Australian Investing Thread

[marty998]

Hello,

I am a long time lurker who recently became more serious about FI. I already own some shares through Acorns / Raiz (purchased before I realised I could do just as well myself through a broker). I also own some VDHG ETF.
I have been looking at diversifying a bit or buying something less Australian focused for my next 5k investment bundle.

Comparing VGS to IWLD it seems that the latter has lower ER (0.16 Vs 0.18), is tracking the same index, and has way lower share price (32 AUD Vs about 70)

Given that Vanguard is usually the go to company, what's the catch? Tempted to go for IWLD instead of VGS but was wondering whether I missed a difference between the ETFs.

Interested in opinions of people who own IWLD and others!

Thank you for your help and sorry if this is a noob question, first message on this thread (that I've read entirely a few months ago;))

The share price doesn't matter if it tracks the same index. They will both go up and down by the same % value each day, less the differential in the management fee.

At the end of the day you are buying Tip-Top bread from either Woolworths or Coles. Occasionally one will be cheaper than the other.

[marty998]

And bloody hell, I'm amazed at how easily Acorns and companies like them have managed to dupe so many people into paying away such a high proportion of their well earned.

On a % basis, the fees are criminal, they make the Banks look like angels.

[PDM]

Hello,

I am a long time lurker who recently became more serious about FI. I already own some shares through Acorns / Raiz (purchased before I realised I could do just as well myself through a broker). I also own some VDHG ETF.
I have been looking at diversifying a bit or buying something less Australian focused for my next 5k investment bundle.

Comparing VGS to IWLD it seems that the latter has lower ER (0.16 Vs 0.18), is tracking the same index, and has way lower share price (32 AUD Vs about 70)

Given that Vanguard is usually the go to company, what's the catch? Tempted to go for IWLD instead of VGS but was wondering whether I missed a difference between the ETFs.

Interested in opinions of people who own IWLD and others!

Thank you for your help and sorry if this is a noob question, first message on this thread (that I've read entirely a few months ago;))

No catch, to compare you need to look at the Net Asset Value.
IWLD - $34.34 https://www.morningstar.com.au/ETFs/NewsAndQuotes/IWLD
VGS - $71.83 https://www.morningstar.com.au/ETFs/NewsAndQuotes/VGS

These are both pretty close to the share price of each and represent the value of each share's portion of the fund's underlying assets and cash at the end of the trading day.

VGS is a much much larger fund, which may give you more comfort? Both are trading at the top of their 52 week range, with VGS at all time highs. This reflects a the weakness in the AUD and strength in the US economy - I think.

[Evasion]

And bloody hell, I'm amazed at how easily Acorns and companies like them have managed to dupe so many people into paying away such a high proportion of their well earned.

On a % basis, the fees are criminal, they make the Banks look like angels.

Hey marty, thanks for your response.
Not sure what you mean, when I look at the PDS of Acorns and adding all fees (and i've done this a few times)
I'm at about 0.56% p.a which I consider quite decent for a diversified portfolio (compared to 0.9% for Vanguard managed retail funds for example).
Having said that you have to invest lump sumps quickly (what I did) because if you just use the round up function at the beginning it is indeed a rip off imo.
Is this what you mean or is there something I missed?

Thanks for your response PDM, I had figured they were extremely similar but was confused about differential in share price.

[FFF]

Hi all, couple of unrelated questions to hopefully draw on the combined wisdom of the forum. Thanks in advance!

1. Does anyone invest their super with Hostplus in their direct investment option, Choiceplus? I've started with them for FY2018 and haven't been able to find any info about when they pay the proceeds from franking credits? I used to be with ING's DIO and they paid whenever there was a distribution (and then adjusted slightly where necessary at FY end), but when they screwed up their fee structure I moved to Choiceplus. When Choiceplus didn't pay any franking credits with my first distribution from VAS, I assumed that it would be after end of FY. 2 months later, still nothing.

Anyone have any prior experience with franking credits from Choiceplus and when they get paid?

2. Has anyone done any 'debt recycling' with their mortgage and home equity? There's obviously a lot more subtlety to it than this but, if you are ahead of your mortgage payments, the general structure is to refinance mortgage to current mortgage value and obtain a line of credit based on the already built up home equity. The main reason is to then use this LOC to invest in the market and use the distributions to pay the LOC interest and enjoy the capital growth - the interest payable on the LOC is then tax-deductable. Kind of like negative-gearing for the market, I suppose.

I'm investigating options and rates at the moment, not necessarily thinking that now is the best time to invest a sizeable amount but I want to be ready to capitalise on any market drops. Of course, I can just redraw the equity as it stands but this wouldn't be tax-deductable if invested. Depending on the rates available the LOC option might not be viable, however, I'm interested to hear if anyone has any experience in doing the above? Would you do it again; anything you'd wish you'd know before; things to watch out for?

[itchyfeet]

I will leave your first question as I have no knowledge or experience with that Superfund.

Re: making geared investments, I think it’s ok but you have to be very aware of the risks.

Say you buy 50% of your shares with cash and 50% with debt amd then unfortunately the share market drops 20% and you are forced to sell the shares for any reason (eg: you lost your job and can’t service the loan). You will have lost 40% of your savings in the process and not 20%.

With gearing both gains and losses are multiplied.

You need to be careful.
  1. You need to be honest with yourself about the risks you are taking
  2. You need to have a strong stomach if your portfolio drops in value, which could be the case for several years
  3. You probably want some income protection insurance if you can’t service the debt without your job.

The positive news is that there is a good probability that over the long term the returns from the market will be higher than the interest rate on the LOC as you are taking far more risk than the bank is taking. In the short term you might lose on the gamble.

