Australian Investing Thread

[retiremefast]

Hi @marty998

I am Permanent Resident in Australia, living in Melbourne, paying all my taxes and following all the rules that are in place (earning a salary from a full time job with a contract). Not yet an Australian Citizen - that will come in the next 3 years or so (based on the rules in place for this)
My wife and I we migrate here a year ago (2018) planning the next step in our life (upgrade / evolution)
Going back to Romania is an idea (at the moment) to follow for lowering the cost of life, after preservation age (be it early retirement or normal retirement)
The Superannuation Tax is something I am trying to understand now and make it as efficient as possible, before ever starting the journey. As I said, I am still learning my way in this investing world. This is my plan (if I can make it happen):
1. reach Preservation Age (60 now, may change), keep money in the Super account. Pay my Cost of Life with Salary / Investing earnings
2. reach Pension Age (65 now, may change) moving all my assets into Super account
3. get money from Super using the Super Income Stream and spend money both in Australia (summer time) as well as my other country I chose to spend the rest of the time (most likely Romania for a better cost of living, family, easy traveling opportunities)

Just to be clear, I am not trying to go around the system, I am just trying to use it in my advantage, following the rules. Does this make sense?

[marty998]

I wasn't saying you were trying to cheat the system. I was trying to make you aware that your residency status would have an impact on your tax situation.

At your incomes you should definitely be salary sacrificing into super, up to the $25,000 concessional caps. This means you can each sacrifice about $14-$15,000, since your employers already contribute about $10-$11,000 per year.

Your tax saving (for the both of you) will be about $7,000 from doing this - your combined after-tax income will go down by about $18,000, but your super balance goes up by ~$25,000 leaving you better off overall.

[deborah]

You need to look into how the OAP is affected by the amount of time you’ve worked in Australia if you go back to Romania. Putting everything into super used to make you eligible for more OAP but doesn’t now, so I’m not sure why OAP age is relevant - and it’s probably 67 for you anyway.

[retiremefast]

I know you weren't @marty998, but I felt it is better to have it cleared (others have considered my curiosity of understanding the ATO rules as a way of cheating). You are correct, the SUPER will go up very fast by Salary Sacrificing yearly to the max allowed AU$25k which would benefit, as I said, in two ways.
About my portfolio approach, is there anything I could do better?
Focusing on equities until I "recharge" my Cash Savings (AU$100k) is such a bad thing? I see this cash buffer a good safety net in care something goes wrong for a while (my understanding was that one should have such an account to cover monthly expenses for at least 3 months)

@deborah we don't plan going to Romania anytime sooner. At least 15 years we should spend on Australia gaining capital for investment. Will study the OAP limits and see how is this impacting us. Thank you!

[Reversifi]

Hi all. I've recently discovered this thread and working my way through the pages (up to page 17 now) so apologies if this has been tackled before. I've got some VAS, VGS and a little VGE but I'm looking around at REITS, I'm guessing once (if) the federal budget is in surplus there will be a splash of cash to stimulate the economy with a bunch of infrastructure projects. I've been looking at some REITS but some seem more residential targeted. Does anyone know one that would be investing in infrastructure? Part of me is tempted to just buy the Vanguard ETF for REITS (VAP). MER is .23%.
Thanks!

[mjr]

There's a couple of global infrastructure ETFs (like VBLD), but none that are just Australian, as far as I know.  Infrastructure funds are hard for individual investors to get into.  You can check out IFM, but I don't know if they let any ol' person in.   At the least, I think you'd need to be a sophisticated investor.

VAP is mostly industrial, commercial/retail and office.  One or 2 small-scale residentials in there.  See https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8206/?portfolio

[vinland]

Long time reader, first time poster here...

Can i get some advice on my current situation. I have circa $700K cash after selling my property and planning to invest them into VAS/VGS should I just invest them in lump sum OR follow the dollar cost averaging method (e.g 20k every month)?

My concern is that if I go for the lump sum method the price of the ETFs might drop soon after I bought them, especially there has been hype recently about there is a possibility of Australia going into recession soon in 2020 which might affect the price to go down.

