Australian Investing Thread

[marty998]

This is one of @marty998’s regular haunts so...

HAPPY BIRTHDAY!

Enjoy your special day. Can’t wait to celebrate with you.

Thankyou :) I'll try and stop by your office today to say hi, if we're not out for lunch with my team.

[misterhorsey]

Just on Gold,  I came across this interesting fact in a book I just finished:

"Gold has its bugs. They argue that if there is a loss of confidence in the dollar - or even if there isn't - gold is an obvious asset for international investors, including central banks, to scramble into.  In practice, of course, central banks have been scrambling in precisely the opposite direction for the better part of a century. Where gold account for nearly 70 percent of central banks' international reserves in 1913, its share today is barely 10 percent. In every year since 1988, central banks have been selling, not buying gold.

Why have they done so is clear. Financial instruments are more convenient for emergency financial transactions. When a currency is under pressure and the central bank is forced to support it, it is simpler just to buy that currency for dollars than to first sell gold in order to obtain the requisite dollars."

- Eichengreen, Barry, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, p147-148, Oxford University Press, 2011

(I wouldn't recommend the book by the way.  zzzzz zzzz zzzz)

It's pretty uncontroversial to say that Gold is probably of marginal interest to most people on this forum. And I personally am a fan of Warren Buffet's view on Gold.

But it's interesting to note that although the investment value of Gold owes its origins to its historical use as a currency reserve, the fact that it no longer forms the basis of currency reserves in the modern global economy has not taken away it's shine for a significant number of investors.

[asosharp]

It's pretty uncontroversial to say that Gold is probably of marginal interest to most people on this forum. And I personally am a fan of Warren Buffet's view on Gold.

What's Buffet's view on it? That it's a no go?

[misterhorsey]

This is from the 2011 Berkshire Hathaway Shareholder letter, in a passage where he is describing 3 different categories of investments: currency based investments (Bonds, mortgages, bank deposits etc), speculative commodities (tulips, gold etc), and investment in productive assets (businesses, farms, or real estate)

Page 18, http://www.berkshirehathaway.com/letters/2011ltr.pdf

Finance articles quote him endlessly, but no one gives the actual source.

I'll quote him in full as he has such an amusing turn of phrase:

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

[centastic]

haha yes finance types do love to wheel out that old saw as their "final word" on gold.

Buffet is right, but he also (intentionally?) creates a false dichotomy, ie that you have to be either 100% invested in gold OR stocks. Some of the benefit of gold comes not from the expectation that it will increase in value over time, but from its ability to be used to buy said productive assets when they are on special. It's an uncorrelated asset that appreciates less quickly than shares or farmland unless it doesn't.

[englyn]

I've been having a very interesting time playing around with https://portfoliocharts.com/portfolio/withdrawal-rates/
It points out elsewhere on the site that (as we know) the 4% rule is based in the US and gives the option to analyse asset allocation for a short list of other countries including Aus w.r.t safe withdrawal rate.

Does anyone have any comment on how accurate it is overall, and especially on the translation to Aus?

With much trial and error I've got the SWR up to 5% (!!) at 25 year retirement with a portfolio of 20% domestic shares, 35% world, 5% emerging world markets, 20% cash, 10% commodities, 10% REIT.

Where's the catch?

[Ozstache]

Where's the catch?

The catch is that at a higher withdrawal rate, your portfolio's chance of survival is lower than it otherwise would be in the event of poor initial sequence of returns.

[englyn]

I'm talking about an analysed safe withdrawal rate. According to portfoliocharts it's an asset allocation & withdrawal rate combo that has not had any failures in Aus over the periods under simulation.

If it's correct, I'm done buying total stock market funds 8-| and need to deploy cash into the other classes.

[Latestarter55]

First post , lets just say I wish I'd found this web site some time ago.

My wife and I owe $110K on our home value at $1.5M. We have two investment units on interest only loans, which if sold, would provide enough funds to clear our home mortgage along with unit loans. That is  $100K+ from one unit which has been owned for four years. The second unit, we may break even, possibly lose a little. At present, we are losing $10K a year after interest payments water rates strata etc from the units.

We have $700K in super combine and we both currently contribute to our max pre tax limits with the intention of continuing to do so.

My question is that I’m leaning toward selling the units, clearing all loans and saving what we currently plough into loans with the view to building a portfolio of incoming producing shares. We have the capacity to save $80K a year. What is your view of this as a strategy ?