Personally, I have been quite heavily geared most of my working life, and it has worked out for me. I have managed to stay employed. But I will say that as I have got older, and the amount of equity at risk has got bigger, and as I have got closer to FIRE, my appetite for leverage has decreased. That said, I am still quite leveraged compared to most on this forum with debt equaling about 30% of my net worth (23% of total assets). When I FIRE this will be <10%, Maybe even 0.

[Andy R]

Of course, I can just redraw the equity as it stands but this wouldn't be tax-deductable if invested.

Why not? It is what the equity is used for that determines deductability, not where it comes from.
Get some tax advice from an accountant, but I am 99% sure it would be tax deductible.

[marty998]

It would be deductible but you then have a mixed purpose loan and you have to apportion interest and then you have to apportion every repayment and it becomes a cock up very quickly.

Don't ever mix loans. Once you piss in a pot of water you can't un-mix it

[marty998]

And bloody hell, I'm amazed at how easily Acorns and companies like them have managed to dupe so many people into paying away such a high proportion of their well earned.

On a % basis, the fees are criminal, they make the Banks look like angels.

Hey marty, thanks for your response.
Not sure what you mean, when I look at the PDS of Acorns and adding all fees (and i've done this a few times)
I'm at about 0.56% p.a which I consider quite decent for a diversified portfolio (compared to 0.9% for Vanguard managed retail funds for example).
Having said that you have to invest lump sumps quickly (what I did) because if you just use the round up function at the beginning it is indeed a rip off imo.
Is this what you mean or is there something I missed?

Thanks for your response PDM, I had figured they were extremely similar but was confused about differential in share price.

Yes sorry... I was referring to the people who only use the round up thing. Seems a waste of time and cents/sense

[MrThatsDifferent]

I started with Acorns because I wanted to do something and it seemed harmless and small. Then, when I learned a bit more, I opened up the Vanguard account and emptied the Acorns one and put everything there. Never looked back.

[TJEH]

I was diagnosed with a serious illness this year. My shelf life is maybe 1-5 years. I want to put a good financial plan in place for my wife and kids (preschool and early primary school age).

Current Assets:
- We have a total of just over 2 million in cash, super and shares, breakdown as follows:
- Cash:   $930k (approx $300k in $GBP, the rest in $AUD....no reason to hold the $GBP)
- Super:  $566k (fairly evenly split between my wife and I)
- Shares: $595k ($250k in my wife's name, $345k in my name)

Other Financials:
- We own our house, valued at approx 400k
- We have no debt
- We are both in our mid forties
- I earn approx $150k + super
- My wife earns approx $170k + super
- Incomes are variable, as we are both contractors

I've continued to work since, the diagnosis, though reduced to approx four days per week due to the multitude of appointments. I've just taken around 6 weeks off for a medical procedure, but am returning to work two days\week. I might bump this up to 3-4 days, but might not. Ultimately, at some point I will not be able to work, so I'm balancing the need to continue life as normal vs spending my time how I choose. It might seem like an easy decision given the situation, but sometimes these things are not straight forward.

My wife is working full time, although this will also be affected by my health. As she is a contractor (as am I), we just get paid for the hours we work, with no other entitlements. Her ability to work in her current capacity will also be affected when I'm no longer about (trying to balance work and commuting with solely looking after two young school age kids).

I handle all the finances at the moment. My wife has a good overall understanding of the picture, but perhaps lacks the finer details. She is willing to learn more, especially now!

Prior to the diagnosis, I was slowly investing the cash into shares (VAS, VEU, VTS, VGS, MVW), split equally between my wife and I. Included in my share balance of $345k are approx $140k of blue chip shares I held before I discovered indexing, most of which I plan to sell.

Since the diagnosis I've been sitting back wondering what to do with the financial plan.

- Continue the same?
- Invest more in my name, as my salary is likely to decrease in the coming months\years?
- Invest more into super (e.g. salary sacrifice plus make non concessional contributions)?
- None of the above?
- Any CGT on my assets when they pass to my wife?

I would really appreciate any advice or insights from the collective knowledge on this thread - thanks in advance.

[englyn]

TJEH, so sorry to hear about the illness.
Others are likely to be able to answer your questions better, but my input: at $1.5M + home out of super, the both of you have enough to FIRE. If 4% of $1.5M doesn't cover your expenses, put your effort into controlling your expenses. Might be worth seeing a fee-for-service financial planner about your questions for peace of mind & efficient use of your time.

[bigchrisb]

I was diagnosed with a serious illness this year.
I would really appreciate any advice or insights from the collective knowledge on this thread - thanks in advance.

Sorry to hear about this - its hard news to take and your brain must be processing a thousand things.  I had a diagnosis about three years ago (albeit degenerative rather than acute) when I was also pretty much FI, but not RE.  I stressed a lot about the future, about the potential of not being able to work, and the trade off between a high current income (with associated stress), and not knowing how much future work capacity I would have, or my partner would have if things turned downhill and she became a carer. 

I slogged away for about two years after diagnosis, padding the stash and adding (financial) safety nets, and working out bucket lists. In hindsight, I wish I'd prioritized work and finances less - my health has been a lot better since hanging up the full time boots, despite having a first kid in that same time.  Babies are a very different sort of stress!  20/20 hindsight says I should have focused on family, friends and ticking off the bucket list.  Although, over the 3 and a bit years saving, investing and booming investment returns resulted in net worth going up from about $1.5 to $3.3m, so I probably feel more relaxed than had those 3 years been less lucrative. 