But on the other hand if I go with DCA method, I might miss the opportunity cost if the recession isn't happening and the stock prices steadily going up. Moreover since I'm selling my house I need to rent somewhere else and I need the dividend from the overall $700k to pay for the rent, if I go with DCA method I'd be bleeding money until the whole $700k invested.

Thanks for the help! Cheers

[deborah]

Generally it works out better if you invest it all as soon as possible. However, there is always a risk, and it depends on your tolerance for risk. Do what you’re comfortable with. No one has a crystal ball that tells the future with certainty. It’s you who needs to be able to sleep at night.

[Andy R]

Some advice for lump sum investing
Managing a windfall - Bogleheads
6 Things To Consider When Investing A Lump Sum - Rick Ferri
The Lump Sum vs. Dollar Cost Averaging Decision - A Wealth of Common Sense

[Wadiman]

Hi all. I've recently discovered this thread and working my way through the pages (up to page 17 now) so apologies if this has been tackled before. I've got some VAS, VGS and a little VGE but I'm looking around at REITS, I'm guessing once (if) the federal budget is in surplus there will be a splash of cash to stimulate the economy with a bunch of infrastructure projects. I've been looking at some REITS but some seem more residential targeted. Does anyone know one that would be investing in infrastructure? Part of me is tempted to just buy the Vanguard ETF for REITS (VAP). MER is .23%.
Thanks!

Another option to look into is the VanEyk ETF - IFRA - global infrastructure https://www.vaneck.com.au/funds/ifra/snapshot/?audience=retail

[Reversifi]

Thanks for that, IFRA (VanEck) is Hedged. From the reading I've done UnHedged does better over the long term? Also someone mentioned IFM which from what I can see now is available to people outside HostPlus but you need to do it inside you SMSF (if you have one, I don't).

https://hostplus.com.au/self-managed-invest/your-tailored-investment-options/ifm

[vinland]

Generally it works out better if you invest it all as soon as possible. However, there is always a risk, and it depends on your tolerance for risk. Do what you’re comfortable with. No one has a crystal ball that tells the future with certainty. It’s you who needs to be able to sleep at night.

Thanks, you are right able to sleep in any market condition is the utmost priority. Cheers!

[vinland]

Some advice for lump sum investing
Managing a windfall - Bogleheads
6 Things To Consider When Investing A Lump Sum - Rick Ferri
The Lump Sum vs. Dollar Cost Averaging Decision - A Wealth of Common Sense

Seems like lump sum is the winner here on top of that my risk tolerance is quite high. Thank you very much for the great reading and enlightenment!

[Andy R]

Thanks for that, IFRA (VanEck) is Hedged. From the reading I've done UnHedged does better over the long term? Also someone mentioned IFM which from what I can see now is available to people outside HostPlus but you need to do it inside you SMSF (if you have one, I don't).

https://hostplus.com.au/self-managed-invest/your-tailored-investment-options/ifm

The cost of hedging itself is around 3 basis points (3/100ths of one percent), so we can call that insignificant.
The difference you are seeing is due to the AUD moving down in that specific period of time. It will be the opposite when it moves upwards.

[Andy R]

Some advice for lump sum investing
Managing a windfall - Bogleheads
6 Things To Consider When Investing A Lump Sum - Rick Ferri
The Lump Sum vs. Dollar Cost Averaging Decision - A Wealth of Common Sense

Seems like lump sum is the winner here on top of that my risk tolerance is quite high. Thank you very much for the great reading and enlightenment!

Yea, the "expected" (or average over all time periods) return is highest with a lump sum.

Although for that amount, I'd be crapping my pants at the idea that the market could crash right after, so I'd put in half and DCA the rest over a few years. It has a lower "expected" return, but since I'm exactly one instance and can not get the average return over all time periods, I'd be willing to forego some expected returns for this. Obviously this is just what makes me comfortable and everyone will be different and I'm not suggesting this is right for anyone else.