And yes....cashing in the house, moving somewhere cheaper and retiring is an option .... it just doesnt suit our current personal situation

[englyn]

You stand to avoid ~$15k in CGT if you avoid selling that profitable unit until after you're no longer earning salary income.

[mrmoonymartian]

I've been having a very interesting time playing around with https://portfoliocharts.com/portfolio/withdrawal-rates/
It points out elsewhere on the site that (as we know) the 4% rule is based in the US and gives the option to analyse asset allocation for a short list of other countries including Aus w.r.t safe withdrawal rate.

Does anyone have any comment on how accurate it is overall, and especially on the translation to Aus?

Starting just before the 70's stagflation makes Aus stocks look worse than they are and gold look better than it is. You can change the start date when benchmarking to see how that changes things. Also remember that it ignores all taxes, franking credits and fees... so I wouldn't bet your house on a 5% SWR based on the output.

[marty998]

First post , lets just say I wish I'd found this web site some time ago.

My wife and I owe $110K on our home value at $1.5M. We have two investment units on interest only loans, which if sold, would provide enough funds to clear our home mortgage along with unit loans. That is  $100K+ from one unit which has been owned for four years. The second unit, we may break even, possibly lose a little. At present, we are losing $10K a year after interest payments water rates strata etc from the units.

We have $700K in super combine and we both currently contribute to our max pre tax limits with the intention of continuing to do so.

My question is that I’m leaning toward selling the units, clearing all loans and saving what we currently plough into loans with the view to building a portfolio of incoming producing shares. We have the capacity to save $80K a year. What is your view of this as a strategy ?

And yes....cashing in the house, moving somewhere cheaper and retiring is an option .... it just doesnt suit our current personal situation

Need a lot more info to answer this. Where are your units held? Suburb info would be useful to know, especially if there's an oversupply in the area and prices are likely to stagnate.

I'm not a fan of selling up assets, but at 10k negative gear (pre or post tax?) it seems like you have quite low yields.

Keeping the properties will help offset the tax bill from the dividends you'll start to earn as your share portfolios grow.

[Tyler]

I've been having a very interesting time playing around with https://portfoliocharts.com/portfolio/withdrawal-rates/
It points out elsewhere on the site that (as we know) the 4% rule is based in the US and gives the option to analyse asset allocation for a short list of other countries including Aus w.r.t safe withdrawal rate.

Does anyone have any comment on how accurate it is overall, and especially on the translation to Aus?

With much trial and error I've got the SWR up to 5% (!!) at 25 year retirement with a portfolio of 20% domestic shares, 35% world, 5% emerging world markets, 20% cash, 10% commodities, 10% REIT.

Where's the catch?

There is no catch.  But like any tool you do have to understand the assumptions and limitations.  As the author of Portfolio Charts I'm happy to help.  :)

This article is a good place to start: Your Home Country Is Inseparable From Your Withdrawal Rate.  I also recommend reading the Withdrawal Rates methodology and FAQ.  They go through some of the details in more depth than I can realistically explain here.  And if you have more questions, feel free to contact me via PM and I'll explain anything you need.

Starting just before the 70's stagflation makes Aus stocks look worse than they are and gold look better than it is. You can change the start date when benchmarking to see how that changes things. Also remember that it ignores all taxes, franking credits and fees... so I wouldn't bet your house on a 5% SWR based on the output.

While the database starts in 1970, the calculations start in every possible start year within that database and account for both the best and worst outcomes for any portfolio.  Withdrawal rates are calculated from only the worst case regardless of start year. 

But you're absolutely right that Aussie stocks took a beating in the 1970's.  Losing money (in cumulative inflation-adjusted terms) for 21 years starting in 1970 must have left a mark!  Stuff like that is why I think it's really important to look at investment data in multiple countries and not simply rely on US-based analysis.  A little global context goes a long way. 

[Latestarter55]

Marty, Tyler, thanks for the replies .... I will have a look at the links.
Re the questions, the units are in Penrith (western sydney) and coffs harbour. The 10k loss is pre tax. Although MMM would disagree, if we keep the units our capacity to save on top of servicing the loans is very limited. So building a substantial share portfolio under curreent circumstances isn't going to happen unfortunately

[Ozlady]

Hi Latestarter55

Welcome!

