains being passed on via your ETF - or anyone else on this forum?

[iloveanimals]

Not sure if this is slightly off topic – but I was reviewing investments in my super fund and have thought about ditching my life, critical illness and salary continuance insurances.  My reasons are that the fees are eating away at my small super amount ($150k) and  I don’t have kids, mortgage or any debts. My wife will have access to our investments if a crisis should arise. I have decided to leave TPD at $345k coverage – because that can be costly.

Has anyone else felt confident to drop such insurances?

[iloveanimals]

Not sure if this is slightly off topic – but I was reviewing investments in my super fund and have thought about ditching my life, critical illness and salary continuance insurances.  My reasons are that the fees are eating away at my small super amount ($150k) and  I don’t have kids, mortgage or any debts. My wife will have access to our investments if a crisis should arise. I have decided to leave TPD at $345k coverage – because that can be costly.

Has anyone else felt confident to drop such insurances?

I ditched all the insurances (including TPD) in my super account once I became FI. Like you, no kids, mortgage or debt. Unlike you, single.

Thanks Ozbeach - firstly love the name you use! Makes me dream many a dream :) Ok - so one last question - you weren't worried about TPD - even though you could end up in a wheel chair for the rest of your life - or something as tragic as that were you would need full time care etc.

[bigchrisb]

I changed my view on TPD and critical illness cover after I lodged a claim.  For someone targeting FIRE, one of their biggest risks is losing their income during the accumulation stage.   I think it makes sense to hold some form of insurance during this stage.

However, once you are FI (if you REALLY are FI), then you should no longer be dependent upon your income, and no longer need to insure it.   If you worry about not being insured on your income, then you probably aren't at your FI number yet.

I no longer hold any life/TPD/trauma insurance.  My stash is self insurance on this now. 

[frugalsurfer]

So I've sunk $45k into a cargo van, plus another $25k for the conversion into an off-grid mobile home. That will leave about $50k left over to invest and improve my ROI from ~3.5% variable. Aiming for 7%+ inc fees. Has anyone used Australian Ethical? They have managed funds which appear, on paper, to be consistently strong performers.

I'm late 20s now and have only worked full-time for three years. I have travelled extensively within 15+ countries over the past decade, so I feel I am in a relatively good position as I have always been super frugal and good at saving money.

I am now focussing on generating more money working from 'home' (the van) and while travelling and reducing my expenses further so I can buy into a community and retire/semi-retire and be completely self-employed by 40.

[deborah]

I ditched the insurance as soon as I joined the super fund - for the same reasons - no kids, no mortgage... The TPD I thought about and eventually ditched as well, because, although I was still working, pretty much every way I could need it, was already covered. When I had an accident in Victoria, TAC should have covered just about everything (I fell in a crack because I had only been working as a contractor for 6 months, and thus didn't have 6 months of employment history in the type of job I had).  However, I looked into the amount I would really need if I was disabled AFTER I became FIRE, and it can be an appalling amount (much more than a normal ER amount), so I looked into TPD at that stage, then procrastinated until I actually had enough to self insure. But for those who are FIREing on low amounts, and before you are FI, you probably need to do the sums.

[FFA]

I changed my view on TPD and critical illness cover after I lodged a claim.  For someone targeting FIRE, one of their biggest risks is losing their income during the accumulation stage.   I think it makes sense to hold some form of insurance during this stage.

However, once you are FI (if you REALLY are FI), then you should no longer be dependent upon your income, and no longer need to insure it.   If you worry about not being insured on your income, then you probably aren't at your FI number yet.

I no longer hold any life/TPD/trauma insurance.  My stash is self insurance on this now.

I'm the same, FI and not holding any life/TPD/trauma insurance. Married with two young kids but believe the stash is adequate in case of one of these scenarios we don't like to think about. Probably more important for me, and something I still need to put a bit more effort into is estate planning.

[FFA]

Thanks yet again. I  really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it  - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!