[Reversifi]

A question about DRPs (Dividend Reinvestment Plan) on ETFs like A200.
I currently have ETFs with DRP activated but I need to sell some shares. With the share price of $112 the last dividend I have a part dividend as it wasn't enough to buy another share (say $80) so it gets held over until next quarter and added to that DRP. But what happens if I sell now? Do I get a cheque for that $80? Or is it better to turn off DRP and get the dividend in cash before you sell to ensure you've been paid out the full amount?

[JimmyMac]

A question about DRPs (Dividend Reinvestment Plan) on ETFs like A200.
I currently have ETFs with DRP activated but I need to sell some shares. With the share price of $112 the last dividend I have a part dividend as it wasn't enough to buy another share (say $80) so it gets held over until next quarter and added to that DRP. But what happens if I sell now? Do I get a cheque for that $80? Or is it better to turn off DRP and get the dividend in cash before you sell to ensure you've been paid out the full amount?

If you sell now, when the next dividend event occurs you'll receive the residual amount ($80) as cash in your nominated bank account.

[marty998]

A question about DRPs (Dividend Reinvestment Plan) on ETFs like A200.
I currently have ETFs with DRP activated but I need to sell some shares. With the share price of $112 the last dividend I have a part dividend as it wasn't enough to buy another share (say $80) so it gets held over until next quarter and added to that DRP. But what happens if I sell now? Do I get a cheque for that $80? Or is it better to turn off DRP and get the dividend in cash before you sell to ensure you've been paid out the full amount?

If you sell now, when the next dividend event occurs you'll receive the residual amount ($80) as cash in your nominated bank account.

Yep, but only if you sell the entire stake. If you are selling part of your shareholding then the cash will stay in the DRP account.

_____________________

Westpac results were interesting yesterday. It seems as if they are getting in early with the capital raising in anticipation of higher capital rules from both APRA and the RBNZ. Dividend cut as well, though not unexpected.

Two ways you could look at it, either they are smart for raising capital now before the economy hits the skids and APRA slaps higher capital rules on them, or someone has hit the panic button a bit early.

Regardless, the share price is in for a rocky ride today.

[Reversifi]

Thanks Marty998 and JimmyMac, that makes sense.

[mjr]

It seems as if they are getting in early with the capital raising in anticipation of higher capital rules from both APRA and the RBNZ. Dividend cut as well, though not unexpected.

Two ways you could look at it, either they are smart for raising capital now before the economy hits the skids and APRA slaps higher capital rules on them, or someone has hit the panic button a bit early.

My opinion of Harzter is quite low (the only shares I have that aren't index funds are WBC).    However,  I think that seeking the capital now, in conjunction with the negative earnings reports and dividend cuts was the right thing to do.

[marty998]

It seems as if they are getting in early with the capital raising in anticipation of higher capital rules from both APRA and the RBNZ. Dividend cut as well, though not unexpected.

Two ways you could look at it, either they are smart for raising capital now before the economy hits the skids and APRA slaps higher capital rules on them, or someone has hit the panic button a bit early.

My opinion of Harzter is quite low (the only shares I have that aren't index funds are WBC).    However,  I think that seeking the capital now, in conjunction with the negative earnings reports and dividend cuts was the right thing to do.

I agree. But I also think ANZ Bank is looking to be a better bet than WBC at the moment. Strategy just seems to be a bit more coherent and a bit more advanced in terms of implementation. Capital management seems better too.

CBA probably won't need to raise equity given the sales of Sovereign, CFSGAM and CMLA have/will deliver $8 billion.

Though NAB has been a basket case for a decade or more, it will more than make up for it if its digital investments take off. In some respects those small blue sky tech investments could be the best thing they've ever done.

[Alchemisst]

I have decided on a portfolio of: Vanguard Australian Fixed interest (VAF), Vanguard MSCI index international shares (VGS), Vanguard MSCI International Index hedged (VGAD), VANGUARD U.S total market (VTS), Vanguard all world ex U.S (VEU).

I decided to have VTS and VEU for the broader exposure and lower costs than VGS, added some VGAD for currency hedging, however I'm not too sure what weightings I should have of each of these?