Take a deep breath and have a good think.  I found these issues really hard to think though as its depressing to think about life expectancy.  However, processing them helped me a great deal in coming to terms with myself. A couple of questions I'd be asking myself:
1. Do I have any insurance coverage, either in or out of super.  While its nasty to think about, if you have some life insurance in super, it would help to support a family without you. 
2. You have $2m of investable assets, plus a paid off house.  Even without your income, this could support the family for a long (perhaps indefinite) time.  Your wife still has the ability to work too.
3. The kids are primary school and pre-school - they need a lot of time now, but that won't be forever.  Even if you didn't earn an investment cent, and neither of you worked a paid hour, you could still spend $200k a year post tax (more like $300k a year pre-tax, akin to your incomes) for a decade.
4. Is it my role to enable FIRE for my surviving spouse after I'm unable to work, or to support my "half" of the costs of parenting through to my kids reaching adulthood?  I came to the realisation that my spouse could (and may actually want) to work in the after time. 
5. Do you really enjoy your work?  Knowing that your horizon just got closer, is work what you would choose to do with your time, or would you rather focus on other things?  For me, changing focus helped deal with the diagnosis and has improved the health outcomes (and I'm now doing a little contract work).

So, I'd get your headspace  sorted out on those issues.  You have enough assets that you can both take a career break for a few years and be just fine.  But you need to decide what you actually want to do.

In terms of assets and investments, some more questions:
Why so much cash, and why the GBP?
What do you expect your healthcare costs to be?  I've found that while I have some out of pocket costs (a few grand a year), getting really sick in Australia isn't actually that expensive.  Its the elective stuff that costs $$. 
Look into super rules for early release.  Both incapacity (TPD), and terminal illness (2 years life expectancy) can be conditions of release.  I ended up putting more into super for the lower medium term tax rates, knowing that if I deteriorated that I'd be able to set up a disability pension. 

As for CGT and other estate issues, I didn't do a lot of research.  Mostly because the course of my diagnosis is reduced function rather than reduced life expectancy, and I didn't want to mentally head down another rabbit hole.

Good luck - its a tough head space to be in. Feel free to PM me if you want to talk more.

[MrThatsDifferent]

TJEH, there’s nothing I could say, that sucks so bad on every level. I can’t answer your questions, not even remotely qualified. What I would say is: go to an estate planner ASAP and talk about your options regarding trusts and all. Obviously have a will.

So the only other thing I think is, you guys have enough money. Your kids are young, invested money will double every 10 years, that’s almost $8m when they are in their early 20s. There is no reason for you to work another hour. If it were me, I’d take the time and spend it with them, fill their lives with you. Spend time with family, friends, travel and do all those things you’ve ever wanted to. You and your wife can take a break from work. Obviously it’s your decision, there’s no wrong choice. Hug.

[marty998]

Refer here for details on early release of super:

https://www.ato.gov.au/super/apra-regulated-funds/in-detail/apra-resources/access-to-super-for-members-with-a-terminal-medical-condition/

[TJEH]

Thanks everyone, lots of sensible advice.

Stopping work has definitely crossed my mind. If you asked me what I would do in this situation prior to my diagnosis, I would have almost certainly have said I'd quit. Spending more time with my family is very good advice and something I would not regret. My only reason for considering more work is my need (misguided or otherwise) to contribute while I can, and for something to distract me from sitting at home thinking too much about everything.
 
Our expenses are currently more than 4% of our funds outside of super. There is definitely some room to make changes here, and both of us stopping work would give us more opportunities to improve. Having said that, we'd probably start spending more on travel. I guess that even though it would still exceed 4%, and thus eat into the stash, it would only be temporary and would clearly have many benefits.

We have a will, although it is old (prior to having kids), my wife is the sole beneficiary.

Happy to have any recommendations for financial\estate planners (Melbourne based would be good).

[TJEH]

bigchrisb, you are right, my brain has been overloaded on many fronts. When you know you are leaving behind a family, your first thoughts are making sure you can do everything to leave them in a good position. The temptation to pad the stash out is certainly there. Having said that, I think our position is pretty good, so I should give serious thought to some alternatives. We have been working towards FIRE and have gotten pretty close, so the option to do it is a good one. With very young kids it can be hard to take the leap though, knowing how long they are dependent on you for.

I have around $270k of tpd and life insurance inside super, so that's another buffer that can be tapped into when the time comes - cue cheery thoughts :D

Your insights are very useful, and I need to think more about it. So far the health issue hasn't really slowed me down too much, so I'm fortunate in that respect. This also means I've done an excellent job in not thinking too deeply about it all. My brain starts to hurt when I do! Even writing this down has made me realize I should make the most of my current situation (diagnosis=bad, day-day functionality=pretty good!)

To answer your questions:

Why so much cash, and why the GBP?

Lots of saving and not much investing, until the last couple of years anyway. I couldn't bring myself to invest a large lump sum, so have invested it in 20k increments per month. With the returns over the last couple of years, perhaps I should have gone the lump sum route, though if the market had tanked I would be thinking the opposite. Regarding the GBP, we lived and worked in the UK for a few years. It is currently getting virtually no return. I know I need to transfer it back, but keep waiting for the rate to improve. Stupid, I know!

What do you expect your healthcare costs to be?  I've found that while I have some out of pocket costs (a few grand a year), getting really sick in Australia isn't actually that expensive.  Its the elective stuff that costs $$. 

So far they have been minimal. I shudder to think how much they would have been if I had to pay for them myself. In that respect, I consider myself extremely fortunate to be Australian, just about everything has been covered by the pubic system. I haven't given too much thought to future costs, they I don't envisage it to change much. Well, unless I run out of PBS entitlements, or want to get my hands on something not covered by the PBS. Although my prognosis is not great, there are plenty of new drugs coming, though the cost of these is astronomical if funding them yourself.

