Author Topic: Australian Investing Thread  (Read 2613956 times)

Little Aussie Battler

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Re: Australian Investing Thread
« Reply #4700 on: December 04, 2019, 11:14:03 PM »
I’ve been busy, and didn’t even realise that the market was down. I re-calculate monthly, and have become pretty good about ignoring intra-month movements.

mjr

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Re: Australian Investing Thread
« Reply #4701 on: December 05, 2019, 02:15:17 AM »
I find that going through several $70k-80k drops in the last couple of years and having them all recover desensitises me to volatility.

chevy1956

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Re: Australian Investing Thread
« Reply #4702 on: December 05, 2019, 02:37:53 AM »
I didn't realize I was down until reading this thread.

Alchemisst

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Re: Australian Investing Thread
« Reply #4703 on: December 06, 2019, 05:45:20 PM »
Curious on what others here have for their allocations and why, I originally wanted to make mine as simple as possible so VGS and VAF, however VGS not containing EM and small cap put me off so I went for VEU, VTS, VAF, and VGAS for currency risk, however this is now a bit more complicated when trying to work out the allocations for each..

mjr

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Re: Australian Investing Thread
« Reply #4704 on: December 06, 2019, 07:20:28 PM »
In super, I have 50% in VTS, 30% in VAS and 20% in cash/term deposits.  VTS is more capital growth so it's the biggest chunk because they'll be capital gains tax free in pension mode.

Outside of super, I have 45% in VAS, 25% in VTS and 30% in cash.  VAS and its dividends are the focus here, I live off them.  I know I have too much cash, but while the market is hot I'm OK with it - it's also my "the stock can crash horribly tomorrow but I have 10 years of expenses safe".  I may also do things like knock my house down and develop the lots that is it on and this money will get used for that.

Super and non-super amounts are about equal.  I'll be moving $25k per year into super for the next 6 years at least - helps to bring down my taxable income.

Andy R

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Re: Australian Investing Thread
« Reply #4705 on: December 06, 2019, 08:29:00 PM »
Curious on what others here have for their allocations and why, I originally wanted to make mine as simple as possible so VGS and VAF, however VGS not containing EM and small cap put me off so I went for VEU, VTS, VAF, and VGAS for currency risk, however this is now a bit more complicated when trying to work out the allocations for each..

Just treat VTS/VEU as your global (unhedged) portion and VGAD as your global AUD-hedged portion. That VGAD doesn't contain small and emerging shouldn't be an issue as you don't need it to be exactly market cap.

If you had something like this (below). It isn't going to make a significant difference if you have 7% of your equity portion in emerging markets instead of 10% and similarly with small caps.

bonds: 30%
global equities AUD-hedged (VGAD) 20%
global equities (VTS/VEU) 50%

Alchemisst

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Re: Australian Investing Thread
« Reply #4706 on: December 08, 2019, 04:24:09 PM »
What about bonds vs high interest savings? Seems to be a lot of people just keeping cash instead of bonds?

mjr

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Re: Australian Investing Thread
« Reply #4707 on: December 08, 2019, 07:49:05 PM »
Bonds have done "well" over the last few years due to interest rate cuts.  Those days are gone and their values will fall when rates rise.  Also, yields on bonds now are awful, high-interest savings accounts/term deposits are just as good.

Andy R

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Re: Australian Investing Thread
« Reply #4708 on: December 08, 2019, 08:05:25 PM »
It's not as simple as many make it out to be. I once thought that rates have nowhere to go but up, therefore bonds are not a good idea right now, but that wasn't accurate then and it isn't accurate now. There are countries where bond yields are negative, so Australian rates could easily continue to drop for years and years. They certainly aren't going to rise any time in the near future and the RBA has come out and even said exactly that.

Just saying "rates are low therefore bonds are no good" is a overly simplistic. I've tried to cover a number of concepts here. It doesn't give you an answer one way or the other, but explains the main differences conceptually so you can decide for yourself.