I don't think you're quite correct about ETFs and capital gains.  Take VAS for an example, it is just an exchange-traded fraction of the overall Vanguard ASX 300 fund.  If that fund makes a capital gain, then the ETF will also return capital gains as part of the distribution.

Of course, that particular fund rarely makes a capital gain, but the ETF is not immune from the possibility.

Unless you're comparing ETFs with more traditional actively-managed funds, which return capital gains far more frequently.

Thanks MJR - have you had any direct experience with Capital Gains being passed on via your ETF - or anyone else on this forum?

I don't recall from VAS in the past few years but definitely had some come through in IOZ and VGS.

VAS has been fortunate as it's continually expanding so they would be buying without need to sell. Other ETF's that are shrinking or more up and down might be more prone to capital gains. Smart beta funds that may not be market cap weighted will also be more prone to capital gains.

[iloveanimals]

Thanks yet again. I  really needed another opinion on this. I think I have only come up with these few things: ETF - don't have any capital gain impact unless you trigger it  - but in the managed fund this could occur without your control. The ETF would come out as a slightly better performer as I don't intend to make frequent trades and lower management fee. Finally the ETF is good if you really needed the $ quick you can get in in a day, where as the Managed Fund could take up to a week. So yes I am still undecided. LOL - I feel like I am losing my mind a bit!

I don't think you're quite correct about ETFs and capital gains.  Take VAS for an example, it is just an exchange-traded fraction of the overall Vanguard ASX 300 fund.  If that fund makes a capital gain, then the ETF will also return capital gains as part of the distribution.

Of course, that particular fund rarely makes a capital gain, but the ETF is not immune from the possibility.

Unless you're comparing ETFs with more traditional actively-managed funds, which return capital gains far more frequently.

Thanks MJR - have you had any direct experience with Capital Gains being passed on via your ETF - or anyone else on this forum?

I don't recall from VAS in the past few years but definitely had some come through in IOZ and VGS.

VAS has been fortunate as it's continually expanding so they would be buying without need to sell. Other ETF's that are shrinking or more up and down might be more prone to capital gains. Smart beta funds that may not be market cap weighted will also be more prone to capital gains.

Thanks for the replies. I spoke to Vanguard and they said that in the ETF they don't pass on any capital gains - only through the retail or wholesale funds. I also tried to dig more to find out what has been the previous performance of capital gains events in the VHY wholesale funds - to which they wouldn't provide me that detail. So back to working out pro's and cons for ETF vs Wholesale funds. 

[iloveanimals]

I ditched the insurance as soon as I joined the super fund - for the same reasons - no kids, no mortgage... The TPD I thought about and eventually ditched as well, because, although I was still working, pretty much every way I could need it, was already covered. When I had an accident in Victoria, TAC should have covered just about everything (I fell in a crack because I had only been working as a contractor for 6 months, and thus didn't have 6 months of employment history in the type of job I had).  However, I looked into the amount I would really need if I was disabled AFTER I became FIRE, and it can be an appalling amount (much more than a normal ER amount), so I looked into TPD at that stage, then procrastinated until I actually had enough to self insure. But for those who are FIREing on low amounts, and before you are FI, you probably need to do the sums.

Thanks Deborah and then many others you have provided a response regarding insurances. Final decision is  to get rid of Life ( ironic name!) Insurance and reduce salary continuance. Once we are fully FIRED  - then we will probably drop everything ...except TPD can't seem to get over not needing that one. Thanks again :)

[mjr]

Thanks for the replies. I spoke to Vanguard and they said that in the ETF they don't pass on any capital gains - only through the retail or wholesale funds. I also tried to dig more to find out what has been the previous performance of capital gains events in the VHY wholesale funds - to which they wouldn't provide me that detail. So back to working out pro's and cons for ETF vs Wholesale funds.

I'm happy to be wrong (I'm wrong often), but did they say how this happens ?  I'm pretty sure they use the same underlying fund, so if the fund pays capital gains how do they pass those gains on to ETF holders ?