Look into super rules for early release.  Both incapacity (TPD), and terminal illness (2 years life expectancy) can be conditions of release.  I ended up putting more into super for the lower medium term tax rates, knowing that if I deteriorated that I'd be able to set up a disability pension. 

I've heard of others in my situation getting early access to super. Is there a benefit in taking it now vs leaving it there? My wife is the binding beneficiary.

[MrThatsDifferent]

Thanks everyone, lots of sensible advice.

Stopping work has definitely crossed my mind. If you asked me what I would do in this situation prior to my diagnosis, I would have almost certainly have said I'd quit. Spending more time with my family is very good advice and something I would not regret. My only reason for considering more work is my need (misguided or otherwise) to contribute while I can, and for something to distract me from sitting at home thinking too much about everything.
 
Our expenses are currently more than 4% of our funds outside of super. There is definitely some room to make changes here, and both of us stopping work would give us more opportunities to improve. Having said that, we'd probably start spending more on travel. I guess that even though it would still exceed 4%, and thus eat into the stash, it would only be temporary and would clearly have many benefits.

We have a will, although it is old (prior to having kids), my wife is the sole beneficiary.

Happy to have any recommendations for financial\estate planners (Melbourne based would be good).

Awww man, until this happens to you, you never know what you’d do. Look for STEP accredited estate planner. Definitely get your will updated. Consider visiting a therapist to talk things out. Your financial situation is extraordinary. You and your wife have done everything right. You’ve provided and your family is set for several lifetimes. You don’t have to work to stay out of the house.

[Gremlin]

We have a will, although it is old (prior to having kids), my wife is the sole beneficiary.

I've heard of others in my situation getting early access to super. Is there a benefit in taking it now vs leaving it there? My wife is the binding beneficiary.

I wish you and your family all the best with the coming months and years, TJEH.

It may be worth talking to a lawyer about reviewing your will and potentially updating your binding beneficiary.  I know there are a couple of different schools of thought here, but one school suggests that you might consider leaving your assets, including any payout through super/life insurance, in a testamentary trust.  You can have your spouse and kids as beneficiaries.  It was explained to me that one advantage is that distributions to the beneficiaries are taxed as if they are adults and not kids, which effectively means that distributions to the kids are not hit with the punitive tax rates for minors.  This can substantially reduce the tax burden for your spouse into the future whilst your kids are growing to adulthood.

[TJEH]

MrThatsDifferent - thanks, for your suggestions, will look into them. You are right about not needing work to get out of the house, I think we all need a reminder about that.

Gremlin - thanks, you have reminded me about testamentary trusts. I did think about them previously, though as a way of passing on both my wife and my assets when we are both gone. The solution of having my assets pass to a testamentary trust sounds well worth looking into.

marty998- thanks, i think I qualify...ummm, hooray....sort of :D

If anything, this might be a good nudge for all you good people to consider the worst, as cheery as that is, and make some plans. I was a bit lazy\naive in this respect, thinking we had saved plenty and that I lead a healthy lifestyle and would be fine. It's all a bit gloomy, but it will lessen the stress if the worst should happen.

[marty998]

Gremlin - thanks, you have reminded me about testamentary trusts. I did think about them previously, though as a way of passing on both my wife and my assets when we are both gone. The solution of having my assets pass to a testamentary trust sounds well worth looking into.

This also protects your kids if your wife remarries someone who turns out to be of questionable character and sees a pot of gold and helps themselves (sorry to throw that out there, I don't mean to be a downer!).

[Chug]

Hello all, first time poster and in need of some guidance / direction.

I've always been keen on investing in something but never had the guts or knowledge to do anything. I am a complete novice when it comes to shares, superannuation and the like. The only real thought I've had about investing is in real estate and again, haven't had the guts to buy anything.

My current situation in a nutsell:
- The wife and I paying off the mortgage on our home.
- About $35k in savings.
- Home equity around $350k.
- $15k new car loan.

The wife is not interested when I try talking to her about investing our money rather than just have it sitting in the offset. Sure it's important to have cash in case of an emergency, but I want to set up something for the future, obviously in preparation for retirement (I'm 31 so that is a long long way off).

Throw me some suggestions please. I'm keen to learn.

[middo]

Hello all, first time poster and in need of some guidance / direction.

I've always been keen on investing in something but never had the guts or knowledge to do anything. I am a complete novice when it comes to shares, superannuation and the like. The only real thought I've had about investing is in real estate and again, haven't had the guts to buy anything.

My current situation in a nutsell:
- The wife and I paying off the mortgage on our home.
- About $35k in savings.
- Home equity around $350k.
- $15k new car loan.

The wife is not interested when I try talking to her about investing our money rather than just have it sitting in the offset. Sure it's important to have cash in case of an emergency, but I want to set up something for the future, obviously in preparation for retirement (I'm 31 so that is a long long way off).

Throw me some suggestions please. I'm keen to learn.

Others will chime in here, but a couple of ideas from my personal perspective:

• Make sure you are putting as much as you can into super (up to $25,000 p.a. in total is very tax effective)
  
• Don't buy property as an investment.  Australian property does not add up when you look hard at it.
• Get Scott Papes book and have a read.  It isn't the only solution, but may help you work out what you (and she) want for your future.
• I would suggest you keep your 35K as an emergency fund, but as you save more, invest that into a broad based stock index fund, such as Argo (Australian) or Vanguard as widely suggested here.
  

[GT]

Hello all, first time poster and in need of some guidance / direction.

I've always been keen on investing in something but never had the guts or knowledge to do anything. I am a complete novice when it comes to shares, superannuation and the like. The only real thought I've had about investing is in real estate and again, haven't had the guts to buy anything.

