Author Topic: Australian Investing Thread  (Read 1596994 times)

Ozlady

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Re: Australian Investing Thread
« Reply #4600 on: October 02, 2019, 04:24:18 PM »
Hi Marty

Congrats!

Sounds like you have quite a bit just from VAS alone...

May i ask:

a) how long did you take to accumulate those VAS shares?

b) is it a matter of regular dripping in and if so, how often? per month? per quarter? sporadic?

c) do you have a target number to reach? What is your domestic/international allocation ?

Asking for my daughter's investing journey (she is only 20)..but feel free to ignore if it is too personal please!  Many thanks!


happy

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Re: Australian Investing Thread
« Reply #4601 on: October 02, 2019, 04:31:08 PM »
Well done Marty :)

marty998

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Re: Australian Investing Thread
« Reply #4602 on: October 03, 2019, 02:56:06 AM »
Hi Marty

Congrats!

Sounds like you have quite a bit just from VAS alone...

May i ask:

a) how long did you take to accumulate those VAS shares?

b) is it a matter of regular dripping in and if so, how often? per month? per quarter? sporadic?

c) do you have a target number to reach? What is your domestic/international allocation ?

Asking for my daughter's investing journey (she is only 20)..but feel free to ignore if it is too personal please!  Many thanks!

It took a while and I made a lot of mistakes, most of them around the time of when I was your daughter's age. Back then it was 2006-07 and I was geared 50-50. Nearly wiped out by the end of 2009, I still have today $50k in capital losses carried forward from then (got up to around $80k at one point).

I bought an apartment in 2010, paid off the mortgage by 2015, cash is still sitting in offset. Probably not the smartest thing to do but interest rates were 6-7% back then, not the 3.xx% you see today. Then I started buying shares again, but I stupidly bought VHY initially. Learned another lesson pretty quickly and rolled it all into VAS.

There's been a few gifts from the parents along the way, call it an early inheritance - their super has gone gangbusters. I generally buy every time I accumulate $10k, so that is once or twice a quarter. My salary has received a few bumps up along the way, so much of the extra purchases have occurred in the last two years.

I am all Australia, I don't hold any international shares either in ETFs or in super. I see no need to take on the extra risk. If the Australian market plods along as it has done on average for most of recent history at 4% dividends, 3-4% growth and 1% franking benefits then I'm quite happy with that.

No target number as such. I figure I'll know when the time comes.

Ozlady

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Re: Australian Investing Thread
« Reply #4603 on: October 03, 2019, 04:39:44 PM »
Thanks for the sharing Marty:)

So much achievement for such a young man...well done and keep plodding...

Footnote: i just bought some VAS for my kids yesterday too..could not resist:)

mjr

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Re: Australian Investing Thread
« Reply #4604 on: October 03, 2019, 04:55:18 PM »
I bought VAS on Wednesday, dammit :-)  Missed it by that much.

Gottilebsen in the Australian today bad-mouthing the ASX because of banks, again.  He loves talking them down.

marty998

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Re: Australian Investing Thread
« Reply #4605 on: October 04, 2019, 05:15:03 AM »
Thanks for the sharing Marty:)

So much achievement for such a young man...well done and keep plodding...

Footnote: i just bought some VAS for my kids yesterday too..could not resist:)

Cheers, it is a nice achievement :)

Bewilders me how people live close to the edge, having nothing left over after each pay fortnight. Cannot imagine why people put themselves through the stress (lot of it being self inflicted).


lush

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Re: Australian Investing Thread
« Reply #4606 on: October 04, 2019, 04:39:21 PM »

....I bought an apartment in 2010, paid off the mortgage by 2015, cash is still sitting in offset. Probably not the smartest thing to do but interest rates were 6-7% back then, not the 3.xx% you see today. Then I started buying shares again, but I stupidly bought VHY initially. Learned another lesson pretty quickly and rolled it all into VAS.


Hi Marty - why was VHY a stupid? BTW good on you for keeping at it.

Alchemisst

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Re: Australian Investing Thread
« Reply #4607 on: October 04, 2019, 11:44:13 PM »
Curious to know peoples allocations e.g VAF, VAS, VTS, VGS, VEU etc. I'm still trying to decide on the best allocation/ combination. Also I'm with comsec, which doesn't have the lowest fees but I have been using it for a long time so all my shares are in there and its easy to manage, is it worth changing to a lower cost brokerage?

jk5954

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Re: Australian Investing Thread
« Reply #4608 on: October 05, 2019, 12:29:23 AM »
Curious to know peoples allocations e.g VAF, VAS, VTS, VGS, VEU etc. I'm still trying to decide on the best allocation/ combination. Also I'm with comsec, which doesn't have the lowest fees but I have been using it for a long time so all my shares are in there and its easy to manage, is it worth changing to a lower cost brokerage?