My VAS annual tax statement includes lines for capital gains ($0).

[marty998]

The managed funds and ETFs are set up as classes within the same trust. Any income they derive is proportioned out to each class and also retains its character when distributed out (NPP, dividend, capital gains, tax deferred, foreign income, as well as franking credits and foreign tax credits).

VAS wouldn't trigger too many capital gains. The only time it would sell holdings would be when there is a takeover (and no scrip for scrip rollover option available - e.g. when a foreign company acquires an Australian one) or when a company gets booted out of the S&P ASX 300 index (in which case there is likely to be a capital loss, not a gain).

There have not been too many large takeovers occur in the market lately. Perhaps M&A activity will pick up again soon.

VHY on the other had rebalances every 6 months, so there will potentially be large capital gains and losses triggered every year.

[iloveanimals]

Thanks for the replies. I spoke to Vanguard and they said that in the ETF they don't pass on any capital gains - only through the retail or wholesale funds. I also tried to dig more to find out what has been the previous performance of capital gains events in the VHY wholesale funds - to which they wouldn't provide me that detail. So back to working out pro's and cons for ETF vs Wholesale funds.

I'm happy to be wrong (I'm wrong often), but did they say how this happens ?  I'm pretty sure they use the same underlying fund, so if the fund pays capital gains how do they pass those gains on to ETF holders ?

My VAS annual tax statement includes lines for capital gains ($0).

I got in touch with Vanguard and this is their response:

Capital gains simply refer to the gain in an asset's price.

If you bought a house for $1 million and sold it for $1.5 million, that would result in a $500,000 capital gain.

Similarly, if you purchased a Vanguard ETF for $50 and later sold it when the price rose to $60, this will result in a capital gain of $10.

In effect, the capital gain is only realised once the asset is sold.   

The same principle also relates to Vanguard Managed Funds. The managed funds are composed of units, the price of which is subject to fluctuations in the same way an ETF's price or house prices fluctuate from time to time.


So now I am really confused, because their explanation is what I thought in the first place, however I have read many people here say that they had to deal with the Capital Gains that get passed onto them at the end of FY...but I am sure they haven't sold their shares. Anyone out there that can set things straight?

[FFA]

there are two levels of CG.

1. As described below when you sell the units. These are direct CG's
2. When the fund itself sells units and has a CGT event, it needs to pass on all tax to the unitholders as the fund itself does not pay tax. Therefore you can incur "distributed" CG's from the fund. As explained it is unlikely to be significant in the case of VAS, but certainly not impossible.

[iloveanimals]

there are two levels of CG.

1. As described below when you sell the units. These are direct CG's
2. When the fund itself sells units and has a CGT event, it needs to pass on all tax to the unitholders as the fund itself does not pay tax. Therefore you can incur "distributed" CG's from the fund. As explained it is unlikely to be significant in the case of VAS, but certainly not impossible.

Thanks FFA. I put your info to Vanguard who responded with:


You are right. It is possible for a managed fund to distribute capital gains to unit holders following a significant change in the volume of money in that fund. This can occur due to a number of reasons, but also includes large volume transactions.

This effect is not seen in our ETF products as the market makers are able to absorb such fluctuations in the spread they charge on the ETF products.

Over the past 10 years, a sizeable capital gain payout has only been seen on two occasions (30 June 2007 and 30 June 2015).



So ETF's avoid a CGT event unless you sell. So I think  may have made up my mind for me to go with ETF to control the potential tax issues.

Although now I am debating whether I buy VAS or VHY, given that many of the performers that Pay dividends in the VHY are already represented in VAS. I have concerns around if Australian Companies start collapsing under the pressure to pay dividends in the future then the VHY shares may not be worth much at all. It's more of a risk I guess. But we don have most of $ in the Vanguard Balanced Fund which might absorb the downtime's of  VHY.