My current situation in a nutsell:
- The wife and I paying off the mortgage on our home.
- About $35k in savings.
- Home equity around $350k.
- $15k new car loan.

The wife is not interested when I try talking to her about investing our money rather than just have it sitting in the offset. Sure it's important to have cash in case of an emergency, but I want to set up something for the future, obviously in preparation for retirement (I'm 31 so that is a long long way off).

Throw me some suggestions please. I'm keen to learn.

Check how your thought process fits in with this.

https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333550/#msg1333550

[TJEH]

Gremlin - thanks, you have reminded me about testamentary trusts. I did think about them previously, though as a way of passing on both my wife and my assets when we are both gone. The solution of having my assets pass to a testamentary trust sounds well worth looking into.

This also protects your kids if your wife remarries someone who turns out to be of questionable character and sees a pot of gold and helps themselves (sorry to throw that out there, I don't mean to be a downer!).

Good point too marty998. I have told my wife I am going to come back and haunt her if she does anything dodgy, so I'll add this to the list :)

[steveo]

Hello all, first time poster and in need of some guidance / direction.

I've always been keen on investing in something but never had the guts or knowledge to do anything. I am a complete novice when it comes to shares, superannuation and the like. The only real thought I've had about investing is in real estate and again, haven't had the guts to buy anything.

My current situation in a nutsell:
- The wife and I paying off the mortgage on our home.
- About $35k in savings.
- Home equity around $350k.
- $15k new car loan.

The wife is not interested when I try talking to her about investing our money rather than just have it sitting in the offset. Sure it's important to have cash in case of an emergency, but I want to set up something for the future, obviously in preparation for retirement (I'm 31 so that is a long long way off).

Throw me some suggestions please. I'm keen to learn.

I would pay off the car loan with $35k in savings. I figure that the car loan has a high interest rate and you won't be able to beat that via savings.

You can invest into index funds if you want too or you can pay off your house. I choose to pay off my house first but it depends on your mortgage interest rate compared to index funds returns. Paying off your mortgage gives you a tax free guaranteed return but if your mortgage rate is 2% then over time I think the market should beat that return.

You need to spend some time working through your investing options but it's not really hard:-

1. ETF's - you can use these to create a simple portfolio that will do really well. You could just buy VGS or you could have some bonds and Australian shares as well.
2. Vanguard diversified funds.

I would look at bogleheads for some ideas. I use a simple 3 found portfolio outside of super - VGA, VAS & VAF. If I was in your position I wouldn't buy any bonds until you are close to retirement and the house is paid off.

[Andy R]

Anyone have thoughts on how to set up an allocation where you have half your money in direct property?
For instance, a 60/40 allocation would mean 40 of the remaining 50% not in direct-property is in fixed interest, leaving only 10% of your wealth and 20% of your non direct-property invested in equities.

I wonder if a good idea is to release a big chunk of equity from the property, and leave it sitting there offsetting the loan, and in a crash, I could draw down from that until the market recovers, and this would allow me to be fully invested with my other half in stocks for maximum growth.

Appreciate any thoughts on this.

[MedusaMo]

Hi everyone, first-time poster with a question about investment order, PPOR after other investments.

I'm renting at the moment, a little burned on property after a PPOR-turned-investment turned sour and netted me a loss.
I've stashed the equity remaining from the property sale in two places:

high-interest savings account - this carries a 6-month living expenses buffer (I work on contract) plus extra with a vague notion of using it all for a house deposit sometime in the future
ETFs 25k - dipping my toes in VAS, VTS, VEU, A200

I'm toying with whether I am going to be sick of renting soon and want to buy a place to live in, and what I should do with my money in the meantime to grow it but have it somewhat available. I see stuff about LICs and DSSPs, which would be fine for my income level but not if I want to pull the whole lot out at some stage and shift it to a PPOR.

When work is stable I'm living off half my income. My ultimate goal is FI or at least enough of a buffer that gives me the freedom to choose which work I'd like to do.

The guides I see for investment order talk about paying off your PPOR first, then investing elsewhere.

Does anyone have experience with doing this the other way around? Which are good investments to make if you then want to switch to paying off your home?

[PDM]

That selection of ETFs doesn't make sense to me.
Why VAS and A200? That is a lot of doubling up.
Why VEU and VTS? US market + Rest of world excluding US?

[MedusaMo]

That selection of ETFs doesn't make sense to me.
Why VAS and A200? That is a lot of doubling up.
Why VEU and VTS? US market + Rest of world excluding US?

I was thinking of leaving that detail out because I didn't want to distract from my question.

Got VAS, then saw A200 had better MER so bought that in another batch, why would 'doubling up' be an issue? I went for roughly half aus, half ex-aus (mostly US), so I just buy a batch of something when I have enough for a trade.

[PDM]

Ok, to answer the question, it depends. Particularly on your view of the Australian property market. If you think it is currently a massive bubble and likely to strongly correct/crash then don't buy.

My wife and I don't own any property but may buy in the coming years. We've invested in ETFs and largely reduced our exposure to the ASX and Aussie economy (excluding our jobs). I'm pretty bearish on the AUD, Australian property and the ASC.

We do have a probably too large cash position in a "high" interest saver to use for a deposit if we do want to buy.

The order of investment advice is very situational dependent. If you already had a large loan then paying it off quickly is a guaranteed 4-5% return and you're not taxed on it. If you don't have any property then it depends on whether you're able to rent and still save a bunch to invest.

Also skewed by our massively inflated property prices.

[deborah]

The investment order is optimal financially - it gives an order if you have everything - debt, PPOR... Few of us have everything.

