Australian Investing Thread

[Wadiman]

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.

One solution is to do this via excel if you are familiar with spreadsheets?

[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.

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 Then we rented while on austudy ( outdated I know) and got paid rent assistance.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.

Agree Middo. Not sure what happened with my post above...the forum has converted the second paragraph to goggle-de-gook!


I said there something like: In my current situation I bought a small unit that I'm doing up in a great investment location. Its also 25mins walk to work (perfect moustachianism). I don't intend to move out any time soon, though, my current work situation is very uncertain. If my contract isn't renewed (workplace is short on cash) then I'll have to go on newstart or parenting payment single. If I stay in my house, with mortgage, I won't be able to afford it; although my mortgage repayments aren't much more than what rent for a similar place would be, I won't be eligible for rent assistance. However if I rent it out, it falls below the assets test, and, taking off costs (interest, council rates, strata fees), I'll be under the income threshold still for reducing my centrelink payments. And I'll get rent assistance for where I rent.


This is kind of stupid. I have to move out. Its disruptive. They could just pay me an equivalent amount for renting my place in rent assistance. The system is basically encouraging property investment. Which if you are aware of and can take advantage of, great. In my case it will quite disruptive to me and my little girl and suck.


^This was all my main worry in buying the place. I knew that I wouldn't be able to afford to stay in it (but wouldn't lose it), if I lost my job for some reason. But, I was very careful, and didn't want to buy a place (at this stage) that wouldn't be a suitable investment property in itself.

[Rob_S]

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.

You and your partner could save for the deposit by salary sacrifice into super to get a better bang for your buck.

[MrThatsDifferent]

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.

You and your partner could save for the deposit by salary sacrifice into super to get a better bang for your buck.

Yeah, but I’m almost at my max so it won’t help me much, the SO it would be good for but if we decide to not buy, then that’s cash we can’t access for something else, like our live around the world plans in 6 years.

[potm]

We've got a thread on it in the Aus tax forum but I think more people will read this thread so will put this here.

You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.

The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.

VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit

VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset

Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912

The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.

The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.


 

[Rowellen]

I think you're on the money, potm. This has seriously got my knickers in a knot. I work with SMSFs. I can tell you most of my clients are not obscenely wealthy as Shorten would have the masses believe. Most are living of the nestegg they've saved by working hard and living below their means. There are a few with large balances but it's far more typical to see $200k to $700k and apart from their home, this is it. A main part of their strategy is to have franked dividends. It's also a blow to small businesses. A business run through a company pays tax then the owner takes the profit only to be double taxed. Talk about unfair. A real disincentive to saving. Shorten clearly doesn't understand the tax system or the way centrelink works from his comments. I hope he doesn't get in.

[marty998]

I think you're on the money, potm. This has seriously got my knickers in a knot. I work with SMSFs. I can tell you most of my clients are not obscenely wealthy as Shorten would have the masses believe. Most are living of the nestegg they've saved by working hard and living below their means. There are a few with large balances but it's far more typical to see $200k to $700k and apart from their home, this is it. A main part of their strategy is to have franked dividends. It's also a blow to small businesses. A business run through a company pays tax then the owner takes the profit only to be double taxed. Talk about unfair. A real disincentive to saving. Shorten clearly doesn't understand the tax system or the way centrelink works from his comments. I hope he doesn't get in.

Explain the bolded @Rowellen ? The shareholder is not going to be paying any additional tax over and above the corporate tax rate, unless their marginal rate is higher than the corporate tax rate, which is the status quo, so I don't see how it will be "double tax". The tax rate paid will be the corporate tax rate, and this fixes a problem with Labor's Trusts policy.

And besides, you are going to generate a lot of additional fees when everyone comes to you for advice... this will be good for your business :)

[Rowellen]

Sorry missed a couple of words. When they take the profit as dividends...

[limeandpepper]

Thank for running the example potm. Yeah it's not great isn't it. I was talking to my uncle the other day, he's retired so it would affect him. He's not happy about the idea at all, but he thinks it's probably not going to happen - I hope he's right!

[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.

One solution is to do this via excel if you are familiar with spreadsheets?