[englyn]

One of my concerns with VAS is that, unlike the US VSTAX, it's not very diversified, as the top of the ASX is very concentrated (the top 5-10 companies have a huge chunk of the market capitalisation), plus it's only following the top 200 (or was it 300). VHY is worse for this.

[marty998]

VAS is ASX 300. STW is ASX 200.

[steveo]

One of my concerns with VAS is that, unlike the US VSTAX, it's not very diversified, as the top of the ASX is very concentrated (the top 5-10 companies have a huge chunk of the market capitalisation), plus it's only following the top 200 (or was it 300). VHY is worse for this.

Is there a better option ? I don't think that there is. I'd like to know if there is a better option.

[FFA]

Capital Gains : VGS certainly distributed CG in Jul'16. The div was $1.49 per unit, much more than the usual per quarter. And two thirds of it was capital gains (held for more than 12 months). I haven't had any from VAS but I'm a bit surprised Vanguard are giving such a definitive answer it could possibly happen as was the case in VGS.

I have written at length about concentration in the ASX200/300. I adjusted my portfolio to blend in some other ETF's such as MVW, EX20, MVS. I also tinker with some LIC's and direct shares. But still the majority of my funds are in the traditional vanguard ETF's (VAS, VGS, VTS/VEU --> gradually shifting to VGS). I think MVW is probably the best direct alternative (still includes the large caps). EX20 and MVS are not substitutions but complementary, i.e. blend them in to improve diversification.

[MrThatsDifferent]

Ok, I've registered for Vanguard's retail funds and will have about $20k to start investing next week. My plan is to focus on the VAS version first, get that to $100k first (yr 1) and then focus on the VGS version second (yr 2) and get that to $100k. It should take me a year to fill up each.

My question: does this strategy make sense or should I do a 50/50 split each year for the next 2 years?

[misterhorsey]

Ok, I've registered for Vanguard's retail funds and will have about $20k to start investing next week. My plan is to focus on the VAS version first, get that to $100k first (yr 1) and then focus on the VGS version second (yr 2) and get that to $100k. It should take me a year to fill up each.

My question: does this strategy make sense or should I do a 50/50 split each year for the next 2 years?

So you're not talking about the ETFs, but the retail managed funds?

i.e.

ASX300-https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8129/?overview

International (ex Aus) https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8145/?overview

Some things to consider if you haven't already.

Given you are going the fund route, buying both at the same time doesn't incur any additional transactions costs like brokerage, and it has the advantage of diversifying your investment across Australia and the World.  What if you your plough all your savings into Australia over the next year and International goes gangbusters?

Then again, as you can see, the fees for each decrease progressively at $50k invested, and then again at $100k.  So if you have two funds sitting at about $60k each, you're paying marginally more fees than if you had them in one fund sitting at $120k. I emphasise 'marginally' more.  But every little bit counts of course.

Over the long term, my gut feeling would be to start the two funds as the return from diversifying across Australia and international is probably going to be better than the savings from marginally lower fees over a small proportion of your overall.

But this then begs the question, why not go straight into one of Diversified funds?

The fees for the 'VAS' and 'VGS' equivalent funds are quite a bit higher than the ETFs. And the only real benefit of investing in these via the separate funds vs the ETFs is the lack of brokerage costs (which you pay for anyway via the fund fees) when buying small regular amounts.

But if you are happy with the fund route, and attracted by the fact that you make regular small investments, then the Diversified fund gives you automatic rebalancing and a blend of asset classes other than Australia and International shares (like property) to smooth over both bad times and good times.  If you're going to pay those fees you may as well get something in return.

[englyn]

One of my concerns with VAS is that, unlike the US VSTAX, it's not very diversified, as the top of the ASX is very concentrated (the top 5-10 companies have a huge chunk of the market capitalisation), plus it's only following the top 200 (or was it 300). VHY is worse for this.

Is there a better option ? I don't think that there is. I'd like to know if there is a better option.