If you have an offset though, that would be the best choice.

mjr

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Re: Australian Investing Thread
« Reply #4709 on: December 08, 2019, 11:03:42 PM »
It's not as simple as many make it out to be. I once thought that rates have nowhere to go but up, therefore bonds are not a good idea right now, but that wasn't accurate then and it isn't accurate now. There are countries where bond yields are negative, so Australian rates could easily continue to drop for years and years.

Even if rates were to go negative in Australia and I doubt that they will, they don't have far to fall to get there.  They've pretty much bottomed out.

You may consider it "overly simplistic" and that's fine for you.  As of today, a term deposit and a HISA pay more than an Australian Government 15 year bond.   It doesn't need to be more complicated that if non-equities and non-property is a small fraction of one's portfolio.

We don't have a well-developed bond market in Australia. 

lush

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Re: Australian Investing Thread
« Reply #4710 on: January 05, 2020, 09:49:18 PM »
Happy New Year Everyone!

I wanted to ask this forum if my thinking is correct around Attribution Managed Investment Trust Regime (AMIT) changes that came into affect for Vanguard Wholesale Funds / ETF's on July 2017 - investor notice here :

https://api.vanguard.com/rs/gre/gls/1.3.0/documents/10747/au

and that is ever since the AMIT was applied, quarterly distribution payouts have been kind of steady, with almost little change, compared to years previous were some quarterly distributions were significant.

Am I on the right track here? I am trying to make sense of the low distributions I have received over the last couple of years, and that made me think of the AMIT.

Thanks

Alchemisst

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Re: Australian Investing Thread
« Reply #4711 on: January 06, 2020, 07:18:41 PM »
I am trying to work out whether I should stay in my defined benefit super or transfer to a regular super Suh as hostplus, is anyone able to comment on my figures?

Have only done a few rough calculations but i got say 100k super = just over 8k pension amount, 100k in super fund in 30 years time would be ~500k (based on historical averages) 4% of that amount would be about 20k/ year, or 3% would be ~15k/ year. So it seems you would be 7k+ per year better off using the conservative 3% and even more using 4%?

itchyfeet

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Re: Australian Investing Thread
« Reply #4712 on: January 06, 2020, 08:30:59 PM »
Is the $8k the pension in today’s dollars. If the pension is indexed and you don’t retire for 30 years the pension will almost be worth $20k a year by the time you retire.

Without knowing your full details I would intuitively expect that you would be better off taking the defined benefits pension and not have any sequence of return risk or sleepless nights from market fluctuations.

I will get a small defined benefit pension from 55 that is worth $14,000 a year in today’s money, but is indexed, and it is a foundation piece of my overall retirement plan. Having this “guaranteed” income stream till death gives me greater confidence on the share market risk the rest of my plan hinges on.

Minion

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Re: Australian Investing Thread
« Reply #4713 on: January 06, 2020, 10:32:08 PM »
Agree, I have a small defined benefit pension too and I'll never abandon it either for the reasons above.

Alchemisst

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Re: Australian Investing Thread
« Reply #4714 on: January 06, 2020, 10:58:13 PM »
The pension is indexed so that's today's dollars but the 4% example is also today's dollars, so both numbers should grow with inflation.

dominikm

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Re: Australian Investing Thread
« Reply #4715 on: January 07, 2020, 08:38:55 AM »
Might as well chime in here. A bit of a back story and my plan instead of just investing related stuff. And my numbers at the bottom, starting from almost zero. But all good! We all start somewhere right!

I honestly don't know where I fit in as I am Australian but I also left Australia mid 2013 traveling and as of 2017 I became a resident in Bulgaria. So I suppose the Australian thread is where I should post as when I start investing I'll likely invest in the Australian market along side the US.

Bulgaria partially due to the fact that the income tax is very low if you pay yourself a decent salary and corporate tax is 10% and dividend tax is only 5%. I make all my money online so it was a perfect fit and Bulgaria is in the EU which is really good. Plus combo that with the fact where I live is a tourist town with a ski hill and during the summer it's got downhill mountain biking. A few hours drive later and you're in Greece and then it's not far to get to somewhere you can kite surf. So basically heaven on earth for me.