First of all,  what are  your goals?

Knowing that may help to formulate a useful strategy..eg. do you intend to work and for how long?  Your financial target ? Cash flow or Capital gain etc...

[Latestarter55]

My goals .... well, ideally be in a position to retire in 5 years. At present that would require a large shift toward MMM mindset, which I do want to move toward. Our current outgoings are way too high ... and it includes things like a  motorbike that hardly gets ridden. I won't dig my hole any deeper, but you get the picture I'm sure.

I missed a previous question re the return on the units.... about 2.5% each is the answer to that.
The outstanding loans total $650k or there abouts including our house mortgage Clearing those and saving $80K+ a year is something I feel more comfortable with. As I mentioned earlier, it will be ten years on current projections to clear the loans which is not a good situation given a desire to retire in five. Having about $1M in super, $400K+ saved over the next 5 odd years and owning our home which we could sell and down size if required is probably best case scenario as I sit here looking at it.

[Ozlady]

Hi Late Starter

If you know how much you need for your annual cash flow for retirement, you would  have answered your own question.

Are you willing to carry debt into retirement?  For me i am willing to do so ...as firstly, my cash flow net of investment debt is very positive and also i do not like to sell my properties...

I have a feeling once you answer the first question, your cash flow from super is enough to carry  you through...

Good luck!

[misterhorsey]

haha yes finance types do love to wheel out that old saw as their "final word" on gold.

Buffet is right, but he also (intentionally?) creates a false dichotomy, ie that you have to be either 100% invested in gold OR stocks. Some of the benefit of gold comes not from the expectation that it will increase in value over time, but from its ability to be used to buy said productive assets when they are on special. It's an uncorrelated asset that appreciates less quickly than shares or farmland unless it doesn't.

He does create that comparison to illustrate his point, but I don't think he would regard it as a false dichotomy.  Bearing in mind that the passage is from a part of the shareholder letter where he compares 3 different asset classes/investments and highlights the disadvantages of the two he doesn't favour, and the advantages of the one he does.
 
I think Buffett is backing himself that any business he picks will outperform the relative 'performance' of gold, so it's pointless for him to use gold as a hedge if the equivalent money could be put into a business that will outperform gold.

Buffett is obviously not the average stock picker buying publicly listed shares through an online broker provoked by the latest Motley Fool tips. His standing and wealth means that he is courted by business owners, invited onto Boards, given tours of facilities etc etc. This gives him an inside running and he is ultimately buying significant ownership stakes in listed and privately owned businesses rather than simply shares in a company over which he has little to no influence.

But yes, the average punter on the other hand might be reassured by the historical performance of gold and include it in their asset allocation due to the lack of correlation you point out.

[oysters]

I've been having a very interesting time playing around with https://portfoliocharts.com/portfolio/withdrawal-rates/
It points out elsewhere on the site that (as we know) the 4% rule is based in the US and gives the option to analyse asset allocation for a short list of other countries including Aus w.r.t safe withdrawal rate.

Does anyone have any comment on how accurate it is overall, and especially on the translation to Aus?

Starting just before the 70's stagflation makes Aus stocks look worse than they are and gold look better than it is. You can change the start date when benchmarking to see how that changes things. Also remember that it ignores all taxes, franking credits and fees... so I wouldn't bet your house on a 5% SWR based on the output.

Fees of a few extra funds vs say a one or two fund portfolio have relatively little impact if you carefully rebalance. Also, if you choose your funds carefully.


Franking credits would generally suggest that you should bias your Australian share % up a bit vs what the calculator produces. How much is hard to tell.


Vanguard Australia have an interesting pdf from a few years ago that goes through the pros/cons of Australian assett allocation and applies weightings for each.

[/size]https://static.vgcontent.info/crp/intl/auw/docs/literature/research/role-home-bias-global-asset-allocation-decisions.pdf?20130819%7C151400


Figure 11.


In their scenario they start with a 75/25 aus/int (I assume as this is a pretty common amount of home bias in Aus, which people decide on mostly by gut instinct, etc). But you could do exactly the same analysis just starting with the % Aus that you come up with from Tyler's calculator. Or choose parts of it. I expect that the calculator takes in much of the green "increase your International allocaiton" arrows. The ones I think you should keep would perhaps be:

• Domestic Asset Taxes (eg Franking Credits(sic)) +15% towards Australia
• Other domestic market risk factors (Weaker domestic investor protections increase international allocation) -5% towards Australia

Thus, go 10% above what the calculator produces for Australian allocation.