I haven't found one. Could balance things out a bit by buying a small caps etf, but that has its own shortcomings. I don't have to make it worse, though.

[englyn]

 buying a small caps etf, but that has its own shortcomings

Such as "The index that tracks Small Caps - the S&P/ASX Small Ordinaries, was beaten by the S&P/ASX 200 Index by a whopping 38% in the past 10 years." http://www.betterwealth.com.au/blog/the-case-against-investing-in-small-caps/

[MrThatsDifferent]

Ok, I've registered for Vanguard's retail funds and will have about $20k to start investing next week. My plan is to focus on the VAS version first, get that to $100k first (yr 1) and then focus on the VGS version second (yr 2) and get that to $100k. It should take me a year to fill up each.

My question: does this strategy make sense or should I do a 50/50 split each year for the next 2 years?

So you're not talking about the ETFs, but the retail managed funds?

i.e.

ASX300-https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8129/?overview

International (ex Aus) https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8145/?overview

Some things to consider if you haven't already.

Given you are going the fund route, buying both at the same time doesn't incur any additional transactions costs like brokerage, and it has the advantage of diversifying your investment across Australia and the World.  What if you your plough all your savings into Australia over the next year and International goes gangbusters?

Then again, as you can see, the fees for each decrease progressively at $50k invested, and then again at $100k.  So if you have two funds sitting at about $60k each, you're paying marginally more fees than if you had them in one fund sitting at $120k. I emphasise 'marginally' more.  But every little bit counts of course.

Over the long term, my gut feeling would be to start the two funds as the return from diversifying across Australia and international is probably going to be better than the savings from marginally lower fees over a small proportion of your overall.

But this then begs the question, why not go straight into one of Diversified funds?

The fees for the 'VAS' and 'VGS' equivalent funds are quite a bit higher than the ETFs. And the only real benefit of investing in these via the separate funds vs the ETFs is the lack of brokerage costs (which you pay for anyway via the fund fees) when buying small regular amounts.

But if you are happy with the fund route, and attracted by the fact that you make regular small investments, then the Diversified fund gives you automatic rebalancing and a blend of asset classes other than Australia and International shares (like property) to smooth over both bad times and good times.  If you're going to pay those fees you may as well get something in return.

Thanks Mr H! You are correct, those are the funds I mean. Yes, I'm not going the ETF route because I'm intimidated by the brokerage part and feel like it's all too much. I need this to be as simple as possible for me to make it work. I think I get what you mean about the diversified ones, those are the balanced, growth, etc Lifestrategy options? That makes sense and would be simple. I haven't targeted those Because no one mentions them really. I've read every page of this topic and most advocate the VAS & VGS versions (granted, most advocate the ETF not retail).  I don't know if I should get balanced, growth or high growth?  I'm happy to do the 50/50 split, that makes sense, I will just have to pay slightly higher fees longer. I'll look at the returns of the Lifestrategy ones to see if they will grow as well as the VAS & VGS versions.

[iloveanimals]

Capital Gains : VGS certainly distributed CG in Jul'16. The div was $1.49 per unit, much more than the usual per quarter. And two thirds of it was capital gains (held for more than 12 months). I haven't had any from VAS but I'm a bit surprised Vanguard are giving such a definitive answer it could possibly happen as was the case in VGS.

I have written at length about concentration in the ASX200/300. I adjusted my portfolio to blend in some other ETF's such as MVW, EX20, MVS. I also tinker with some LIC's and direct shares. But still the majority of my funds are in the traditional vanguard ETF's (VAS, VGS, VTS/VEU --> gradually shifting to VGS). I think MVW is probably the best direct alternative (still includes the large caps). EX20 and MVS are not substitutions but complementary, i.e. blend them in to improve diversification.