However, there are other things in our lives to be considered. Many people also want to have investments even when they are paying off debt. Pure financial optimisation would be against this. But it gives more diversity, which reduces overall risk.

Your choices are your own. You need to be happy with what you’re doing.

Having the investment order as a starting point makes you justify your choices to yourself.

[MedusaMo]

Ok, to answer the question, it depends. Particularly on your view of the Australian property market. If you think it is currently a massive bubble and likely to strongly correct/crash then don't buy.

My wife and I don't own any property but may buy in the coming years. We've invested in ETFs and largely reduced our exposure to the ASX and Aussie economy (excluding our jobs). I'm pretty bearish on the AUD, Australian property and the ASC.

We do have a probably too large cash position in a "high" interest saver to use for a deposit if we do want to buy.

The order of investment advice is very situational dependent. If you already had a large loan then paying it off quickly is a guaranteed 4-5% return and you're not taxed on it. If you don't have any property then it depends on whether you're able to rent and still save a bunch to invest.

Also skewed by our massively inflated property prices.

Thanks. I might refine the balance of my ETFs etc over time. I work in the resources industry on contract, so if mining dries up I want to be exposed to other industries, not have my income and investments tied up in the same basket.

I'm at the limit of the ING saver balance where the interest drops back to the base rate and considered opening a saver account at another bank to put more in, but the interest rate is just so low... I figure I should do something better with the money beyond keeping a 20% deposit if I have no immediate plans to buy.

If you buy property, would you sell off your ETFs to pay down the mortgage or would you keep them and at most use any dividends on the mortgage?

One strategy I saw was renting first and with the extra saved (I do save) buying up LICs on a DSSP (reinvested, tax-deferred), then when it's time to buy switch off the reinvestment and take the dividend as payment towards the mortgage. I have run some calcs on doing this after different years as I was concerned it would still take ages to pay back the loan (even if I leave buying till late I'd like it paid off before I hit 60). It looks like I could pay it off without selling off the investments, but it was a pretty rough calculator and I might be missing a few tax considerations.
Probably getting in the weeds here in my own situation, should ask an accountant.

[Andy R]

Have you had a look at RAMS bonus saver. I think it's around 3%

I think you have it backwards. Debt recycling is where you get a loan for PPOR (which is not deductible), and as you save more than the repayments, you pay it into the loan and then borrow it back out to invest in shares. Then the interest on what you borrowed out is now tax deductible. Doing it the way you described doesn't make much sense. It would be better to just sell the shares once you buy the PPOR, pay it into the PPOR loan and redraw it out to rebuy the shares. This turns your debt from non-deductible to deductible (ie free money from the govt)

[PDM]

Ok, to answer the question, it depends. Particularly on your view of the Australian property market. If you think it is currently a massive bubble and likely to strongly correct/crash then don't buy.

My wife and I don't own any property but may buy in the coming years. We've invested in ETFs and largely reduced our exposure to the ASX and Aussie economy (excluding our jobs). I'm pretty bearish on the AUD, Australian property and the ASC.

We do have a probably too large cash position in a "high" interest saver to use for a deposit if we do want to buy.

The order of investment advice is very situational dependent. If you already had a large loan then paying it off quickly is a guaranteed 4-5% return and you're not taxed on it. If you don't have any property then it depends on whether you're able to rent and still save a bunch to invest.

Also skewed by our massively inflated property prices.

I work in the resources industry on contract, so if mining dries up I want to be exposed to other industries, not have my income and investments tied up in the same basket.

I'm at the limit of the ING saver balance where the interest drops back to the base rate and considered opening a saver account at another bank to put more in, but the interest rate is just so low... I figure I should do something better with the money beyond keeping a 20% deposit if I have no immediate plans to buy.

If you buy property, would you sell off your ETFs to pay down the mortgage or would you keep them and at most use any dividends on the mortgage?

One strategy I saw was renting first and with the extra saved (I do save) buying up LICs on a DSSP (reinvested, tax-deferred), then when it's time to buy switch off the reinvestment and take the dividend as payment towards the mortgage. I have run some calcs on doing this after different years as I was concerned it would still take ages to pay back the loan (even if I leave buying till late I'd like it paid off before I hit 60). It looks like I could pay it off without selling off the investments, but it was a pretty rough calculator and I might be missing a few tax considerations.
Probably getting in the weeds here in my own situation, should ask an accountant.

We don't plan on selling the ETFs to buy a home - instead paying a 20% deposit with cash money. The idea of the ETFs is to distribution reinvest and let it grow, then keep that for FIRE. Then pay off the mortgage.

It probably isn't the optimal use of a chunk of cash - keeping it in RAMS saver 3% - sort of treading water against inflation - however with a tentative plan to look at buying in the next few years or so it doesn't make too much sense to us to buy into an ETF. I like a longer investment timeframe - 7+ years maybe?

[MedusaMo]

Have you had a look at RAMS bonus saver. I think it's around 3%

I think you have it backwards. Debt recycling is where you get a loan for PPOR (which is not deductible), and as you save more than the repayments, you pay it into the loan and then borrow it back out to invest in shares. Then the interest on what you borrowed out is now tax deductible. Doing it the way you described doesn't make much sense. It would be better to just sell the shares once you buy the PPOR, pay it into the PPOR loan and redraw it out to rebuy the shares. This turns your debt from non-deductible to deductible (ie free money from the govt)

I haven't looked into debt recycling yet, interesting, thanks.

[MedusaMo]

Ok, to answer the question, it depends. Particularly on your view of the Australian property market. If you think it is currently a massive bubble and likely to strongly correct/crash then don't buy.