I myself have 100% shares with approximately 50/50 split between AU and Intl. I hold VAS for the AU in ETF's and hold my Intl shares in Super with 100% of my super in Intl shares (Through First State super which has really low fees for Intl shares)

In terms of VTS, VGS and VEU the usual split would be to hold VTS and VEU together or VGS. VTS and VEU gives a lower MER but are US Domiciled so need to fill out a W-8BEN form every so often. VGS has a higher MER but is AU Domiciled and can turn on DRP.

In terms of brokerage I started out with E Shares then when I found a cheaper broker in CMC Markets I changed to them. CMC markets had a form on their website to transfer holdings from another broker. This form was called "Transfer CHESS Holdings Form". Whichever low cost brokerage you choose to change to should have a similar form.

mjr

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Re: Australian Investing Thread
« Reply #4609 on: October 05, 2019, 12:41:53 AM »
Across taxable and super I am 50/50 VAS/VTS.  I've stayed away from VEU and VGS because I don't want any money in Europe because I think it's a basket case.  Australian shares because of the home currency and franking credits.

I'm with Westpac because that's where all my banking is. I don't bother with a low cost broker, all my trades are >= $20,000 so I pay 0.11% brokerage and don't trade often.

lush

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Re: Australian Investing Thread
« Reply #4610 on: October 05, 2019, 01:21:30 AM »
I am with Vanguard and have VAS making up 30% and 70% in Balanced Fund. However looking to change that to be all VAS see my case study here: https://forum.mrmoneymustache.com/case-studies/selling-and-switching-portfolios-for-better-cash-distribution/

Andy R

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Re: Australian Investing Thread
« Reply #4611 on: October 05, 2019, 05:11:33 AM »
I am with Vanguard and have VAS making up 30% and 70% in Balanced Fund. However looking to change that to be all VAS see my case study here: https://forum.mrmoneymustache.com/case-studies/selling-and-switching-portfolios-for-better-cash-distribution/

So your balanced fund is

Fixed income: 50%
50% bonds

Equities: 50%
30% global equities
20% Australian equities

The decision for amount of bonds is one decision, and the decision of global equities vs Australian equities is another.

By switching to VAS you are making 2 decisions. Is this your intention?

From your post it sounds like the issue is performance which is related almost exclusively to the fixed income portion (the first decision) and not related to the second.

You could achieve the same thing by switching out from the balanced fund to the high growth fund and retain the equities portion being globally diversified, but for some reason you left out this option and decided the entirety of options were VAS or an LIC?

lush

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Re: Australian Investing Thread
« Reply #4612 on: October 05, 2019, 05:22:20 PM »
I am with Vanguard and have VAS making up 30% and 70% in Balanced Fund. However looking to change that to be all VAS see my case study here: https://forum.mrmoneymustache.com/case-studies/selling-and-switching-portfolios-for-better-cash-distribution/

So your balanced fund is

Fixed income: 50%
50% bonds

Equities: 50%
30% global equities
20% Australian equities

The decision for amount of bonds is one decision, and the decision of global equities vs Australian equities is another.

By switching to VAS you are making 2 decisions. Is this your intention?

From your post it sounds like the issue is performance which is related almost exclusively to the fixed income portion (the first decision) and not related to the second.

You could achieve the same thing by switching out from the balanced fund to the high growth fund and retain the equities portion being globally diversified, but for some reason you left out this option and decided the entirety of options were VAS or an LIC?

Thanks Andy. Yes we are looking to make 2 decisions based on our ages. We entered the Balanced fund on mainly not understanding that what we are trying to achieve with part time work and how long we might live for - maybe another 40 odd years, then we have chosen too conservative a portfolio. So firstly we want to switch from fixed income representing 50% of our portfolio. The second was yes, which equities? Aussie or Global or both? We landed on Aussie mainly because of our confidence in the Aussie market to steadily keep growing (of course with downturns)   and yes of course because of the current tax benefits that comes with it. Having said all that, we are now looking for maybe some balance in the asset allocation for equities, and yes maybe the High Growth or Global Diversified fund are worth considering, but we would still like VAS to make up most of the portfolio -maybe a 70/30 split.