I quit my office job in 2013. Traveled, made money online. Worked the 4 hour work week for a while. Got bored as not working is boring for me. Did something new. Got bored did something else. Traveled more. Never stopped and I've seen 50+ countries now. Sold on Amazon.com importing from China. That did very well selling over $1.5MM USD in product. That dried up and I lived off savings and then started doing something else that didn't make much money at all but wasn't crazy fast paced like Amazon.

Right now I bring in a few grand a month that basically covers living costs, save a bit and have money to put into new projects I'm getting going. I'm 33 at the end of Feb so it kind of hit home a few days ago when we got into 2020 that I've actually had a pretty magnificent last few years traveling perpetually but I've got sweet FA to show for it asset wise. But more memories than I can even recall so I don't regret it at all.

So I binge read a lot of the MMM blog a few days ago and understand generally how everything works. My plan is different though. I've actually run though what my ideal life would be and it sits at $3MM. At the 4% annual safe withdrawal rate that gives me $120K/year or $10K/m. I worked everything out to the finest detail factoring in everything I could possibly think of with the life I want to live and $10K/m is where I need to be. Nothing was missed. I even put in my monthly hair cut, my health insurance I need to buy (not being an Aussie tax resident means no medicare), my flights (all business class and about $18K/year) I want to take yearly, my sports gear I want to buy new and replace yearly, the hotels and hire cars I want each year, even $10/m for Netflix and $55/m towards a new laptop as that's about $2k for a new one every 24 months. $500/m for miscellaneous things that come up and helping a charity each month for example. Even that extra $50/m for random household items. It's literally all there.

I love all the concepts of the blog but I want a certain lifestyle with my kite surfing, skydiving, snowboarding and traveling. That all costs money. But, that said. I'm an expert at getting costs down when traveling. I've taken some flights that I'm even shocked I've pulled off price wise. So part of my is an MMMer.

But living in nice places costs money and I don't really want to own a home. If I had a decent $800K home in Perth with 20% down that's $2,837 a month over 360 months based on a calculator I found in Google for a mortgage. I would rather spend $2k each month over 360 month and see the world living very nice one month per city and see the worlds 200+ countries without having to deal with property maintenance.

Realistically I'll probably get a small apartment in that ski town in Bulgaria. As I'll always got back and it will be a place to store my spots gear as I travel to different parts of the world. But since the property market is so messed up there with the over building I can get a nice 2 bed apartment in a 4 star building for 50K and that's is way over average price. I mean WAY over average. I have a buddy who bought a good ground floor one bed apartment for 5,000 Euros. 50K would put me in a very nice place. So no real concern as 50K is a blip on the radar with a 3MM total. Even if I get a nicer place, more like a baller place for that price, and do it up for $100K total it's not all that much overall.

And maybe in 20 years after retirement things change and I get a house and settle back in Australia. Life changes. Costs go down monthly as the blog explains (it makes sense why it does) and even buying a nice house for cash doesn't mess me up and I'm still way ahead.

My goal is to do it by 40. I'm 33 now. I'm going to spend the next one year working very hard focusing on getting things going again. I have a few grand a month income. I'm in the process of saving $5K as backup money I will not touch and I have access to $5K more if I need it for an emergency. That's saved at the end of this month.

I've been working some new methods to make money online that have made me $2k/m over the last three months. So if all goes to plan I should get that to $5k/m by March/April and then $10K/m by mid year. This method is probably capped at $10K/m with what's possible. My living costs right now are covered from my existing income so I don't have to dig into anything from the new revenue. I will use this $10K/m to reinvest into other ideas to scale them online. Some are already in play. The just need attention.

The way I see it is if I 100% focus on what I'm doing the first year will bring in something like $150k. As I scale the second year should easily do $300K or more. And then I'll be at $500K in year 3. Probably sooner. $1,369/day profit is $500K/yr and at the peak of Amazon we were doing more so I think it's very doable in year 3 onward when focused. If I keep that up I'll hit 3MM in 7 years roughly. When I'm 40.