Of course, your superannuation, depending on the fund, might be highly biased towards Australia already. You might also have an Australian investment property (different assett class, but still), have a large home that you could sell down, you have the opportunity to work in Australia if your portfolio is failing (employment opportunities muchly dependent on the economy), etc. So in some respects, your overall safety and livelihood (including things outside your portfolio) is already biased towards the success of Australia. A bit.


:-)

[DrowsyBee]

In late 2015 I figured I would buy into a rising stock just to jump in on it. I bought Bellamy's at $16 per share, which dropped to $4 within a few days.

Today it got to $17 after an excruciating couple of years. I cashed out of most of my position and...day trading...never again.

[alhart345]

In a question for the crowd here, I have returned from overseas to Australia and the exchange rates to AUD from the previous currency (TWD) were less enticing than the USD.  Which I accumulated with the intent to, at a later point, convert to AUD (and pick up a little fixed interest along the way).  In terms of cooperation, neither the USD/AUD rate nor the aussie stock market are in terms of accumulation, so I am considering another path; leaving about 200k in USD and investing in VTS (the idea is to get the preparatory stages out of the way in order to accumulate in to upcoming declines as they happen).

I am looking for some ideas on how to do this;
1. via Comsec and their international shares partner Pershing
2. direct with Vanguard in the US - is this possible, their website is unclear.  They also act as the broker in the purchase (and holding?) of VTS, which is interesting.
3. via some other broker in Australia or elsewhere

I hope some of the folks here are invested this way and could share a little about how they did it.

Thanks.
Al.

[mjr]

You'll need AUD to buy VTS on the ASX.

You can buy from Vanguard US into the same fund with USD but it'll be VTI on the NYSE.

[asosharp]

Has anyone been noticing the news articles about Mr Money Mustache in Australia all within a span of a few weeks or so? What do you think about the articles?

The first one:
http://www.abc.net.au/news/2018-02-14/why-i-decided-to-skip-home-ownership-to-retire-at-35/9378412

http://www.news.com.au/finance/money/investing/does-sydney-mans-plan-to-retire-at-35-make-sense/news-story/ab5f24c3abfc35a14d5dfe0f97c67d58 -- same guy but it includes financial info

http://www.watoday.com.au/money/planning/fire-followers-down-under-seek-early-retirement-20180222-p4z1cn.html -- the only thing with this one is that it talks about buying property for FIRE but it was good reading anyway

[GT]

I had seen the ABC article, but not the others.

[centastic]

In a question for the crowd here, I have returned from overseas to Australia and the exchange rates to AUD from the previous currency (TWD) were less enticing than the USD.  Which I accumulated with the intent to, at a later point, convert to AUD (and pick up a little fixed interest along the way).  In terms of cooperation, neither the USD/AUD rate nor the aussie stock market are in terms of accumulation, so I am considering another path; leaving about 200k in USD and investing in VTS (the idea is to get the preparatory stages out of the way in order to accumulate in to upcoming declines as they happen).

I am looking for some ideas on how to do this;
1. via Comsec and their international shares partner Pershing
2. direct with Vanguard in the US - is this possible, their website is unclear.  They also act as the broker in the purchase (and holding?) of VTS, which is interesting.
3. via some other broker in Australia or elsewhere

I hope some of the folks here are invested this way and could share a little about how they did it.

Thanks.
Al.

Personally I'd just convert to AUD and be done with it.

The main advantage of keeping it in USD is that you have access to more ETFs.

The main advantage of converting it to AUD is that you don't have to do your own tax calculations.

If you buy VTI on the NYSE now (in USD), then wait until the AUDUSD exchange rate is more favourable, cash out and do the exchange to AUD, theoretically it should be exactly the same as doing the exchange first, then buying VTS (in AUD), no matter what the timeline is. VTS should be relatively more expensive if you choose the former and wait for a "favourable" time to do the exchange.

[itchyfeet]

Precisely. If you change USD to AUD, but then immediately buy USD denominated stocks you are effectively converting the money straight back to USD. When you finally sell those US stocks is when you’ll realise an FX gain or loss compared to today’s exchange rate.

[englyn]

Thanks so much for your thoughtful answers Tyler and Eucalyptus, and for the calculator & website in the first place Tyler! I'm still digesting/reading and will pop back in with more questions at some point.