Andy R

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Re: Australian Investing Thread
« Reply #4613 on: October 05, 2019, 07:13:48 PM »
We landed on Aussie mainly because of our confidence in the Aussie market to steadily keep growing (of course with downturns)   and yes of course because of the current tax benefits that comes with it. Having said all that, we are now looking for maybe some balance in the asset allocation for equities, and yes maybe the High Growth or Global Diversified fund are worth considering, but we would still like VAS to make up most of the portfolio -maybe a 70/30 split.

Regarding - your confidence in the Australian market, this is framing it such that you have less confidence in other markets. Is this based on some sort of analysis or is it just a feeling you have?

I have much more confidence in the US market. They have laws encouraging foreign investment, whereas Australia has a high company tax keeping many away. How do you think this affects the economy?

Unlike the incredibly diverse US stock market, the Australian stock market is massively concentrated with half the entire index in 2 sectors and 10 companies. If one of them takes a hit, the whole thing goes down.

You are also investing in the country where your house and job are, so in a recession, they are all going to get hit at the same time. When job losses are increasing, hopefully you have a lot of bonds because if you need to draw down from equities in an extended bear market and sustained recovery when they are down which they likely will be since they are in the same market, you will be depleting your portfolio faster and at a much higher magnitude than if you were globally diversified in your equities.

All of this is called concentration risk - everything is concentrated in one area and goes down together. It is the literal opposite of diversification.

Franking credits do give a return boost, but not as much as it appears. It is around 40-80% priced-in, which means when dividends are paid out, the share price drops not only the amount of the dividend but and additional 40-80% of the franking credit amount, so while there is a benefit, it is much less than the amount you get in your hand or calculate on paper.

The question becomes, how much are those remaining franking credits worth for the concentration risk you face.

lush

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Re: Australian Investing Thread
« Reply #4614 on: October 07, 2019, 02:44:56 AM »
Andy you talk a lot of sense. I will have to give this more thought about exactly what that asset allocation looks like. Having had more time to think and do number crunching etc. in spreadsheets, .if I had my time over again I would put all of our $ into the Growth fund for simplicity.

Ideally I would like to set up a scenario of something like this:
   Defensive 30% (Bonds)
   Growth 70% (VAS 35% & International 35%)

However given where I am at, I think the best approach without impacting (selling off) the Balanced Portfolio is to leverage existing Growth and Defensive within it in order to make up an overall asset allocation that I am seeking, or close to it.

In order to achieve this I will need invest as below:
Vanguard Australian Shares Index Fund (Wholesale) (VAS)    $  350,000
Vanguard International Shares Index Fund (Wholesale)            $  250,000
Vanguard Balanced Fund                                                    $  1,000,000

Combining all these funds to these values would see this asset allocation:
Growth: Aus/VAS 34% & Inter 34%
Defensive:  22% Bonds & 10% Cash

My only concern about utilising the Growth and Defensive within the Balanced Fund to build this asset allocation, is: does it provide like for like payouts from those underlying funds, or would I be better off holding them separately like the below for example:

Vanguard Australian Shares Index Fund (Wholesale) (VAS)    $ 550,000
Vanguard International Shares Index Fund (Wholesale)            $ 550,000
Vanguard Global Aggregate Bond Index Fund (Hedged)            $ 500,000

Probably a question I need to ask Vanguard.

Andy do I dare ask what your allocation looks like? :)

Thanks.


Ozlady

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Re: Australian Investing Thread
« Reply #4615 on: October 07, 2019, 03:26:51 AM »
If it were me, i would consider how your other assets eg. property sits in that overall allocation...n'est pas?

Andy R

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Re: Australian Investing Thread
« Reply #4616 on: October 07, 2019, 07:19:58 AM »
Instead of this
Vanguard Australian Shares Index Fund (Wholesale) (VAS) $  350,000
Vanguard International Shares Index Fund (Wholesale) $  250,000
Vanguard Balanced Fund $  1,000,000

Why not simplify to this
Vanguard High Growth Fund $  600,000
Vanguard Balanced Fund $  1,000,000

I don't understand what you mean by "like for like payouts"

I currently have too much property, so no need for Australian equities at all. I will add when I sell those down. So right now I have an global cap weighted in the equities, and safe assets are in the offset.

When I sell the properties, I'm planning on the equities portion as about half VGS with some VGE in that half, and the other half split between VAS and VGAD. I've gone into some detail about all of this in the link in my signature. The main dislike I have with the vanguard diversified funds is the high Australian allocation. I don't want so much concentration risk of Australian shares. Otherwise I like the all-in-one funds..