Thanks FFA. I have challenged Vanguard based on the information you have provided me, so lets see how they respond. Stay Tuned. In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok. On another note, I have been wondering about the tax deductions that can be made for ETF's, as I have been told that the management fee is in the share purchase therefore fee's don't seem like they would be a tax deduction, unlike the Balanced Fund which clearly spells out the fee's paid - which I am guessing are tax decductable as they have been clearly stated. Sorry for not knowing, but I have yet to do tax for this as I only started investing back in October. Cheers.

[misterhorsey]

Thanks Mr H! You are correct, those are the funds I mean. Yes, I'm not going the ETF route because I'm intimidated by the brokerage part and feel like it's all too much. I need this to be as simple as possible for me to make it work. I think I get what you mean about the diversified ones, those are the balanced, growth, etc Lifestrategy options? That makes sense and would be simple. I haven't targeted those Because no one mentions them really. I've read every page of this topic and most advocate the VAS & VGS versions (granted, most advocate the ETF not retail).  I don't know if I should get balanced, growth or high growth?  I'm happy to do the 50/50 split, that makes sense, I will just have to pay slightly higher fees longer. I'll look at the returns of the Lifestrategy ones to see if they will grow as well as the VAS & VGS versions.

Yes I can relate with having an aversion of the overheads of the ETFs. 

But another key factor is the behavioural aspects of buying ETFs.

My own experience is that when saving up to buy ETFs I become price fixated.  I want to wait for when the ETF dips. And so I end up stashing cash away, and a) i miss out on gains, or b) i buy and then I regret when it goes even lower!

One recent example is the recent Trump rally.  I sat on the sidelines waiting for it to eventually pull back - and it has, a little.  By around -4%.   However, if I had just put the money into the managed fund as it came to hand, I'd be up around 9% or so - after averaging.

The other aspect is rebalancing.  If you start off with a 50/50 allocation between Australia/International, how confident are you that you'll have the discipline to maintain that allocation over the long term.

In my view, getting the fund versions of VAS and VGS is the worst of both worlds - mainly due to the higher fees.  If you do want to manage it yourself you're better off going the ETF route, buying in large chunks, doing the management yourself and paying the low fees.  If you are going to pay the higher fund fees, then let Vanguard do the rebalancing and asset allocation for you.

Not many people talk about the Lifestrategy funds because there's not much to talk about.  You bpay your money in as you get it, you get quarterly dividend statements and annual tax statements- not much to do, not much to control. 

Many people on this forum like a little more control - like to design their own allocations and portfolios - are forever tweaking and optimising their portfolios. So this provokes far more discussions about ETFs as they are a great vehicle for these kinds of investors.  And it creates options and choices - and the decision to make the right choice can become overwhelming.

Their returns may be better, or on par, or slightly worse - no-one can really tell.  One thing is certain however - there is a time cost involved in managing certain types of portfolios - which is fine if you enjoy it.

I used to buy shares directly but I'm glad I don't do it any more.  There is a cost to investing in the funds, but one needs to value one's time as well (otherwise I wouldn't be able to write long winded forum posts!)

[misterhorsey]

In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok.

Hey animallover. I think you mentioned wayback that you were interested in VHY to increase your income component of your investment.

However, buying more VAS and VHY when you already have the balanced fund sounds a bit like unnecessary duplication. 

My suggestion would be to zoom out and have a look at your overall asset allocation and make sure you understand how future and ongoing purchases would affect that.  My memory is that you were very property heavy in the past, and still may be.  Adding a little bit of ETF may have a negligible effect on your overall investment portfolio and income streams, but at the expense of slightly fiddlier reporting. Into the future it may increasing your investment concentration further on Australian equities (exchanging one overallocation, property, into another, australian equities).

[MrThatsDifferent]

I did it! Finally rolled the dice after 3 months of reading, stressing and strategising. I went with the Lifestrategy High Growth Fund and will power that to $100k and then evaluate my next step. I think the KISS method will be the best for me.  Thanks for everyone's help and support!