My wife and I don't own any property but may buy in the coming years. We've invested in ETFs and largely reduced our exposure to the ASX and Aussie economy (excluding our jobs). I'm pretty bearish on the AUD, Australian property and the ASC.

We do have a probably too large cash position in a "high" interest saver to use for a deposit if we do want to buy.

The order of investment advice is very situational dependent. If you already had a large loan then paying it off quickly is a guaranteed 4-5% return and you're not taxed on it. If you don't have any property then it depends on whether you're able to rent and still save a bunch to invest.

Also skewed by our massively inflated property prices.

I work in the resources industry on contract, so if mining dries up I want to be exposed to other industries, not have my income and investments tied up in the same basket.

I'm at the limit of the ING saver balance where the interest drops back to the base rate and considered opening a saver account at another bank to put more in, but the interest rate is just so low... I figure I should do something better with the money beyond keeping a 20% deposit if I have no immediate plans to buy.

If you buy property, would you sell off your ETFs to pay down the mortgage or would you keep them and at most use any dividends on the mortgage?

One strategy I saw was renting first and with the extra saved (I do save) buying up LICs on a DSSP (reinvested, tax-deferred), then when it's time to buy switch off the reinvestment and take the dividend as payment towards the mortgage. I have run some calcs on doing this after different years as I was concerned it would still take ages to pay back the loan (even if I leave buying till late I'd like it paid off before I hit 60). It looks like I could pay it off without selling off the investments, but it was a pretty rough calculator and I might be missing a few tax considerations.
Probably getting in the weeds here in my own situation, should ask an accountant.

We don't plan on selling the ETFs to buy a home - instead paying a 20% deposit with cash money. The idea of the ETFs is to distribution reinvest and let it grow, then keep that for FIRE. Then pay off the mortgage.

It probably isn't the optimal use of a chunk of cash - keeping it in RAMS saver 3% - sort of treading water against inflation - however with a tentative plan to look at buying in the next few years or so it doesn't make too much sense to us to buy into an ETF. I like a longer investment timeframe - 7+ years maybe?

Yeah, your strategy to keep was my initial thinking too.

I don't know what else to do with a mid-term holding. Seems caught between low risk/low interest and the longer term volatile options.

Thanks

[BRAFRA]

Australia has treaties with some countries to avoid the double taxation with respect to taxes on income and the prevention of fiscal evasion. Are you aware of any country with a treaty that could be used by investors to maximise their profit?

For example, imagine a treaty with Luxembourg stating that the dividends of shares from one of the 2 countries are only taxed in this country. Luxembourg may only have a 10% flat tax, so you better have to buy shares in Luxembourg if your marginal tax rate in Australia is 32.5% or more.   

[Andy R]

Australia has treaties with some countries to avoid the double taxation with respect to taxes on income and the prevention of fiscal evasion. Are you aware of any country with a treaty that could be used by investors to maximise their profit?

For example, imagine a treaty with Luxembourg stating that the dividends of shares from one of the 2 countries are only taxed in this country. Luxembourg may only have a 10% flat tax, so you better have to buy shares in Luxembourg if your marginal tax rate in Australia is 32.5% or more.

I thought that you get a credit for the tax amount paid in the other country and then make up the rest up to your marginal rate.
So if you paid 10% tax there and your marginal rate here is 32.5, wouldn't you then still need to pay the Aus govt the remaining 22.5% ?

[mjr]

Andy R is correct.  No free lunch.

[Ballyoz]

I have been reading the MM blog and this particular thread, among many other sources, in recent months as I try to provide myself with a financial education. My wife and I have been discussing the bigger picture and I would really appreciate some feedback/wisdom from these parts!

Background:

I am 37, my wife is 30. We moved to Australia from Ireland last year. We live in Sydney. Both working full-time. I earn $125,000 and she earns $90,000 (both ex super). At the moment, after rent and all other expenses, we manage to save $5,000 monthly. We have a budget and minimising outgoings is a continuous project. Happy to report we're on the same page when it comes to what we want out of life, including financially.

We came from Ireland with very little, around €50,000 in pension funds left behind and some 'get started' money. We plan to stay here in Sydney and are planning accordingly when it comes to our finances. I have no idea if (and how) we would transfer that Irish pension money into Super, but that's another day's work!

We have managed to save $63,000 dollars to date, all of it an ING savings maximiser account. We have no debts (bought a car cheaply here with cash).

Our main goals:

- To start a family (hopefully next year)
- To provide for our future here in Australia

Our main challenges:

- Starting a family is expensive in so many ways - lots we don't even know about yet! (Loss of earnings, childcare etc.)
- We are on the back foot already when it comes to Super, savings etc. given our respective ages... especially mine!
- Property prices in Sydney

In our favour:

- We have good jobs
- We are committed to each other and our future together - willing to make sacrifices

We have discussed the following in terms of our approach:

- Building an emergency fund for unforeseen events (can come from existing savings)
- Happy to keep renting for the foreseeable future as to buy reasonably close to where we both work would be far too expensive. The median price for a basic two-bed unit is comfortably more than $1 million. Renting that same unit costs around $700 per week. To move to a place where that same unit costs $800,000, for example, we would both spend three hours plus a day commuting and these areas are also far more exposed in a downturn. There's also the issue of building the required deposit (we wouldn't feel comfortable at less than 20%). Overall, we are not comfortable with planning to purchase right now, but not ruling it out at some point in the future - if the stars align!
- Considering salary sacrifcing to Super, especially for me, to kick start that fund. If (hopefully when) my wife has to go on maternity leave and all that follows, I could also contribute to her Super to keep it moving forward. We are aware of the concessional cap and I could try make the most of it, especially if there is a pay rise in my future.
- Investing money for the future. This is critical for us, I feel. Obviously this is an area where people can debate ETFs and approaches all day long, but ideally, I would like to keep this as simple as possible, especially as we are interested in a set and (not quite) forget long-term option(s), where we are contributing steadily and consistently towards a future income. In this regard I think one of the old-school LICs while not very exciting may be a suitable option for us, using a dividend reinvestment plan. Vanguard, of course, is another popular option and offers the potential (if we were exposed heavily to Australia via an LIC and Super) to diversify somewhat and focus more on capital growth (again using a DRIP). These would be investments we intend to not even consider touching for at least 20 years. Despite my slight misgivings about the market right now, I am not interested in trying to time it, but just getting started.
- Last consideration is IF there is income left after we build an emergency fund and start investing for our future (via salary sacrifice to Super and otherwise, as outlined above) should we also looking at directing some of our income to a high interest bank account for slow and steady home deposit building, so that it remains a live option for us, despite us feeling the time/market etc. is not right at the moment (and we don't have enough cash!). Homes in Sydney will never be cheap and, who knows, if we decide to move elsewhere in NSW or Australia some day it could be useful then too.

Thanks for reading and, in advance, for any thoughts you share.

[PDM]

Get out of Sydney? Brisbane is cheaper, less crowded and the people are nicer. I might be biased  though. Seriously keep in mind relocating. A lower cost of living area can make a massive difference to FIRE plans.

[marty998]

Lemme guess @Ballyoz, you guys are in Bondi? And I'll also wager you're both in financial services with a Big4 background? Sometimes I wonder who is left over in the Dublin offices of PwC and KPMG Ireland, they all seem to work here  :)

There is more to Sydney then just the Eastern Suburbs. Plenty of nice areas where you can get a 2-3 bedder for well under $800k, without a 3 hour a day commute.

[middo]

My first suggestion is get both of your supers up to 25000 per year by salary sacrificing if you haven't done that already.

[Ballyoz]

Thanks all for your replies.

- PDM, we're in Sydney for now and a move is not likely any time soon. Take your point, but I guess earning potential comes into it too - among other things. I look forward to visiting Brisbane!
- Marty, we live and work on the north side of the city, and neither of us are in finance ;) But I do know of whom you speak! We have never lived in (and barely visited) the Eastern suburbs and we are not tied to the North Shore (where we do live) either for that matter, but proximity to work does matter. What nice areas do you have in mind?!
- Middo, we have not done that, we have just focused on saving what we can and now we are trying to figure out the best way forward. Took time to get settled and start to educate ourselves in a different country! As I said in my post, salary sacrificing to Super is definitely something we're thinking about. We just want to strike the right balance across priorities.

[PDM]

Thanks all for your replies.

- PDM, we're in Sydney for now and a move is not likely any time soon. Take your point, but I guess earning potential comes into it too - among other things. I look forward to visiting Brisbane!

Brisbane is a nice place to live - terrible place for a holiday. I reckon about 4 hours is enough tourist time.

[marty998]

Thanks all for your replies.

- PDM, we're in Sydney for now and a move is not likely any time soon. Take your point, but I guess earning potential comes into it too - among other things. I look forward to visiting Brisbane!
- Marty, we live and work on the north side of the city, and neither of us are in finance ;) But I do know of whom you speak! We have never lived in (and barely visited) the Eastern suburbs and we are not tied to the North Shore (where we do live) either for that matter, but proximity to work does matter. What nice areas do you have in mind?!
- Middo, we have not done that, we have just focused on saving what we can and now we are trying to figure out the best way forward. Took time to get settled and start to educate ourselves in a different country! As I said in my post, salary sacrificing to Super is definitely something we're thinking about. We just want to strike the right balance across priorities.

Ahh crap! I guess I am a little sick of all the Irish resumes that have come across my desk the past couple of years :) 

I'm more familiar with the southern parts of Sydney, but up North yeah look the commutes are a bit worse, especially with slow buses from places like Dee Why and Narrabeen. And from the North West, with the Epping/Chatswood rail shut down for the metro it isn't looking great either. Have a mate who lives in Mosman, and I beat him into work in the CBD in the morning, even though I live on the outskirts of the metro area.

It will cost you more that side of the bridge, but alas, privilege has to be paid for.

A lot of noise is made about super and the gender gap and making sure women have the same standard of retirement etc... however in your case because of your age gaps you would want to put as much in your name as possible, as you will have access to it first. In 23 years when you draw it down, you can simply wash it back into your wife's fund.

A big mortgage when you're about to start a family and interest rates are on the way up and you're down to 1.5 incomes with childcare bills is something to either be avoided or strategically planned for. Take your time war-gaming it!

[Ballyoz]

Ha! Well rest assured you will never see my resume :)

My wife works in Mosman and I am further north, right in the midst of that rail shut down! We both like our jobs, so happy to rent for the privilege of being close to them, but highly doubt we'll ever be in a position to buy up here. That's why we're looking at other investments.

Thanks for the advice on the Super. I have a lot of ground to make up for sure.

World domination is not on our agenda, or even FIRE realistically, we just want to set ourselves up as best we can.

[mjr]

Brisbane is a nice place to live - terrible place for a holiday. I reckon about 4 hours is enough tourist time.

4 hours if it includes a long lunch !

[PDM]

Brisbane is a nice place to live - terrible place for a holiday. I reckon about 4 hours is enough tourist time.

4 hours if it includes a long lunch !

I’d assumed a long lunch, a city cat ride to capture a photo of the bridge from the water (looking back towards the city), a quick visit to either the Powerhouse/New Farm Park or GOMA/Southbank.