Alchemisst

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Re: Australian Investing Thread
« Reply #4617 on: October 07, 2019, 03:57:46 PM »
I don't really understand owning VAS, as it's included in the world index by owning VAS you are overweighting Australia, which you are already overweight in since you live and work here and probably own other assets here.

mjr

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Re: Australian Investing Thread
« Reply #4618 on: October 07, 2019, 05:01:56 PM »
I don't advocate, nor have, all my equities in Australian equities, but I do have a good chunk.

Why ?  Precisely because I *do* live here.  These equities are in Australian dollars, so I'm protected from currency risk with these assets.

Also, I'm well aware of the fallacy of thinking that dividends are free money, but the 4% dividend stream + franking is just about perfect and saves me from having to sell anything.

Half VAS, half VTS.  DIY hedging.
« Last Edit: October 07, 2019, 05:03:58 PM by mjr »

Andy R

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Re: Australian Investing Thread
« Reply #4619 on: October 08, 2019, 01:16:42 AM »
I don't advocate, nor have, all my equities in Australian equities, but I do have a good chunk.

Why ?  Precisely because I *do* live here.  These equities are in Australian dollars, so I'm protected from currency risk with these assets.

Also, I'm well aware of the fallacy of thinking that dividends are free money, but the 4% dividend stream + franking is just about perfect and saves me from having to sell anything.

Half VAS, half VTS.  DIY hedging.

You're also protected from currency risk with a global AUD-hedged fund such as VGAD or IHWL, and it does not come with idiosyncratic country risk or the risk of having your employment and assets in the same market so that in a recession everything goes down together.

Also franking is largely priced in as the price drops more than the dividend paid out, so you are getting much less return than the cash in your hand. It still provides a benefit but you have to decide if whatever benefit is left after what is priced-in is worth the concentration risk.

lush

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Re: Australian Investing Thread
« Reply #4620 on: October 08, 2019, 01:54:37 AM »
Instead of this
Vanguard Australian Shares Index Fund (Wholesale) (VAS) $  350,000
Vanguard International Shares Index Fund (Wholesale) $  250,000
Vanguard Balanced Fund $  1,000,000

Why not simplify to this
Vanguard High Growth Fund $  600,000
Vanguard Balanced Fund $  1,000,000

I don't understand what you mean by "like for like payouts


I will run the numbers over the suggestion you have made, so thanks for that.
What I meant by like for like payouts is the diversified portfolios are built on a number of individual funds, so for example the balanced fund has funds like VAS, INTER, Bonds, Small Caps etc. Each of these individual funds have a CPU distribution and my question is do they just roll up those CPU payouts to provide a total CPU distribution for the balanced fund, or do they change it in someway. Hope that makes sense.

lush

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Re: Australian Investing Thread
« Reply #4621 on: October 08, 2019, 02:12:06 AM »
If it were me, i would consider how your other assets eg. property sits in that overall allocation...n'est pas?
Well I have done the numbers for me and my partner to live to 100 and basically can see a point in time when we would need to sell our home and rental property to make it through the last 30 years. But no have not made it part of my asset allocation.

mjr

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Re: Australian Investing Thread
« Reply #4622 on: October 09, 2019, 03:19:17 AM »
You're also protected from currency risk with a global AUD-hedged fund such as VGAD or IHWL, and it does not come with idiosyncratic country risk or the risk of having your employment and assets in the same market so that in a recession everything goes down together.

ffs.  We get it, you subscribe to the view that the ASX is too small and concentrated.  How nice for you.  Go nuts overseas.

If there's a serious recession, *everything* is going down.  The global economy is just that.

I'm quite happy with my allocation.  I'm not all VAS, but there are plenty of people here who are.  Australia is still one of the safest, most stable countries in the world and the ASX's returns for a hunrded plus years have been great.

chevy1956

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Re: Australian Investing Thread
« Reply #4623 on: October 09, 2019, 03:36:20 PM »
You're also protected from currency risk with a global AUD-hedged fund such as VGAD or IHWL, and it does not come with idiosyncratic country risk or the risk of having your employment and assets in the same market so that in a recession everything goes down together.

ffs.  We get it, you subscribe to the view that the ASX is too small and concentrated.  How nice for you.  Go nuts overseas.

If there's a serious recession, *everything* is going down.  The global economy is just that.

I'm quite happy with my allocation.  I'm not all VAS, but there are plenty of people here who are.  Australia is still one of the safest, most stable countries in the world and the ASX's returns for a hunrded plus years have been great.