I can use Excel but just the basic stuff. No pivots etc.

[Ozlady]

Re Franking Credits

I think this Shorten fella  is so short term and panders to a particular segment of society with envy of the wealthy..the worrying thing is  don't think it is not going to happen as the gap between the 2 parties is very narrow.

I can only speak for myself ..going into retirement soon...i was planning to increase my allocation of funds to LICs but going forward , not so sure..this will certainly impact how i invest...ah well...i might as well hold my monies in offset now..why bother to take the risk for the lower return rate..or buy another property.

This may lead people to pull money out of the stock market..or view the stock market more for capital gains rather than dividends focused more similar to the US market.

And i also foresee with lower franking credits for retirees, more will be reaching out for the aged pension..so it really defeats the purpose isn't it?

Another short term policy the Labour comes out with now ..and don't get me started on that whinny high pitch voice..man..that really turns me off !

Rant over!

[one piece at a time]

We've got a thread on it in the Aus tax forum but I think more people will read this thread so will put this here.

You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.

The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.

VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit

VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset

Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912

The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.

The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.

My understanding is that if the shares were held in Super then you'd be exempt from the $7k in the first place, this makes it an $11k turn around when comparing pre and post shorten tax. Obviously to utilize the super tax free status you have to be old enough, and I've yet to find a way make that happen any faster through badassity.

[Ozlady]

We've got a thread on it in the Aus tax forum but I think more people will read this thread so will put this here.

You've probably heard about Labor's proposed policy on dividend franking credits. I'm going to have a discussion on what it means for early retirees and the typical investments suggested in this thread.

The proposed policy change is to disallow excess franking credits to be refunded as cash to investors.
Let's say we have an early retiree who has just quit their job and is living off dividends from a 50/50 VAS and VGS portfolio with a total value of $1 million.
There is no other income. For simplicity we are going to assume VAS yields 4.5% and VGS 2.5%. We will also assume VAS dividends are 100% franked. We will assume VGS has a foreign income tax offset of about 10%. It might be slightly higher, I don't hold it myself. For the purposes of this exercise we will be only looking at the dividend component.

VAS
$22,500 dividend received
$32,143 grossed up
$9,642 franking credit

VGS
$12,500 dividend received
$13,889 grossed up
$1,389 foreign income tax offset

Total income $46,032
Tax payable $7,119
Total offsets $11,031
Tax refund $3,912

The proposed changes would mean the early retiree does not receive the tax refund of $3,912. Please let me know if I've made any errors in my analysis.
This is just a simplified example.

The changes impact most on people who have a high allocation of fully franked dividend income compared to other sources (ie. retirees). It also impacts the people with a modest level of income more. As income rises the higher tax rate makes use of the franking credits more. If you solely had fully franked dividend income, you would need just over $137k of grossed up dividends to utilise all the franking credits. The biggest impact dollar wise will be at $37,000 grossed up dividends.

Hi Potm
Can you explain where you got the figures 137K and 37K from ? (last 3 lines...)

[potm]

@One piece
Yes the impact is greater the lower your tax rate is and in super it is 0-15% even at very high levels of income. This is what shorten is selling the policy as, targeting these rich people. I can’t disagree with super benefits being too generous but they should be targeted directly, not a blanket hit on franking credits that effects people with modest levels the hardest.

Another point to note is that apparently APRA funds will have plenty of tax obligations to net out any franking credits so the full benefit is still received. This just shows again how stupid the policy is. It’s not hitting the rich. It’s hitting those who choose to manage their own super and those on low incomes with fully franked dividends.

@Ozlady
$37k is when the tax rate increases above 30% so each additional dollar of dividend income uses more franking credit offset than it generates so at 37k the lost refund would be greatest. $137k is the point where the average overall tax rate is 30% so all franking credits get utilised so there is no lost refund.

[Ozlady]

Thanks Potm

And i assume those of us with SMSF and industry fund, where the tax rate is capped at 15% or 0% at age 60, would be massively hit by having no franking credits regardless of dividend level?

(my head actually hurts when i am typing this ...)

[potm]

Yes see my comments to one piece in the previous post.