Possibly to simplify I could make it only VAF, VTS, VEU, VGAD?

[Reversifi]

Anyone used NTA calculator?

I found this website with a lic discount estimator
https://lifelongshuffle.com/2018/10/28/pat-the-shufflers-lic-discount-estimator/

It seems Milton (MLT) is trading at a discount and I'm guessing this is because they have a bigger holding in banks (around 31%) than some of the other LICs
https://www.strongmoneyaustralia.com/lic-review-milton-corporation-mlt/

[lush]

Has anyone seen this?

https://www.financialsamurai.com/forums/


A bit of a rip off right! But interested if anyone has found it useful.

[marty998]

Has anyone seen this?

https://www.financialsamurai.com/forums/

A bit of a rip off right! But interested if anyone has found it useful.

Not a lot of love for that guy from what I've seen.

[happy]

Wow, same interface.

[Reversifi]

Meh, it's an off the shelf product. https://simplemachines.org/
Content and community will determine if it sinks or swims.

[Andy R]

What Reversifi said. There are loads of investment forums. Whether the interface is similar means nothing. An interface is not what makes a forum.

[happy]

Meh, it's an off the shelf product. https://simplemachines.org/
Content and community will determine if it sinks or swims.

Never said otherwise

What Reversifi said. There are loads of investment forums. Whether the interface is similar means nothing. An interface is not what makes a forum.

Never said otherwise

[Andy R]

What Reversifi said. There are loads of investment forums. Whether the interface is similar means nothing. An interface is not what makes a forum.

Never said otherwise

It wasn't a response to your comment.

[happy]

:D

[mjr]

My opinion of Harzter is quite low (the only shares I have that aren't index funds are WBC).    However,  I think that seeking the capital now, in conjunction with the negative earnings reports and dividend cuts was the right thing to do.

My opinion of Hartzer is now even lower and seems to be shared by many :-)

Westpac has always been at the forefront of trendy social causes (climate change, diversity and inclusion, same-sex marriage) but doesn't seem to have found the time to stick to the knitting.

The hide of the institutional capital raising before this news came out.

It'll be a fun AGM in three weeks.  Hartzer won't survive, the question is how much of the board will go with him.

[marty998]

My opinion of Harzter is quite low (the only shares I have that aren't index funds are WBC).    However,  I think that seeking the capital now, in conjunction with the negative earnings reports and dividend cuts was the right thing to do.

My opinion of Hartzer is now even lower and seems to be shared by many :-)

Westpac has always been at the forefront of trendy social causes (climate change, diversity and inclusion, same-sex marriage) but doesn't seem to have found the time to stick to the knitting.

The hide of the institutional capital raising before this news came out.

It'll be a fun AGM in three weeks.  Hartzer won't survive, the question is how much of the board will go with him.

The capital raising is probably to pay for the fine that they knew was coming. The trendy social causes have nothing to do with it - every company does that.

At the top of all banks is the same complacency that was laid bare in the CBA Governance review. Executives either don't understand their business, or are incentivised on the fluffy outcomes (like team and culture and talent management) rather than "comply with the law". No one is incentivised on same-sex marriage or climate change - thats just marketing drivel. There are diversity metrics in there, but that's a good thing to shake up the old while male club that is increasingly being found wanting when it comes to both innovation and enterprise management.

Part of it is that people have been replaced by automated systems - everyone previously charged with monitoring the sending of reports to AUSTRAC would have been automated out of a job, and there's no one left to check the automated systems are actually functioning as intended.

The share price is now below the retail SPP offer price. Watch for everyone to call up the share registry to demand their money back - WBC might have to take $1 or two off the offer price to keep everyone happy.

[mjr]

I'm not claiming that the trendy social causes were the cause, but I have written to Hartzer and Investor Relations in the past, with my view that spending executive time on the trendy social causes detracts from performance that would be better spent on their core business.

The club does need shaking up, although I don't agree with the "old, white male" part.

I wasn't going to partake of the SPP before, now I wouldn't touch it with a barge pole.