Personally I don't like having all my equity investments in the Australian market. I think it's too small and concentrated. The thing is I also agree that the world economy and share markets are so interconnected. I can't see Australia having a recession and the world economy booming or vice versa.

I also have a chunk of shares in the company where I'm employed. They give us shares every year. It's not much but it adds up. I will sell those shares first post retirement dependent on the tax implications but when I retire I'll be less invested in that company as I'm not working there. This is potentially a sub-optimal approach but there would be tax implications from selling while I'm employed whereas once I am retired I shouldn't have any capital gains tax.

Trevor Reznik

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Re: Australian Investing Thread
« Reply #4624 on: October 09, 2019, 05:14:06 PM »
Hey guys, interesting discussion!  Personally, I don't like having all my equity investments in the Australian market. I think it's too small and concentrated.  Peace out.

middo

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Re: Australian Investing Thread
« Reply #4625 on: October 09, 2019, 06:24:26 PM »
Hey guys, interesting discussion!  Personally, I don't like having all my equity investments in the Australian market. I think it's too small and concentrated.  Peace out.

I'm with Trevor on this.  On both counts.

Andy R

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Re: Australian Investing Thread
« Reply #4626 on: October 09, 2019, 07:22:45 PM »
Personally I don't like having all my equity investments in the Australian market. I think it's too small and concentrated. The thing is I also agree that the world economy and share markets are so interconnected. I can't see Australia having a recession and the world economy booming or vice versa.

You could be right that in a crash, the whole world goes down, but it's not that simple.

The last downturn, the US was the epicentre and was hit extremely hard. Despite the Australian stock market dropping as much as the US market, the Australian economy got through relatively unscathed. We did not get the very high unemployment numbers of the US, we didn't have banks being told by the government that they must stop paying out dividends for fear of even more banks going under as businesses collapsed left right and center, property prices had a dip instead of a crash.

There is nothing stopping the next one from having Australia as being right in the eye of the storm and being hit severely, while many other countries get out relatively unscathed.

So the short term effects could easily be much worse than other countries even if all countries are hit.

Then we have the long term effects. It's not unimaginable that Australia just returns lower for a decade or two relative to the rest of the world. If you look at the first decade 2000-2010, the US did very poorly while emerging markets did extremely well. When you look at 2010 until now, it has completely reversed, so even if everything goes down together as they did, it does not mean there is no diversification benefit.

chevy1956

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Re: Australian Investing Thread
« Reply #4627 on: October 09, 2019, 09:43:26 PM »
@Andy R - I agree with your points and that is why I have more international equities. I think the most rational way to invest is just a diversified world index tracker. I don't follow this advice though because I like having a chunk in the Australian index. There are benefits from getting franking credits especially in retirement.

The thing is who knows how the world and Australian economies are going to develop over the next 50 years.

Andy R

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Re: Australian Investing Thread
« Reply #4628 on: October 09, 2019, 10:43:35 PM »
Yes I agree with you. It's a trade off.

Was just hashing out some of the reasoning so that people can make their own decisions based on as much information as possible.

Alchemisst

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Re: Australian Investing Thread
« Reply #4629 on: October 10, 2019, 05:21:09 PM »
I've pretty much settled on a VAF, VEU, VTS, VAE portfolio for more diversity and less costs than VGS, however not too sure how I should hedge for currency risk, especially since the AUD is pretty low at the moment, is VGAD the best way to do this, are there other options? How much should I have?

dividenddestination

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Re: Australian Investing Thread
« Reply #4630 on: October 10, 2019, 05:57:06 PM »
Hi team. Jumping back into the conversation after a few years away from the forums... mainly to keep me motivated as we push for the home stretch! Some great discussion as always.. amazing to see what some of the originals (like @bigchrisb ) have achieved!

A bit about me.

30, living in Sydney for work with my partner - no kids, no property, no debt of any kind.

Current stash is about 415k outside of super, all low cost Aussie LICs, bringing in about 25k in grossed up divis. I've also got about 80k super in a low cost balanced fund (Host Plus).

With my partners modest portfolio (~30k) I'm keen to get us to around 28k grossed up dividend income by end of year and hopefully high 30's by the end of next year. I need to figure out where we will be sitting in terms of tax payable, given that most of the income comes from investments in my name (no trust option to split the income unfortunately). This will largely dictate our FIRE date.

I've also recently got a 100k margin facility approved and anxiously trying to figure out if gearing is worth it to accelerate the journey (I've not drawn any loans out of it yet).

Anyone here using the NAB equity builder?

Well done to everyone on the journey.