Once I retire I'll likely continue with my projects that bring in cash but I will drop the ones that are tedious or I don't really like or just sell off those projects as individual businesses for a lump sum.

My other plan is that once I'm 35, so just over 2 years, I want to actually start living this life of $10K/m no matter what as I know I'll keep up with my projects. So I might take longer to save or I will simply dedicate one project to pay for the lifestyle and work harder to build up another project to replace it so I can still hit my 7 year goal. Why? Because at 35 living my best life doing my sports daily is going to be kind of brutal on the body. So I'd rather do it younger than start at 40. Start at 35 and finish at 65 going hard like that and then tone it down. Who knows how long you can go hard for but I'd rather do it sooner than later.

So a little different post from what I've read in here but it is what it is. And it's where I'm starting at with my wake-up call (if you can call it that) when 2020 hit realising I'm not 25 anymore.

I do everything in USD online. So all figures are in $USD except the $AUD mentioned below.

So the actual numbers like others post assuming it's the end of Jan:

Cash - $5K
Super - $28.2K

So if I convert that total to USD I'm at about $24.3K or 0.81% towards my goal.

I've just logged into my super account with ANZ and I see over the last few years I've made a nice chunk. I set it to 'Cash' for the risk level/very low risk a long time ago. Then I logged in a few years ago and set it to 'High' as I figured why does it matter as it's only about $20K and I'm not even 30 (back then). This is for the 'ANZ Smart Choice Super 1980s' plan.

Originally I was 'sold' by some clown who ran a private super firm with how I would make 10% or more a year. And two years later I was at the same portfolio value. I realised it was all total BS with the profits being taken by fees. So I rolled it all into ANZ and I had $19.8K and now it's at $28.2K. So not bad as that was in May 2016. So it's up a total of 42%. If I get 8% annually with no more contributions it will be at ~$330K when I'm 65. I doubt I will need it but not bad considering I never made an extra payment and that was just the money that I was legally forced to pay during my short working career of about 7 years in the office plus the other small amounts I would have got working part time jobs over the years as a teenager. Even if it's only 150k as the markets go nuts in a negative manner. An extra 150K when I'm 65 is handy.

After realising how big of a job is ahead of me it's a nice bonus to see the super performing well at least!

So there you have it! That's me! Wish me luck! It's going to be a long road with lots of work to hit my goals by 40. But I know it will be well worth it!
« Last Edit: January 07, 2020, 08:10:28 PM by dominikm »

Minion

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Re: Australian Investing Thread
« Reply #4716 on: January 08, 2020, 01:12:06 AM »
That was a interesting read. Do you now have EU residency, I heard there's a loophole in Bulgaria where you can get if after living there 6 months and with a property purchase?

itchyfeet

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Re: Australian Investing Thread
« Reply #4717 on: January 08, 2020, 02:27:36 AM »
Hey Dominikm.

As a fellow Aussie making a life abroad I read your post with interest.

I wish you all the best.

We have had a fun time traveling the world (based out of Dubai) but are now starting to think about heading back home to Australia.... maybe for that slower paced life you referred to. Not sure. 😆


dominikm

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Re: Australian Investing Thread
« Reply #4718 on: January 08, 2020, 03:05:53 AM »
That was a interesting read. Do you now have EU residency, I heard there's a loophole in Bulgaria where you can get if after living there 6 months and with a property purchase?

I've been an EU/Bulgarian resident since mid February 2017.

I'm actually not 100% sure about what method you'd use with property. I'm not aware you can use property. Maybe it's just something I don't know about.

I do have duel citizenship (Australian/Germany) and if I had of lived in Europe I would have just needed an old health care card and I could have had residency from just that. With my situation since I never lived in Europe before the lawyer I used opened me a company and that allows you to have residency as an EU citizen. And of course the benefit of the 10% tax and 5% dividends.

As far as I'm aware there is a foreigner visa (as in you come from an non-EU country) for Bulgaria that allows you to open an office in Bulgaria of an existing company. The process takes a few months at least. Costs a few grand (dirt cheap vs other countries though) and then you get it and just renew every year or two.