[middo]

Without being rude about this, I would have thought that retiring on an income that assumes that government taxation policies will not change in the future at all is a little short sighted.  My father in law did that in the early 80's, only to be caught by the assets test and reduced pension from that.  If your retirement plans need certain policies to be in place for the rest of your life, maybe you are not as financially independent as you thought you were?

[marty998]

Thanks Potm

And i assume those of us with SMSF and industry fund, where the tax rate is capped at 15% or 0% at age 60, would be massively hit by having no franking credits regardless of dividend level?

(my head actually hurts when i am typing this ...)

Retail and Industry funds are much more diversified across International shares, Infrastructure, Fixed Income, Private Equity and Property. Consequently (the funds that are in accumulation mode) will have other tax liabilities that franking credits will be utilised against.

It is the comparatively un-diversified SMSF sector that will see returns suffer, unless they decide to (IMO) do the right thing and diversify themselves into a more appropriate asset allocation.

If they decide to sell en-masse so be it. I'll be ready and waiting to hoover up as many shares as I can. The underlying performance of the companies won't change just because a pissed off retiree has decided to cut their nose to spite their face.

Article published today (I forget where) demonstrated that the Industry Fund sector will see no impact at all to returns, with the biggest drop experienced by SMSFs.

[mjr]

Without being rude about this, I would have thought that retiring on an income that assumes that government taxation policies will not change in the future at all is a little short sighted.  My father in law did that in the early 80's, only to be caught by the assets test and reduced pension from that.  If your retirement plans need certain policies to be in place for the rest of your life, maybe you are not as financially independent as you thought you were?

So, your advice is to work long enough to save so much that you are immune from any possible policy change ?

Most people retire when they get to "that age".  For the government of the day to come alone and change the rules on self-funded retirees is just bloody rude.

[mjr]

Consequently (the funds that are in accumulation mode)

It is the comparatively un-diversified SMSF sector that will see returns suffer

If they decide to sell en-masse so be it. I'll be ready and waiting to hoover up as many shares as I can.

Yeah, those people managing their own super in pension mode deserve everything they get.

[itchyfeet]

I agree 100% that the superannuation laws in Australia are meddled with far too much to give anyone the confidence they would want heading into retirement. But unfortunately the laws are far from perfect and  need reform!!

 I would also contend that the clear message on this forum is that withdrawal rates should be conservative when planning an early retirement. If you are basing your retirement planning on say a 6% dividend yield plus a further 20-30% kicker from dividend imputation credits, then you have strayed into aggressive retirement planning territory.

My personal view is that the tax benefits of superannuation are too great and need reform. Capping the asset base that can be held in Super (or: the 1.6m super cap) and taxing incomes from super above a certain (fairly significant) threshold would achieve this. The tax incentive to invest in Super should remain to encourage everyone to save for their retirement. But the incentive must have a limit.

I also believe the imputation credit system should remain in place. If a company you own pays taxes in Australia, why should you be double taxed once you take after tax profits out of your company?? Owners of companies should not be frozen out of the tax free threshold, and low marginal tax rates.

[mjr]

Tax-free super for life was always a silly idea.  A better system would have been tax-free contributions and earnings (or concessions if not tax-free) but  normal taxes apply on withdrawal.

But now Keating's systen has been in place for nearly 30 years.  That's a lot of people who've been taxed on Super and are now approaching retirement.  Hell of a.mess to try and turn that ship around now.

Keating's system was much more about giving unions access to super funds as we moved away from manufacturing and industry  than it was about managing retirement incomes.

[marty998]

Tax-free super for life was always a silly idea.  A better system would have been tax-free contributions and earnings (or concessions if not tax-free) but  normal taxes apply on withdrawal.

You can't have this because then you'd be taxing the "after tax" contributions you've put in.

Remember the old rebates for "undeducted purchase price of annuities?" It's complex and costly to implement and maintain.

The better thing to do is simply leave a 15% tax on all earnings.