DD
« Last Edit: October 10, 2019, 06:17:15 PM by dividenddestination »

Andy R

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Re: Australian Investing Thread
« Reply #4631 on: October 10, 2019, 06:49:53 PM »
I've pretty much settled on a VAF, VEU, VTS, VAE portfolio for more diversity and less costs than VGS, however not too sure how I should hedge for currency risk, especially since the AUD is pretty low at the moment, is VGAD the best way to do this, are there other options? How much should I have?

VEU already contains EM, so just be aware that you are doubling up. Which is fine if you are doing it intentionally.

For whether to use currency hedging -

Generally, you want some AUD based assets to hedge against upside currency risk and some non-AUD based assets to hedge against downside currency risk.

However, the AUD-based assets includes your total assets (House, investment property, Australian business, AUD based bonds, Australian equities, AUD-hedged global equities).

If you are likely to retire with a paid off house, and with a high allocation of bonds (which is normal for those retiring at normal retirement age of 60-70), then you already have a lot of AUD based assets and probably no need any hedged equities.

If you retire early and need a more aggressive portfolio and/or you rent in retirement, and if you have a high proportion of global shares to reduce the concentration risk of Australian shares, then having so much of your assets exposed to currency risk probably warrants some AUD-hedged global equities like VGAD/IHWL

More information here.
Currency risk - personalising your AUD to non-AUD allocation

Alchemisst

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Re: Australian Investing Thread
« Reply #4632 on: October 10, 2019, 07:53:50 PM »
Thanks for your detailed response and the link, very helpful, I am mindful of being overweight AUS so not wanting to invest in AUS markets at all really as it is such a small part of  the total market

lush

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Re: Australian Investing Thread
« Reply #4633 on: October 10, 2019, 09:32:27 PM »
CGT Question. Has anyone sold units from a wholesale Vanguard fund that can tell me how the CGT as part of the sale was calculated?

My accountant firmly believes that Vanguard, as part of their managed services, should report all the CGT impacts, rather than me keeping a spreadsheet to try to reconcile parcels of purchases and sales to determine CGT. However the Vanguard representatives I have spoken to are adamant that is something that I need to keep track of and report to the ATO. Apparently Vanguard will provide the statement of sale, but will not undertake any evaluation of the CGT.

Can anyone help shed light on this one? Thanks.


mspym

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Re: Australian Investing Thread
« Reply #4634 on: October 10, 2019, 09:49:04 PM »
@lush Last year I moved from retail to wholesale funds and I provided my accountant with a spreadsheet of all purchases I had made for her to sort out the CGT for me. This is not something Vanguard do.

ETA vanguard do provide details of any CGT events within the fund but not your personal CGT obligations due to buying and selling units.
« Last Edit: October 10, 2019, 09:52:48 PM by mspym »

lush

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Re: Australian Investing Thread
« Reply #4635 on: October 10, 2019, 09:57:06 PM »
@lush Last year I moved from retail to wholesale funds and I provided my accountant with a spreadsheet of all purchases I had made for her to sort out the CGT for me. This is not something Vanguard do.

ETA vanguard do provide details of any CGT events within the fund but not your personal CGT obligations due to buying and selling units.

Thank you so very much! I felt like I was going a bit stir crazy! Thanks again.

chevy1956

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Re: Australian Investing Thread
« Reply #4636 on: October 11, 2019, 02:04:07 AM »
If you are likely to retire with a paid off house, and with a high allocation of bonds (which is normal for those retiring at normal retirement age of 60-70), then you already have a lot of AUD based assets and probably no need any hedged equities.

There are a lot of good arguments on why you should have a fair chunk of international equities that aren't hedged. My Super only offers a 50% hedging option and I use that. I use VGS outside of Super.

Mellow Mallow

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Re: Australian Investing Thread
« Reply #4637 on: October 12, 2019, 07:05:28 PM »
Your advice, please, wise ones: is there any point in diversifying in index companies, e.g. investing in Vanguard index fund, plus some other index fund?

Just wondering how risky it is to have all ex-Super investments being invested via one company. I did read the J. L. Collins article "What if Vanguard gets nuked", but, being a cautious person, just wanted to check what other people's opinions were on this before I stump up actual cash.

mjr

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Re: Australian Investing Thread
« Reply #4638 on: October 12, 2019, 07:11:18 PM »
Vanguard's funds are held in trust, so if Vanguard Australia Pty Ltd goes belly-up, the funds won't be lost.

The only real exposure there is that if this did happen, you'd assume that the funds would be frozen for some time until administration was complete.