Hey Dominikm.

As a fellow Aussie making a life abroad I read your post with interest.

I wish you all the best.

We have had a fun time traveling the world (based out of Dubai) but are now starting to think about heading back home to Australia.... maybe for that slower paced life you referred to. Not sure. 😆



Thanks! I'm sure when I've done my time for 20 years or so I'll consider going back. But for now there is to much of the world to see :)


If you guys are interested I just started my journal after finding that section of MMM. It's much more detailed than what I wrote here. Here is it: https://forum.mrmoneymustache.com/journals/dominik's-journey-to-$3mm-d/
« Last Edit: January 08, 2020, 03:36:58 AM by dominikm »

Alchemisst

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Re: Australian Investing Thread
« Reply #4719 on: January 08, 2020, 03:42:49 AM »
Any advice on super, I'm currently with hostplus because it has the lowest fees, but considering moving to sunsuper to recreate a vanguard index, is it worth moving and what are the options available? I would ideally like to be atleast 90% stocks and high international allocation.

Rob_S

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Re: Australian Investing Thread
« Reply #4720 on: January 08, 2020, 03:55:56 AM »
I recently moved to Sunsuper for the reason you mentioned. Setting up a new account online was quick. There were the usual index options. I'm 100% unhedged international stocks. Making an investment selection was simple. These days rolling your $ over from one fund to another is painless and can be handled online. I've been in the fund for about 4 months now with no complaints. The fees in Sunsuper aren't that bad, all up its cheap though Hostplus is cheaper (depending on the investment you select). One thing to consider is the insurance attached to each fund (if you need cover).

Rob_S

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Re: Australian Investing Thread
« Reply #4721 on: January 08, 2020, 04:16:03 AM »
I wanted to ask this forum if my thinking is correct around Attribution Managed Investment Trust Regime (AMIT) changes that came into affect for Vanguard Wholesale Funds / ETF's on July 2017 - investor notice here :

https://api.vanguard.com/rs/gre/gls/1.3.0/documents/10747/au

and that is ever since the AMIT was applied, quarterly distribution payouts have been kind of steady, with almost little change, compared to years previous were some quarterly distributions were significant.

Am I on the right track here? I am trying to make sense of the low distributions I have received over the last couple of years, and that made me think of the AMIT.

Thanks

You might be on to something. I have been disappointed by the last years worth of distributions and you got me thinking about the AMIT impact. My take is AMIT allows the fund manager to distribute capital gains in a 'fit and reasonable' way. Seems pretty broad terms to me. I guess the gist is that if someone sells $5M worth of VAS Vanguard can attribute the relevant capital gain to the seller and not spread it across all members of the fund.

I'm a holder of VHY. I checked the distribution tax estimates reported on the ASX site for the fund. The last distribution that included capital gains was June 2018. The last 6 distributions have been significantly lower and have had no capital gains proportion. Historically the distributions had spikes which seemed to correlate with capital gains but this hasn't happened for the last 18 months. My take is that these capital gains distributed formed part of the dividend increasing the amount paid. Now that the capital gains are not being distributed the dividend total is significantly down. In a notice to unit holders Vanguard mentioned deciding to distribute capital gains in the March 2018 dividend. My take is that AMIT allows them to decide to distribute capital gains and when to distribute them. That they haven't distributed any for VHY in the last 18 months seems a bit rubbish.

I took a glance at the VAS distributions and noticed a drop off in capital gains distributed. 1 out of 4 dividend payments included a capital gains component in 2019.