[chasingthegoodlife]

Late Starter - Welcome to the forum!

You say you could save $80k a year if the loans were cleared, but later say you can't save a meaningful amount without clearing the loans first. How much are you spending per year servicing the three loans? If it is only e.g. $60k, START INVESTING THE SURPLUS TODAY. Don't wait until you have a perfect strategy, don't wait until you have come to a decision about selling the IPs, certainly do not wait until you have actually sold the unit.

Use this time while you are making a decision about the IPs to choose an investment platform and decide what you will invest in. Contribute what you can. See if there are any mustachian changes you can make to your lifestyle to increase that amount. Analyze your cashflow and get closer to knowing how much you will need in retirement.

Good luck with your goal.

[steveo]

My goals .... well, ideally be in a position to retire in 5 years. At present that would require a large shift toward MMM mindset, which I do want to move toward. Our current outgoings are way too high ... and it includes things like a  motorbike that hardly gets ridden. I won't dig my hole any deeper, but you get the picture I'm sure.

I missed a previous question re the return on the units.... about 2.5% each is the answer to that.
The outstanding loans total $650k or there abouts including our house mortgage Clearing those and saving $80K+ a year is something I feel more comfortable with. As I mentioned earlier, it will be ten years on current projections to clear the loans which is not a good situation given a desire to retire in five. Having about $1M in super, $400K+ saved over the next 5 odd years and owning our home which we could sell and down size if required is probably best case scenario as I sit here looking at it.

I'd suggest simple frugality and paying off your debts. When you get that all cleared away or even before that you could just sell the house and relocate. We own a house in Sydney and that is our back-up plan. We have 3 kids and we want to let them finish off schooling in Sydney but once we have enough money to get to that point we will probably just quit. We will sell the house if required at any point.

My issue with our approach is that our youngest is 7. The other two are 14 and 16. When we get to 10 years savings outside of Super my wife intends to quit. I will probably go on another couple of years to get closer to a 4% overall WR but I don't care if we don't hit that figure because we can downsize.

[Luckyvik]

Good article to support the case for investing in shares to support retirement plans https://cuffelinks.com.au/predictability-shares-age/


Sent from my iPhone using Tapatalk

[centastic]

Good article to support the case for investing in shares to support retirement plans https://cuffelinks.com.au/predictability-shares-age/

I'd take it one step further: bonds should be generating income to purchase more stocks, which feed your retirement. Not the other way around.

[Latestarter55]

Chasingthegoodlife , Steveo ....

Thanks for your comments. To answer the question, we are paying about $75K servicing the loans ... well not just servicing, but paying down as quick as we can. I figured that without too much effort we should be able to put $80K away per year once they are cleared.

Agree with moving toward more mustachian ways. Walking home yesterday, I was thinking exactly along those lines and said to myself ... what can I do when I get home ... seriously.

The answer was that I had a fridge running in the shed that simply did not need to be. Got home, took out the very limited drink supply in it and turned it off. Plan on selling it.

And yes, we are not beyond a sea/tree change from Sydney. My wife, son and I did a 16 week trip around the western side of Australia last year. Coming back to corporate has done our heads in. It really opened our eyes to the possibilities and removed the fear of leaving our comfort zone. Realistically, if we were practicing as MMM does, we would have enough to retire today should we move.

I am currently talking with work about the possibility of working remotely so that we can try before we buy as such. The next few years are going to interesting.

[simonpickard]

Hi,

First post, been reading for a while.
I'm trying to get my head around what to do first.
I want a simple setup that'll set me up for early retirement.
I've got about 500k in an offset account, 400k left to go on the mortgage.
Do most people pay this off first then look at investing? I keep reading about vanguard. Is that still the best option for a simple investment I can keep paying into monthly?

Any help on how to get started would be most welcome.

Regards,
Simon

[Luckyvik]

Hi,

First post, been reading for a while.
I'm trying to get my head around what to do first.
I want a simple setup that'll set me up for early retirement.
I've got about 500k in an offset account, 400k left to go on the mortgage.
Do most people pay this off first then look at investing? I keep reading about vanguard. Is that still the best option for a simple investment I can keep paying into monthly?

Any help on how to get started would be most welcome.