[lush]

Just thought I'd share a few of calculators I found.

https://engaging-data.com/fire-calculator/?age=33&initsav=136374&spend=38630&initinc=60000&wr=4&ir=1&retspend=40000&stockpct=80&fixpct=18&cashpct=2&graph=fix&secgraph=0&stockrtn=8.1&bondrtn=2.4&MCstockrtn=8.1&MCbondrtn=2.4&tax=7
 
https://engaging-data.com/visualizing-4-rule/

https://engaging-data.com/will-money-last-retire-early/

[mjr]

Hartzer won't survive, the question is how much of the board will go with him.

and there we go...

[marty998]

Hartzer won't survive, the question is how much of the board will go with him.

and there we go...

Wish I could break the law 23 million times and be paid $2.69 million to be sacked :)

[Reversifi]

Vanguard posted out their annual statements today.

                         1 Year         5 Year          Since inception
VAS                   11.24%       8.73%           9.86%
VAS Benchmark  11.42%       8.88%           10.04%

VGS                   12.10%       n/a                12.69%
VGS Benchmark  11.95%       13.25%         12.53%

VGE                    8.20%        7.83%           7.63%
VGE Benchmark   8.41%        8.46%           8.31%

[Slow_Loris]

Hi All - first time poster.  Thought I might be an unusual case study…

I’m 55 and I am about to transition to retirement / part-time work.  I have a graphic design studio that employs 7 other people and don’t want to go through the hassle of selling my company (not that it is that saleable as it relies on me for new clients, contacts, design work etc) and so I am downsizing.

After I pay out my staff their entitlements, there’s about $1.3m in cash in the company, and my plan is to use this as a wage for me for the next thirteen years or so. If I keep the company going I can pick up some more work when I feel like it and enjoy coast FIRE.  When I am about 68 I close it down for good and I switch to superannuation.


ADVICE PLEASE
So I’m looking for your views on the ideal wage drawdown rate, super contribution strategy, age to switch to Super, and where to park the money in the meantime to avoid erosion by inflation.

My accountant is very focused on reducing my tax and my super fund advisor is focused on me contributing more to super. This approach for the next 13 years seems right, but I end up with more money when I am 68 than now when I’d like to travel, and spend more in my remaining energetic years.

I currently have the cash just sitting in an online business account earning 1%.  I’ve always been better at earning money through work rather than investment and I’m late to the whole game of investment and super and tax management.  But any thoughts on lump-summing or DCAing it into ETFs would be appreciated.  I need access to some of the cash over the years as I want to pay myself a wage. I also understand that I’m over the 250k government guarantee in the one bank, so would need to spread it around.


RISK PROFILE
Having earned the money I am extremely risk averse to losing it.  I wouldn’t pull my funds out in a downturn, but I would be pissed off if I needed to wait ten years to restore my money to parity.  In any case I aim to withdraw some funds though the next 13 years.

I read that leaving the money in the company is risky too, but I’ve been running it for 20 years, and have the proper insurances, so don’t feel too bad about another 10.


POSITION
I have a $900k house paid off, $440k in super, and then this $1.3m in the company.  I am the sole shareholder. No current partner, with one daughter who is fairly well set up by me and her mother.  No other debts.  Current living costs (measured via Pocketbook) are $50k per year, but keen to get these down to 40-45k as I stop self-medicating through food and drink.

Thanks in advance to anyone who has read this far and wants to advise a fool and his money.

[Reversifi]

So to clarify you have $1.3m cash sitting in you business bank account earning 1%? If not, how much money are we talking about for you to invest and annual wage moving forward? We know how much you spend but not how much you earn.

[Slow_Loris]

Yep $1.3m in the business account, I can adjust my wage to whatever I'd like.  I'm thinking of paying myself $90k a year before tax and super.  But this gives me more than I need at the end of my life and not so much in my forthcoming energetic years where I could do with the cash.  I'm looking for that sweet spot, and also advice nowhere to put the company funds in the meantime.

[deborah]

@Slow_Loris , I really think this needs to be a case study in its own new thread, rather than being in this thread. Add it to the Australian Tax subforum https://forum.mrmoneymustache.com/australia-tax-discussion/ and include Australia in the title. I’m sure you’ll get a number of responses!