[middo]

Without being rude about this, I would have thought that retiring on an income that assumes that government taxation policies will not change in the future at all is a little short sighted.  My father in law did that in the early 80's, only to be caught by the assets test and reduced pension from that.  If your retirement plans need certain policies to be in place for the rest of your life, maybe you are not as financially independent as you thought you were?

So, your advice is to work long enough to save so much that you are immune from any possible policy change ?

No.  My advice is to assume things will change.  It has happened in the past and will happen again.  Assuming it won't is making yourself vulnerable to the whims of the electorate and the government of the day.

Most people retire when they get to "that age".  For the government of the day to come alone and change the rules on self-funded retirees is just bloody rude.

This is a forum for those that retire BEFORE they get to "that age", so I don't really see how that is relevant, However, I do agree with you that tinkering with the super rules is problematic.  It is one of the reasons I did not pour larger $ into super earlier in my working life, and regret it a bit now.  At least this tinkering is clear and out there before Labor get elected, rather than what happens usually.  It is up front with the electorate.  There will be losers, as it is designed to raise more revenue.  I agree with it.  You may not.  We get a vote in 15 months time on the future of the country.

[potm]

Yep super tax rate should have never gone from 15% to 0%, especially uncapped.
What was Howard thinking. He even opened the flood gates and let you put in as much as you wanted for a bit.
Although I aim to be one of the more well off and benefit from it, I don’t understand why super doesn’t have progressive tax rates like income tax. It should start at 0, go up to 15% at a decent amount and then go to 30% at a much higher amount. That is how you take from the rich Shorten, not a policy that hits people at all levels.

[deborah]

Tax-free super for life was always a silly idea.  A better system would have been tax-free contributions and earnings (or concessions if not tax-free) but  normal taxes apply on withdrawal.

But now Keating's systen has been in place for nearly 30 years.  That's a lot of people who've been taxed on Super and are now approaching retirement.  Hell of a.mess to try and turn that ship around now.

Keating's system was much more about giving unions access to super funds as we moved away from manufacturing and industry  than it was about managing retirement incomes.

But they’re bringing back Keating’s system, and removing one of the changes made by Howard and Costello. Everyone knows that the many changes made by Howard and Costello were unsustainable, and that many of the recent changes have been effectively rolling them back. In fact, if it wasn’t for the Howard and Costello changes, super would have had a lot fewer changes recently, and everyone would be a lot more comfortable with super.

[itchyfeet]

Agreed. Super is still in the experimentation phase. A few generations from now and it will probably be more settled 🤨

In the mean time we continue to play the game with our fingers crossed.

[JuicyCrab]

Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.

The plan is to move:

• Aus Shares (IOZ) 38.00%
• World ex US (VEU)28.50%
• Emerging Markets (IEM)5.00%
• US shares (Large, Medium, Small Cap. IVV, IJH, IJR) 28.50%

all into

Vanguard Diversified High Growth Index ETF (VDHG) 0.27% p.a

• Vanguard Australian Shares Index Fund (Wholesale) 36.0 %
• Vanguard International Shares Index Fund (Wholesale) 26.5 %
• Vanguard International Shares Index Fund (Hedged) - AUD Class (Wholesale)  16.0 %
• Vanguard International Small Companies Index Fund (Wholesale)  6.5 %
• Vanguard Emerging Markets Shares Index Fund (Wholesale)  5.0 %
• Vanguard Global Aggregate Bond Index Fund (Hedged) 7.0%
• Vanguard Australian Fixed Interest Index Fund (Wholesale)  3.0%

It all seems fairly logical as the vanguard ETF broadly matches what I'm trying to achieve and also has the income/bond component I have been wanting to adopt.

Does this seem like a smart move to cut down on time? Or am I missing some risks here?

Cheers!

[misterhorsey]

Sounds like a great plan. I wish these ETFs were around when I first started.

The only issues I see are:

- CGT liability.

Are you sitting on any capital gains on your old ETFs?

It's a bit painful to realise a capital gain to  simply to change investment structure (albeit, a more streamlined easier to manage structure). 

You could get around this by buying into the new Vanguard ETF and withdrawing your positions from the old ETFs when you have accumulated losses from somewhere, or if you are planning a low income year in the near future. It does mean double dealing for a bit and it's a bit of a pain. Just depends on how big your tax bill might be to determine whether it's worth it. Someone else might have some clever ideas too.