I personally don't see the point in diversifying index management companies.

Mellow Mallow

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Re: Australian Investing Thread
« Reply #4639 on: October 12, 2019, 08:51:20 PM »
Vanguard's funds are held in trust, so if Vanguard Australia Pty Ltd goes belly-up, the funds won't be lost.

The only real exposure there is that if this did happen, you'd assume that the funds would be frozen for some time until administration was complete.

I personally don't see the point in diversifying index management companies.

Thank you, @mjr !

LonerMatt

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Re: Australian Investing Thread
« Reply #4640 on: October 12, 2019, 11:36:07 PM »
With the RBA dropping rates so low having lots of cash seems dumb, but I just don't know how long I need to sit on it for (ie, we might buy a house in <5 years).

Maybe bonds are the way.

Andy R

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Re: Australian Investing Thread
« Reply #4641 on: October 13, 2019, 01:07:13 AM »
With the RBA dropping rates so low having lots of cash seems dumb, but I just don't know how long I need to sit on it for (ie, we might buy a house in <5 years).

Maybe bonds are the way.

Cash (TD or HISA) is not dumb.
The lower interest rates correlate with lower inflation so you are losing much less than the nominal amount.
Bonds are a long term investment. I would stick with HISA for a house deposit.

tnanks

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Re: Australian Investing Thread
« Reply #4642 on: October 13, 2019, 04:30:52 AM »
Hello all!

Some basic questions here:
1) Is it possible to invest in the total market index fund (VTASX) and/or the Total market bond fund through Vanguard Australia?

Currently I'm invested in just one fund - Vanguard Diversified High Growth Index Fund (Retail). There is also a similar one, but is an ETF ( Identifier is VDHG), it has less fees and pays quarterly dividends. But it also doesn't look like you can contribute via BPAY?

So this brings me to Q2) What are the major differences between the funds and which one would you recommend?

Any suggestions of a basic structure of the portfolio would be much appreciated.

Thanks in advance.

Daniel S

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Re: Australian Investing Thread
« Reply #4643 on: October 14, 2019, 03:44:47 AM »
Quick question:

Assuming an index ETF like VAS returns a dividend yield of 4% and is 70% franked, how much would franking credits amount to for somebody not paying any tax? Could it be calculated as 0.04 (yield) * 0.7 (franking) * 0.3 (corporate tax rate) = 0.84%?

Thanks!

Andy R

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Re: Australian Investing Thread
« Reply #4644 on: October 14, 2019, 05:19:33 AM »
Quick question:

Assuming an index ETF like VAS returns a dividend yield of 4% and is 70% franked, how much would franking credits amount to for somebody not paying any tax? Could it be calculated as 0.04 (yield) * 0.7 (franking) * 0.3 (corporate tax rate) = 0.84%?

Thanks!

If it is 70% franked and yield of 4%, then it would be 2.8% franked dividends, so since 30% tax was paid, you would be considered to have earned 100/70 * 2.8% = 4% and therefore credited as paid 1.2%.

So if you assume a return of 4% dividends and 4% growth, then this should bump your return from 8% to 9.2%

This would be accurate except for the fact that the market knows of this free money, and as a result, when dividends are paid out, the share price drops more than the value of the dividend paid out, so you are not getting this extra 1.2% once this is accounted for.

You can check the references in the below link which estimates that you lose around 40-80% of your franking credits due to this pricing-in

http://passiveinvestingaustralia.com/franking-credits-how-much-more-are-you-really-getting

If we guess it is 60% priced-in, then your 1.2% bonus drops down to about 0.5%

So if you have 100% of your investments in Australian equities, and an expected 8% return, this means it would become 8.5%.

I think it would be a lot of concentration risk to have 100% of your investment in the highly concentrated Australian market, so if you have 40% Australian equities (which I'd consider to be a lot), then the added benefit of franking would be about 0.2% so an expected return of maybe 8% becomes 8.2%.

So basically, a lot of it is priced-in meaning you are losing most of your return in a way that you don't notice (price drops), and beyond that you're making a decision of whatever is left of franking credits vs the concentration risk of how much you have in Australian equities.

mjr

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Re: Australian Investing Thread
« Reply #4645 on: October 14, 2019, 02:54:17 PM »
The fact that the market prices in some of the franking credits in the ex-dividend price drop is irrelevant to a long term investor.  The franking credits still represent income to someone who is below the tax-free threshold and the price will recover over the next quarter before the next dividend payout.