[mjr]

Capital Gains : VGS certainly distributed CG in Jul'16. The div was $1.49 per unit, much more than the usual per quarter. And two thirds of it was capital gains (held for more than 12 months). I haven't had any from VAS but I'm a bit surprised Vanguard are giving such a definitive answer it could possibly happen as was the case in VGS.

I have written at length about concentration in the ASX200/300. I adjusted my portfolio to blend in some other ETF's such as MVW, EX20, MVS. I also tinker with some LIC's and direct shares. But still the majority of my funds are in the traditional vanguard ETF's (VAS, VGS, VTS/VEU --> gradually shifting to VGS). I think MVW is probably the best direct alternative (still includes the large caps). EX20 and MVS are not substitutions but complementary, i.e. blend them in to improve diversification.

Thanks FFA. I have challenged Vanguard based on the information you have provided me, so lets see how they respond. Stay Tuned. In regards to concentration of ASX200/300 the reason why I am ok with taking on VHY or VAS is because I have the majority of our funds in Vanguard Balanced Fund so thought taking risks like VHY might be ok. On another note, I have been wondering about the tax deductions that can be made for ETF's, as I have been told that the management fee is in the share purchase therefore fee's don't seem like they would be a tax deduction, unlike the Balanced Fund which clearly spells out the fee's paid - which I am guessing are tax decductable as they have been clearly stated. Sorry for not knowing, but I have yet to do tax for this as I only started investing back in October. Cheers.

This forum knows more than Vanguard customer support.  As has been said, it is entirely possible for any fund to deliver a capital gain as part of a distribution, but some are very rare and unlikely.

[marty998]

I have posted here before about my long term speccie play Avanco Resources (ASX: AVB). Not financial advice, DYOR but having done my own research I thought it had some potential way back in 2012.

Even still, it was pie in the sky and has taken longer than expected to get going. Shareholders got diluted heavily after a few cap raisings but it's all starting to come good this year. Quarterly report has just been released and shows their copper mine up and producing, US$23 million revenue for the December quarter and more importantly, generating free cash flow of US$5m as well.

Market cap of around $220m, on its way to producing around 18,000 tonnes of copper annually (US$5,850 per tonne), and this is before their much bigger "stage 2" mine goes ahead.

Haven't yet made a mint on it, round about $10k play money invested (125,000 shares @9c). It's nice to watch and has helped me understand a lot about how a mining company goes from exploration to production. I'm hoping that the knowledge gained over the last 5 years will help me research some more "potentials".

The quarterly report has a lot of info about grades and assaying techniques (determining how much copper is recoverable from a given amount of rock), and how to optimise the excavation of a mine site and optimising a refining plant throughput.

Well worth a read if you are interested to learn, even if you may not be keen to invest.

[misterhorsey]

I did it! Finally rolled the dice after 3 months of reading, stressing and strategising. I went with the Lifestrategy High Growth Fund and will power that to $100k and then evaluate my next step. I think the KISS method will be the best for me.  Thanks for everyone's help and support!

Well done!  You also inadvertently make another good point.  Better to focus energies on saving money, stashing your investments away and living life, rather than over analysing invest options too much.  Once you've set it up, go go go! What's the point of working and saving hard to retire early if so much mental energy while working is spent figuring out how to retire early?

[oysters]

I did it! Finally rolled the dice after 3 months of reading, stressing and strategising. I went with the Lifestrategy High Growth Fund and will power that to $100k and then evaluate my next step. I think the KISS method will be the best for me.  Thanks for everyone's help and support!

Well done!  You also inadvertently make another good point.  Better to focus energies on saving money, stashing your investments away and living life, rather than over analysing invest options too much.  Once you've set it up, go go go! What's the point of working and saving hard to retire early if so much mental energy while working is spent figuring out how to retire early?