- Fund route

If you have 100k you can buy the Wholesale Fund. It has a slightly higher .29% fee.

Why would you? Well, you can BPAY your savings into it instead of waiting to accumulate enough to offset the cost of brokerage.

https://www.vanguardinvestments.com.au/adviser/adv/investments/product.html#/fundDetail/wholesale/portId=8134/assetCode=balanced/?overview

The difference between .027% and .29% on $500k is........$100 a year.

Also, buying ETFs on market always does my head in a little bit. I always waste time trying to get a best price.

[marty998]

Ooof. Markets took a beating today.

As we near the end of another quarter, please remember your Vanguard ETFs go ex-distribution on 3rd of April. If you want the distributions, you need to purchase your shares by Thursday.

Alternatively if you want to avoid the taxable income you can purchase your shares/units cheaper after Easter :)

[krustyburger]

Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.

I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.

[JuicyCrab]

Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.

I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.

Not a bad idea actually!

Luckily I'm at the start of my investment journey, total invested is 100k with a 3k cap gain in there. I think given it's still early days I might do this ^^^ as well, my taxable income is going to be somewhat high this FY anyways.... :/

Thanks for the advice guys!

[marty998]

Patience is a virtue. I have written in this thread a few times about my little gamble on a Brazilian copper miner Avanco Resources (AVB). After 6 years of reasonably flat share price movement Oz Minerals (OZL) lobbed a takeover bid today. Share price up 101%.

For me that's a nice tidy earner of about $10k profit (*jumps and clicks heels*). Probably would have done just as well in an index fund over 6 years but at least I have an exit path now from this one.

Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.

I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.

I think there will naturally come a "right time" to sell out and clean up the holdings. You mightn't know now when it will be, but you'll know when the time comes. Nothing ever needs to be rushed.

[asosharp]

Hey guys,

I'm looking to swap all my ETF's over to a single diversified ETF. The idea is to cut down on time rebalancing and focus on a single ETF to pump investment money into.

I didn't bother selling any of my other ETFs or LICs, but I also don't have that much invested. I just started buying the vanguard diversified high growth ETF and will continue to do that from now on.

Not a bad idea actually!

Luckily I'm at the start of my investment journey, total invested is 100k with a 3k cap gain in there. I think given it's still early days I might do this ^^^ as well, my taxable income is going to be somewhat high this FY anyways.... :/

Thanks for the advice guys!

I have thought about the VDGR/VDHG but I'm concerned about retirement. Aggressive growth in VDHG means that it's probably not suitable for retirement because by the end of the day you should have more bonds as a rule of thumb for income generation right? So based on this, eventually you will have to sell your VDHG off and put it into something less risky. Wouldn't this trigger a big CGT even when you try to move it across to something more balanced/less risky?

Also what happens if others sell theirs off because they're moving away to less risky investments? How does that affect the fund?

[Llewellyn2006]

Well at least Magellan will be saving some money after tearing up their sponsorship deal with the cricket!

[marty998]

Well at least Magellan will be saving some money after tearing up their sponsorship deal with the cricket!

It was price sensitive enough that they posted an ASX announcement.

From what I gather the sponsorship was $20m over 3 years. I am disappointed they terminated the arrangement with Cricket Australia and did not opt to transition the sponsorship to the women's team, who seem to be much more deserving of the reward, recognition and attention.

[MrThatsDifferent]

Hey all, dumb question time: the basic rule is that invested money doubles every 10 years, right? Does that mean that you have to re-invest your dividends or is that extra? I’m wondering because I’m trying to work out, if I had, say $250k invested in Vanguard at age 50 and left alone until I’m 60, could I keep all the dividend payouts, and the stache would still grow to $500k? If so, this would give a nice boost to the money I’ll need to have from 50-60.

Also, I’m sure this has been discussed but how do Aussies handle the draw down period since we can’t do what Americans can do with accessing retirement earlier (without a major tax hit)?

[misterhorsey]

Not a dumb question (there is no such thing!)