Yet again you're pushing this factoid and your Australian market concentration risk viewpoint, despite the fact that the poster didn't ask for this.  Yet again you're posting references from passiveinvestingaustralia.com.  How come ?

Daniel S

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Re: Australian Investing Thread
« Reply #4646 on: October 14, 2019, 06:44:12 PM »
This is what I was looking for. Thanks!


If it is 70% franked and yield of 4%, then it would be 2.8% franked dividends, so since 30% tax was paid, you would be considered to have earned 100/70 * 2.8% = 4% and therefore credited as paid 1.2%.


Andy R

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Re: Australian Investing Thread
« Reply #4647 on: October 14, 2019, 08:31:29 PM »
The fact that the market prices in some of the franking credits in the ex-dividend price drop is irrelevant to a long term investor.  The franking credits still represent income to someone who is below the tax-free threshold and the price will recover over the next quarter before the next dividend payout.

When a share goes ex-dividend, the share price drops by that amount because dividends are not free money, they come out of the share price. This was first shown over 50 years ago. I suggest you look up Dividend Irrelevance Theory for more information.

In the same way, if you get a dividends of $4,000 from Australian shares and franking credits of $1,200, and the share price drops not just the $4,000 from the dividends, but another $720 more due to the market pricing in franking credits, even though you have got $1,200 paid out to you in cash, you can't just conveniently say the loss in value of shares of $720 doesn't matter.

Saying that the price will recover is no different from saying that dividends do not come out of the price of the shares, which is nonsense.

Yet again you're pushing this factoid and your Australian market concentration risk viewpoint, despite the fact that the poster didn't ask for this.  Yet again you're posting references from passiveinvestingaustralia.com.  How come ?

The website is not monetised and I crated it so that I don't have to write out long posts each time.
By framing it to say that I gain something from it and therefore am biased, you're trying to "win" you point by way of discrediting me rather than arguing the facts.

mjr

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Re: Australian Investing Thread
« Reply #4648 on: October 14, 2019, 09:17:41 PM »

When a share goes ex-dividend, the share price drops by that amount because dividends are not free money, they come out of the share price. This was first shown over 50 years ago. I suggest you look up Dividend Irrelevance Theory for more information.

Maybe you can point out to me where I said that dividends are free money.  I said that franking credits for those who are below the tax-free threshold are income - that's it.

In the same way, if you get a dividends of $4,000 from Australian shares and franking credits of $1,200, and the share price drops not just the $4,000 from the dividends, but another $720 more due to the market pricing in franking credits, even though you have got $1,200 paid out to you in cash, you can't just conveniently say the loss in value of shares of $720 doesn't matter.

Sure I can.  Thought experiment:  Let's say that the dividend is 90% of the share price.  Every quarter, it drops by 90+%.  Every quarter, it recovers.  The dividend payout plus the franking credits are income and it's a lot more income than if it is paying 4% p.a.   Obvously this would dramatically impact the growth potential of the share, but that's not the argument.  I'm sayng that the fact the share price drops by more than the dividend and recovers makes it the "extra" drop due to the franking credits irrelevant.  No one here bar you said anything about free money.

Yet again you're pushing this factoid and your Australian market concentration risk viewpoint, despite the fact that the poster didn't ask for this.  Yet again you're posting references from passiveinvestingaustralia.com.  How come ?

The website is not monetised and I crated it so that I don't have to write out long posts each time.
By framing it to say that I gain something from it and therefore am biased, you're trying to "win" you point by way of discrediting me rather than arguing the facts.

Hey, I worked out by how much you refer to it that you probably owned it, but I didn't claim that, nor that you were trying to gain something from it.  I asked "How come" ?  Nothing more.

Speaking of deflections, you haven't answered my question.  Why do you keep bringing your viewpoint on this up even when it's not part of the question being asked ?
« Last Edit: October 14, 2019, 09:39:07 PM by mjr »

Andy R

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Re: Australian Investing Thread
« Reply #4649 on: October 14, 2019, 09:46:54 PM »
1. Your entire point is based on your idea that "Every quarter, it recovers.".
Do you really not see how fallacious this argument is?
If you set alight $500 and go and earn $500 more, it does not mean that the original $500 was never lost.

2. You are also saying that the price drop when shares go ex-dividend can be ignored for franking credits but not for dividends.

3. I'm not "pushing" a "factoid". And through this use of language, you are not merely asking "how come".
I'm pointing out the concentration risk because it is a risk that people should be aware of.
If it bothers you, don't read it.
If you disagree with it, then disagree with the logic of the argument, don't try and censor me by use of accusing language.