I agree. Its wise to carefully optimise your effort to your strengths and what will provide benefit for effort. For most people, hyperanalysing and managing portfolios takes much time and stress. Lets say doing so gets you an extra 1% of returns over a very simple two or three allocation portfolio (probably about as good as it could get from the extra effort, realistically it might be more like 0.5%, unless your surname is Buffett). But doing so is so stressful overall that you end up saving only half or three-quarters what you would because you make other poorer decisions due to stress. You'll be much worse off overall.

[steveo]

Ok, I've registered for Vanguard's retail funds and will have about $20k to start investing next week. My plan is to focus on the VAS version first, get that to $100k first (yr 1) and then focus on the VGS version second (yr 2) and get that to $100k. It should take me a year to fill up each.

My question: does this strategy make sense or should I do a 50/50 split each year for the next 2 years?

So you're not talking about the ETFs, but the retail managed funds?

i.e.

ASX300-https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8129/?overview

International (ex Aus) https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/retail/portId=8145/?overview

Some things to consider if you haven't already.

Given you are going the fund route, buying both at the same time doesn't incur any additional transactions costs like brokerage, and it has the advantage of diversifying your investment across Australia and the World.  What if you your plough all your savings into Australia over the next year and International goes gangbusters?

Then again, as you can see, the fees for each decrease progressively at $50k invested, and then again at $100k.  So if you have two funds sitting at about $60k each, you're paying marginally more fees than if you had them in one fund sitting at $120k. I emphasise 'marginally' more.  But every little bit counts of course.

Over the long term, my gut feeling would be to start the two funds as the return from diversifying across Australia and international is probably going to be better than the savings from marginally lower fees over a small proportion of your overall.

But this then begs the question, why not go straight into one of Diversified funds?

The fees for the 'VAS' and 'VGS' equivalent funds are quite a bit higher than the ETFs. And the only real benefit of investing in these via the separate funds vs the ETFs is the lack of brokerage costs (which you pay for anyway via the fund fees) when buying small regular amounts.

But if you are happy with the fund route, and attracted by the fact that you make regular small investments, then the Diversified fund gives you automatic rebalancing and a blend of asset classes other than Australia and International shares (like property) to smooth over both bad times and good times.  If you're going to pay those fees you may as well get something in return.

Thanks Mr H! You are correct, those are the funds I mean. Yes, I'm not going the ETF route because I'm intimidated by the brokerage part and feel like it's all too much. I need this to be as simple as possible for me to make it work. I think I get what you mean about the diversified ones, those are the balanced, growth, etc Lifestrategy options? That makes sense and would be simple. I haven't targeted those Because no one mentions them really. I've read every page of this topic and most advocate the VAS & VGS versions (granted, most advocate the ETF not retail).  I don't know if I should get balanced, growth or high growth?  I'm happy to do the 50/50 split, that makes sense, I will just have to pay slightly higher fees longer. I'll look at the returns of the Lifestrategy ones to see if they will grow as well as the VAS & VGS versions.

I think it you are going the managed fund route I would use one of the all in one funds. Just chuck it in there and do absolutely nothing else. I am trying to get my parents to put some of their money in there.

[steveo]

I did it! Finally rolled the dice after 3 months of reading, stressing and strategising. I went with the Lifestrategy High Growth Fund and will power that to $100k and then evaluate my next step. I think the KISS method will be the best for me.  Thanks for everyone's help and support!

This is good news. I like this option a lot. I use the ETF's mainly due to the lower fees but if you want simplicity this is a great option. If I'm honest I probably also like a little but of DIY'ing when it comes to the ETF.

I reckon you will do well out of this though.

[MrThatsDifferent]

Thanks Eucalyptus and Steveo for the encouragement and backing up the plan and massive thanks to Mr. Horsey!!!  You helped me get clarity and set up exactly what I need for my personality. It's a shame the Lifestrategy options aren't discussed more, but I get it. This was such a big deal for me to buy shares, something I thought only rich people could do, that I'm glad to have found a path that is simple, prosperous and effortless. You people are the best, so generous, supportive and wise. Thanks!