The basic rule that money invested doubles every 10 years is based on the assumption that the investments will see an average growth rate of around 7% per annum.

This is based on the Rule of 72:

https://en.wikipedia.org/wiki/Rule_of_72

So the time period for doubling depends on the actual growth rate of your investments.  According to the table in the wiki article, 5% growth will take 14 years to double, whereas a growth rate of 12% amounts to 6 years.

Growth in your investments is typically expressed as a percentage figure.  It usually includes a capital growth component (i.e. the price of shares), combined with income (i.e. dividends), less fees and taxes.

So whether you choose to reinvest or spend your dividends will affect your average growth rate over a given period. If you reinvest, your average growth will be higher and doubling will be quicker, but if you spend your dividends you will lower your growth rate and it will take longer to double.

But if spending your dividends means putting food on the table then it's not a bad thing to do, even if it makes it longer for your stash to grow.

 

[MrThatsDifferent]

Not a dumb question (there is no such thing!)

The basic rule that money invested doubles every 10 years is based on the assumption that the investments will see an average growth rate of around 7% per annum.

This is based on the Rule of 72:

https://en.wikipedia.org/wiki/Rule_of_72

So the time period for doubling depends on the actual growth rate of your investments.  According to the table in the wiki article, 5% growth will take 14 years to double, whereas a growth rate of 12% amounts to 6 years.

Growth in your investments is typically expressed as a percentage figure.  It usually includes a capital growth component (i.e. the price of shares), combined with income (i.e. dividends), less fees and taxes.

So whether you choose to reinvest or spend your dividends will affect your average growth rate over a given period. If you reinvest, your average growth will be higher and doubling will be quicker, but if you spend your dividends you will lower your growth rate and it will take longer to double.

But if spending your dividends means putting food on the table then it's not a bad thing to do, even if it makes it longer for your stash to grow.

Thanks so much misterhorsey for taking the time to answer my question. That makes sense. I thought it might be too good to be true to double the money and pull the dividends. I was hoping to get the franking credits benefits, assuming that still exists.

[potm]

Just in case you were not aware, even if you reinvest the dividends, you still get the benefits of the franking credits.
Reinvesting the divs is the same as receiving the divs and then buying more shares/units. It makes no difference tax wises.

[MrThatsDifferent]

Just in case you were not aware, even if you reinvest the dividends, you still get the benefits of the franking credits.
Reinvesting the divs is the same as receiving the divs and then buyer more shares/units. It makes no difference tax wises.

Oh gotcha, thanks!

[MrThatsDifferent]

Hey all, stocks are crashing. Is this buy time that everyone has been wishing for? I only have Vanguard total life strategy high growth account. I stopped adding to it to build up cash to buy property but still unsure of that. Do I keep investing or hoard cash? I hate watching my account dwindle, but I know that’s the game. Pep talk please.

[steveo]

Hey all, stocks are crashing. Is this buy time that everyone has been wishing for? I only have Vanguard total life strategy high growth account. I stopped adding to it to build up cash to buy property but still unsure of that. Do I keep investing or hoard cash? I hate watching my account dwindle, but I know that’s the game. Pep talk please.

Honestly a falling market if you keep buying is a good thing. The problem with the market going up consistently is that you probably retire at a peak. If you just keep investing through the down times I think you likelihood of retirement failure is going to be pretty low.

[itchyfeet]

Crashing is a bit too strong a term I would say. If you invested 12 month ago in  the ASX200 you’d Still be in front. Same can’t be said for Sydney real estate.

I can only offer a few thoughts:
 1. If your investment horizon for buying a house is less than a couple of years then the volatility of stocks probably means it’s not a suitable investment for you at this time.
2. If your investment horizon is more than a couple of years then the best time to invest is today. Time in the market is a more consistently reliable strategy than timing the market. Buy and just forget about it.

That being said, I am in the camp of those that believe that there is a higher probability of interest rates rising in the next few years, rather than staying as they are or decreasing further, and this will be a very very strong headwind to growth in stock prices (and company earnings), and especially residential real estate, in the short to medium term.