Regards,
Simon

There is about of a 50/50 split on this on the Mustachian forums. Some people think it’s best to fully offset the offset account first, some think investing first is best. Some of us do a bit of both.

Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it.

Either way the general concensus is to salary sacrifice into your super up to the concessional cap first. Search the forum for ‘order of Investing’ then see the Australian post.

Also have a read through this thread. Good luck.

[misterhorsey]

There is about of a 50/50 split on this on the Mustachian forums. Some people think it’s best to fully offset the offset account first, some think investing first is best. Some of us do a bit of both.

Don't forget some also rent! And don't own any property (http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/)

Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it.

Just also noting that although the wholesale funds state a minimum $5k amount for ongoing contributions.....they don't currently enforce it. I've regularly made much smaller payments.

[MrThatsDifferent]

There is about of a 50/50 split on this on the Mustachian forums. Some people think it’s best to fully offset the offset account first, some think investing first is best. Some of us do a bit of both.

Don't forget some also rent! And don't own any property (http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/)

Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it.

Just also noting that although the wholesale funds state a minimum $5k amount for ongoing contributions.....they don't currently enforce it. I've regularly made much smaller payments.

This is the bane of our life at the moment, buy or rent in Sydney? This city both the rents and housing costs are extremely high. At the lowest end, $2500/month will either rent you a decent 2 bedder in a 30 min bike ride to the CBD, or buy you a 1 bedder in that same area. A 1 bedder for 2 professional adults is not the most ideal. Otherwise you’re looking at buying in not great areas or further away and commuting 45-1hr on packed trains or busses, again not ideal.

And yet, I keep thinking, with buying, at least you’re retaining some of your cash and it’s not going down the drain completely. With an offset account, you’re keeping even more as you negate interest.

I’m so lost with this decision.

[deborah]

As East Coast house prices appear to be falling at the moment, if you were timing the market, you might hold off buying for a while.

[Llewellyn2006]

As East Coast house prices appear to be falling at the moment, if you were timing the market, you might hold off buying for a while.

Wait until interest rates start to rise and some of those people teetering on the edge with mortgages that they can only just afford to pay now start having to sell.

[misterhorsey]

And yet, I keep thinking, with buying, at least you’re retaining some of your cash and it’s not going down the drain completely. With an offset account, you’re keeping even more as you negate interest.

There's more than one drain money can go down.

- If interest rates are low, then asset prices get inflated and you pay a price that is more than what the house is valued at. 
- If interest rates are normal, then you're still renting, but it's money that you're renting off the bank (albeit, for equity an asset that you hope will appreciate).

I'm currently a bit of a property bear, but only because it doesn't seem to make much sense at the current price:wage ratios. Even at these prices I can see how it might make sense for some if they are sufficiently comfortable - there are intangible benefits to home ownership that renting doesn't offer.  But renting gives such great flexibility one shouldn't always dismiss it out of hand.

I've owned before and it didn't work out so well for a variety of reasons. If I changed a few things it probably would have worked out okay, even by just holding it for longer. So I haven't developed a deep aversion from one bad experience.

But every now and then when I get a twinge to think about property I re-read these articles! So I thought I would share.

http://thepowerofthrift.com/to-buy-or-to-rent-that-is-the-question/
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
https://jamesaltucher.com/2011/05/why-i-would-rather-shoot-myself-in-the-head-than-own-a-home/

These are all American blog posts, and so some of the assumptions are different (Australian homes are CGT free, but Americans have a limited CGT dedication, but can deduct their mortgage repayments from their tax bill. We have stamp duty, they have ongoing property taxes).

Oh, and this Canadian one, which is probably more comparable with Australia as Vancouver/Toronto are like twins of Sydney/Melbourne re: recent property price appreciation.

https://www.millennial-revolution.com/rent/renting-will-make-you-rich/

But many of the ideas are relatable.  The renting life isn't for everyone. But it's a good to have an occasional rejoinder to the prevailing Australian cultural compulsion to buy property.

And lastly, I'm not saying you shouldn't buy, but you should learn about some of the advantages of not buying and if you do buy, go into it with eyes wide open.

Good luck!

[deborah]

It also really depends upon how long you live in a house. At some stage, I heard that on average, Australian houses are sold every 7 years. This is about when (traditionally) they said that it makes sense to buy rather than rent - so most people don't stay in their houses long enough for ownership to be worth while. If you follow MMM in the living-in-walking/riding-distance-from-work, and you change jobs as often as most Australians do, it would be much more sensible to rent.