[Slow_Loris]

Thanks @deborah - will do and sorry for cluttering up the thread

[marty998]

Yep $1.3m in the business account, I can adjust my wage to whatever I'd like.  I'm thinking of paying myself $90k a year before tax and super.  But this gives me more than I need at the end of my life and not so much in my forthcoming energetic years where I could do with the cash.  I'm looking for that sweet spot, and also advice nowhere to put the company funds in the meantime.

The concessional company tax rate only applies to active trading businesses. If you were to use the cash inside the company for sharemarket investments, it's likely you'll be paying 30% tax on that.

Of course, drawing out the income over time means you get that back in franking credits, but it would still be good for you to get some proper accounting advice on that.

I'm thinking a mix of wages and dividends would be best here.... no point stripping out all the cash as wages and paying income tax on that while leaving the franking credits in the company (assuming you have excess credits in there).

[Chris-93AUS]

Hi All,

Have just done a re-allocation on my super fund portfolio,

Would like some thoughts on the following

VGAD: 29%
IHVV: 29%
MVW: 37%
Cash: 5%

Reasonings:

MVW - I subscribe to the view that capitalization weighted index funds pose a potential risk of being too heavily overweight in certain stocks, (looking at you big 4), and this also leads to concentration issues in the Australian share market. MVW equal weighted looks appealing to me, at a low cost, .35.
IHVV - I wanted US index exposure with hedging, given our weak currency rates I feel that there is a strong likelihood that overtime the dollar would appreciate from its current level, may not be a huge amount but can't see it sitting here for longer than a few years.
VGAD: As above but with a little bit more exposure to other international markets.
Also, I couldn't find any equal weight or smart beta funds with hedging in AUD that I could buy within my current super product (MyNorth) happy to take suggestions on that one.

Cheers!

[Andy R]

MVW is interesting. That's a hell of a bet on it though at 37% though. What percent of your total assets is super?

Also, I believe in super you still do pay CGT, just less. If held over 12 months I think you get a 33% CGT discount of which you then pay 15% tax on, so 10%
Any gains held for less than 12 months will not receive the 33% CGT discount so 15% tax on those gains.

Have you considered cap weighted but just increasing the mid/small caps in there, like 50/50 VAS/Ex20? The churn should be much lower.

I do like the idea of equal weighted though (except for the churn).

I wouldn't want to make a bet on or against the US, very few people are qualified to make that anything more than a gamble.

The most glaring thing is that everything is in AUD and you want at least some unhedged global equities for the diversification. If you have this outside super, then fine, but if not I would want some in there. Don't forget that before 2000 the AUD dropped all the way down to 50c US, so there is a very long way it can continue to fall and a long time to turn around after that before going over where it is now.

[Chris-93AUS]

It's not a significant portion of my wealth, enough that 37% isn't going to hurt much if it went upside down.

I admin the hedging is a little of a play, but if you check out the 50 year history (albeit that past is no indication of future) we're closer to historic lows than we are to the highs, so whilst we definitely can go lower I don't think its an unwarranted risk to take.

I like your suggestion about increasing small and mid caps, might add a fund to direct the next contribution to and change the weight that way.

I like the US, I think there is still an incredible growth story there despite the various issues and noise. I would have considered China too who I believe are the clear up and coming but I have serious personal issue with the current state of Human Rights, reliability of corporate reporting etc etc. I know there are issues in this space with the US too but I feel these aren't as bad.

Churn isn't great I'll admit, prepared to see how it goes and whether there is any alpha generation that makes up for the hit,

Appreciate the feed back though!

[marty998]

Just realised I'm down $25,000 net worth for the past two days :D

How are we all drowning our sorrows? Purchasing any more shares?

I have to wait until January until I have enough to buy a little more :(

[Reversifi]

I just thought it was a cyber Monday sale.

[mjr]

I'm down $70k.  I bought $30k of VTS on day 1 when it was down 2%, though.

I predict it'll be back up to record highs in 2 months.