But, even though I have this view history tells me that most probably I will be wrong, my crystal ball is not at all reliable, and so I just keep accumulating assets in the confident belief that when I look back 20 or 30 years from now it will look to have been a great decision in hindsight irrespective of the short term noise that may or may not impact prices in the next few years.

In relation to residential real estate in Sydney or Melbourne, if I was a first home buyer I would be careful. I see it as a slightly different situation to stocks as a first home buyer is likely to be 80-90% leveraged, meaning that even a correction of 20% could wipe out 100% or more of the buyers equity, which could become dramatic if a sale is forced (eg: divorce, relocation for work etc). If I was a first home buyer I would still pursue my ambitions of home Ownership, but with interest rates so low today I would want a 25% deposit - just in case I have to sell in the next 5 years.

[steveo]

But, even though I have this view history tells me that most probably I will be wrong, my crystal ball is not at all reliable, and so I just keep accumulating assets in the confident belief that when I look back 20 or 30 years from now it will look to have been a great decision in hindsight irrespective of the short term noise that may or may not impact prices in the next few years.

This is how I view the markets. I just keep buying. I know that if I don't have to sell (so keep some bonds/cash if you are getting close to the drawdown phase) then I should end up miles ahead over the long term.

[MrThatsDifferent]

Thanks all. My plan is a simple one: get $250k each in my super and Vanguard by early 50s, leave in for 10 years. Then have enough cash reserves and some p/t work to make it through those 10 years. We were thinking of getting a place next year, living in for 5 years, then renting it out while we traveled during our 10 year journey. Still not sure about that part. I’ve managed to build up a little emergency cash now, so I’m fine to keep DCA with Vanguard, but maybe I’ll stop checking daily? Lol.

[Red_Gold]

Greetings fellow Aussie Mustashians! Long time reader, first time poster to this informative thread. I’ve been investing in individual shares and Vanguard managed fund for almost a decade but it was only after I discovered MMM and the concept of FIRE it all came together for me and I really upped my saving/investing game. As I’ve been following MMM, Bogleheads and other US based resources I’ve been investing for growth with 80% of my funds in VDHG. Recently I’ve discovered Strong Money Australia blog and his dividend focused approach to FIRE.  I need help understanding the pros and cons of the two approaches (Bogleheads vs Thornhill). Personally I know that selling shares for income in retirement will not be easy for me, as I will struggle with seeing my small leanfire portfolio diminish further in years that market is down. My FIRE is 15-20 years away, I’ll be close to 60 and I really don’t fancy hustling at that age.
I am equally uncomfortable having majority of my net worth tied to one country, as great as Australia is. I’ve been reading investment books for years and the message of diversification sunk in deep. However, the prospect of reaching my FIRE goals sooner with dividend investing (ie needing smaller nest egg to generate required income), combined with not needing to sell shares in order to fund my retirement is extremely attractive.
Your two cents on this matter will be appreciated.

[steveo]

@Red_Gold - I have an allocation of 40/40/20 Aussie/International/Bonds. I intend to retire with a cash buffer of 50k as well.

I invest only in VAS, VGS & VAF outside of super. I split my super into the right combination of international and Aussie indexes available to me. I want to hold all my bonds and cash outside of Super.

I'm not a fan of relying on dividends.

[Red_Gold]

@Red_Gold - I have an allocation of 40/40/20 Aussie/International/Bonds. I intend to retire with a cash buffer of 50k as well.

I invest only in VAS, VGS & VAF outside of super. I split my super into the right combination of international and Aussie indexes available to me. I want to hold all my bonds and cash outside of Super.

I'm not a fan of relying on dividends.

Thanks for your reply. Couple of questions: what are your reasons for not taking the dividend route? What is your plan for withdrawing funds in retirement prior to accessing super? Will you live off cash reserve, then sell bonds to replenish it and sell stocks in turn to re balance your portfolio?   

[mjr]

Betashares coming out with an Australian shares ETF at half the cost of VAS.

https://www.betashares.com.au/campaigns/a200_is_coming/?utm_source=website&utm_medium=slider&utm_content=A200

At the very least, I hope this puts some cost pressure on Vanguard.