[simonpickard]

"Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it."

Thanks for the info.
I have $100k I can put into this + $1000-$2000 per month from there after.

I'm not too bothered about Super as I've only been a citizen in Oz for about 8 years, my Super balance isn't the greatest (100k).

Which Vanguard fund does everyone use? I just checked their website and there's quite a few.

Regards,
Simon

[deborah]

"Regardless the general concensus is that for Australians Vanguard is the way to go, either EFT’s if Investing less than 100k or the Wholesale fund if 100k or more to minimise fees although some prefer to invest in the retail fund even with less than 100k so that you can BPay small amounts into it."

Thanks for the info.
I have $100k I can put into this + $1000-$2000 per month from there after.

I'm not too bothered about Super as I've only been a citizen in Oz for about 8 years, my Super balance isn't the greatest (100k).

Which Vanguard fund does everyone use? I just checked their website and there's quite a few.

Regards,
Simon

If you have a super blance of over 100k, you are better off than most men who are less than 60 - see https://www.superannuation.asn.au/ArticleDocuments/359/1710_Superannuation_account_balances_by_age_and_gender.pdf.aspx?Embed=Y

[itchyfeet]

It also really depends upon how long you live in a house. At some stage, I heard that on average, Australian houses are sold every 7 years. This is about when (traditionally) they said that it makes sense to buy rather than rent - so most people don't stay in their houses long enough for ownership to be worth while. If you follow MMM in the living-in-walking/riding-distance-from-work, and you change jobs as often as most Australians do, it would be much more sensible to rent.

I think this is a very valid comment.

I am an extreme case, on the bad side, but I bought and sold 5 homes (not Investments props, although owned a couple of those too) over the course of 14 years.

I today shudder at the stamp duty and agent fee waste. I shuddered at the time, but it didn’t stop me. Our 6th home we have now owned 8 years, so we finally beat the average, but will sell when we FIRE and move somewhere cheaper.

In hind sight I prob should have rented in our 20s until I was a bit more stable, although we did benefit from a fast rising market, which today’s buyers won’t enjoy.

For the record
                   Held for
House 1.      3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2.      2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3.      3 years (we should never have sold from here)
House 4.      2 years (bought a bigger place because we could afford to. Was a mistake).
House 5.      6 years (decided we wanted to live by the beach)
House 6.      8 years (got sick of commuting from the beach to the city and moved back close to the city).

Ooh- Lala 😬 makes me cringe....

[marty998]

For the record
                   Held for
House 1.      3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2.      2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3.      3 years (we should never have sold from here)
House 4.      2 years (bought a bigger place because we could afford to. Was a mistake).
House 5.      6 years (decided we wanted to live by the beach)
House 6.      8 years (got sick of commuting from the beach to the city and moved back close to the city).

Ooh- Lala 😬 makes me cringe....

Imagine if you were able to keep all of these each time you upgraded. Would be rolling in it now!

[MrThatsDifferent]

And yet, I keep thinking, with buying, at least you’re retaining some of your cash and it’s not going down the drain completely. With an offset account, you’re keeping even more as you negate interest.

There's more than one drain money can go down.

- If interest rates are low, then asset prices get inflated and you pay a price that is more than what the house is valued at. 
- If interest rates are normal, then you're still renting, but it's money that you're renting off the bank (albeit, for equity an asset that you hope will appreciate).

I'm currently a bit of a property bear, but only because it doesn't seem to make much sense at the current price:wage ratios. Even at these prices I can see how it might make sense for some if they are sufficiently comfortable - there are intangible benefits to home ownership that renting doesn't offer.  But renting gives such great flexibility one shouldn't always dismiss it out of hand.

I've owned before and it didn't work out so well for a variety of reasons. If I changed a few things it probably would have worked out okay, even by just holding it for longer. So I haven't developed a deep aversion from one bad experience.

But every now and then when I get a twinge to think about property I re-read these articles! So I thought I would share.

http://thepowerofthrift.com/to-buy-or-to-rent-that-is-the-question/
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
https://jamesaltucher.com/2011/05/why-i-would-rather-shoot-myself-in-the-head-than-own-a-home/

These are all American blog posts, and so some of the assumptions are different (Australian homes are CGT free, but Americans have a limited CGT dedication, but can deduct their mortgage repayments from their tax bill. We have stamp duty, they have ongoing property taxes).

Oh, and this Canadian one, which is probably more comparable with Australia as Vancouver/Toronto are like twins of Sydney/Melbourne re: recent property price appreciation.

https://www.millennial-revolution.com/rent/renting-will-make-you-rich/

But many of the ideas are relatable.  The renting life isn't for everyone. But it's a good to have an occasional rejoinder to the prevailing Australian cultural compulsion to buy property.

And lastly, I'm not saying you shouldn't buy, but you should learn about some of the advantages of not buying and if you do buy, go into it with eyes wide open.

Good luck!

Thanks. I had read all of those and was fully in the rent forever basket but with the first home buyer bonus and the fact that our rent currently is $40k a year, I keep thinking I’d rather not piss that down the drain. And the fact that the SO won’t invest unless it’s property. My hope was to live in for 5 years, pay off, the rent out.

Yes, keep thinking just hold out until interest rises and people sell. But what do we do, keeping saving in a HISA until we buy? That return is so low. But if I invest then we pay CGT.

I. Hate. This.

[oysters]

Deborah does have a good point about the 7 years, changing jobs, etc. To expand on that... a solid FIRE strategy is of course to either downsize, or move to a cheaper location. I don't need to expand on the concept really, well covered everywhere on MMM forums. This would suggest bias towards renting, unless perhaps the place you buy that is near work, turns out to be an excellent investment property in itself.


This is something that's been irking me and my situation...though, the unit I bought I'm renovating cheaply myself and I'll make money off it no matter what-excellent investment property. Which is why I felt comfortable buying it. And I like the place. But, my job is more than a little uncertain right now, so this definitely adds to my anxiety. If I lose my job (contract not renewed...workplace strapped for cash), I can get newstart or parenting payment single. But as I have a mortgage I can't get rent assistance. The Mortgage is the majority of such payments. I'd have to rent it out, then rent myself. Which is ridiculous.

[asosharp]

I think it really depends though. Some people live in their homes forever. I know friends whose parents bought their first house together as a young married couple and they still live in it decades after.

Also renting isn't for everyone. There is some peace of mind gained from owning your own home that you live in.

[asosharp]

Also I have a question. Is there any way I can set up some kind of visual chart to show how much money I have in X shares, and the dividends earned from them? I'd like to know so I have an easy visual format of how far away I am from FIRE.

[middo]

Deborah does have a good point about the 7 years, changing jobs, etc. To expand on that... a solid FIRE strategy is of course to either downsize, or move to a cheaper location. I don't need to expand on the concept really, well covered everywhere on MMM forums. This would suggest bias towards renting, unless perhaps the place you buy that is near work, turns out to be an excellent investment property in itself.


This is something that's been irking me and my situation...though, the unit I bought I'm renovating cheaply myself and I'll make money off it no matter what-excellent investment property. Which is why I felt comfortable buying it. And I like the place. But, my job is more than a little uncertain right now, so this definitely adds to my anxiety. If I lose my job (contract not renewed...workplace strapped for cash), I can get newstart or parenting payment single. But as I have a mortgage I can't get rent assistance. The Mortgage is the majority of such payments. I'd have to rent it out, then rent myself. Which is ridiculous.

The fine print.  We moved to WA to retrain as teachers, from Vic. Part of the reason was we could move out of home, rent it out and have someone pay our mortgage. Then we rented while on austudy ( outdated I know) and got paid rent assistance. We were advised how to do this by a centerlink officer back when you could talk to a person.

Government policy can affect your financial decisions.

[itchyfeet]

For the record
                   Held for
House 1.      3 years. (Although only lived in it for 1 and rented it out for 2 after I moved in with gf)
House 2.      2 years (gf and I sold house 1 & 2 after we married to buy house 3 closer to city. This was a good move)
House 3.      3 years (we should never have sold from here)
House 4.      2 years (bought a bigger place because we could afford to. Was a mistake).
House 5.      6 years (decided we wanted to live by the beach)
House 6.      8 years (got sick of commuting from the beach to the city and moved back close to the city).

Ooh- Lala 😬 makes me cringe....

Imagine if you were able to keep all of these each time you upgraded. Would be rolling in it now!

Indeed. However, certainly wasn’t possible. There were a couple of points during that time when interest rates went up and we were a bit stretched as it was.