I'm far from the expert but that's my take. I'm saddened by the whole thing if my assumptions are correct. In theory the payoff for AMIT is presumably an advantageous change in your cost base, an advantage only when it comes time to sell the shares, something I don't intend on doing so BOO again :(

I hope I've got it all wrong and AMIT is working in my favour but from my limited reading/research it looks awful.
« Last Edit: January 08, 2020, 04:43:33 AM by Rob_S »

Alchemisst

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Re: Australian Investing Thread
« Reply #4722 on: January 08, 2020, 08:54:38 PM »
I recently moved to Sunsuper for the reason you mentioned. Setting up a new account online was quick. There were the usual index options. I'm 100% unhedged international stocks. Making an investment selection was simple. These days rolling your $ over from one fund to another is painless and can be handled online. I've been in the fund for about 4 months now with no complaints. The fees in Sunsuper aren't that bad, all up its cheap though Hostplus is cheaper (depending on the investment you select). One thing to consider is the insurance attached to each fund (if you need cover).

Thanks for the reply, but what about currency risk if you're 100% unhedged? Is there an option to add some hedging?

mrmoonymartian

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Re: Australian Investing Thread
« Reply #4723 on: January 09, 2020, 01:41:15 AM »
I recently moved to Sunsuper for the reason you mentioned. Setting up a new account online was quick. There were the usual index options. I'm 100% unhedged international stocks. Making an investment selection was simple. These days rolling your $ over from one fund to another is painless and can be handled online. I've been in the fund for about 4 months now with no complaints. The fees in Sunsuper aren't that bad, all up its cheap though Hostplus is cheaper (depending on the investment you select). One thing to consider is the insurance attached to each fund (if you need cover).

Thanks for the reply, but what about currency risk if you're 100% unhedged? Is there an option to add some hedging?
Yes, for the VGS-equivalent (at the same cost as unhedged). No, for the VGE-equivalent (side-note: this is the US-domiciled EM fund, so extremely cheap compared to most other options). It's easy to get them to tailor insurance to suit your needs (I did).

For the comparison I've done (Sunsuper vs ChoicePlus/Hostplus), Hostplus has a higher base admin fee ($258 vs $78), but lower % admin fee (0% vs 0.1%). So Sunsuper is cheaper for smaller staches, but not bigger staches. For me the breakeven is around $200-300k, depending how often I want to pay the brokerage in ChoicePlus ($10). But the investing options are the biggest difference - being able to choose from a heap of ETFs in ChoicePlus. Still not every option I'd like, but much more freedom than Sunsuper. I'm considering running both to get all the assets I want at the best price - eg. autotrickle into Sunsuper and manual lump into Hostplus occasionally.

lush

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Re: Australian Investing Thread
« Reply #4724 on: January 09, 2020, 02:55:12 PM »
hope I've got it all wrong and AMIT is working in my favour but from my limited reading/research it looks awful.

Hi Rob, I am so glad you responded and are seeing the same as I am.
I set up our Vanguard accounts for Early retirement - meaning distributions, this is now a problem for me. The market has been performing so well and I almost cry at the returns I get each quarter for the amount of money invested. I don't mind going with the highs and lows, but this low level returns almost seem ongoing - as you said about 18 months.
I need to seriously consider if this investment in Vanguard is worth my hard earned cash.
Thanks.

mjr

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Re: Australian Investing Thread
« Reply #4725 on: January 09, 2020, 05:45:43 PM »
What returns have you been getting and what were you expecting and why ?

Over the last 2 years. my VAS stocks have returned 6% (grossed up) in dividends and 8% capital gains.  I'm popping champagne corks.

Andy R

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Re: Australian Investing Thread
« Reply #4726 on: January 09, 2020, 06:50:10 PM »
Yeah it must be terrible getting 30% returns last year with only 3% as dividends.
Shame you can't get access to any of the other 27% by selling some.

mjr

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Re: Australian Investing Thread
« Reply #4727 on: January 09, 2020, 10:35:50 PM »
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.

The all ords sailed past 7000 today.  Didn't take 2 months, not even 6 weeks to get back up there.

lush

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Re: Australian Investing Thread
« Reply #4728 on: January 10, 2020, 03:11:19 PM »
Hi - for those wanting to know the outcome if the AMIT affects the distributions for Vanguard funds, I spoke to Vanguard yesterday and they confirmed that yes the AMIT has and will continue to affect the amount of distributions. The focus is on retaining the cost base of the units. I was advised that if I was seeking funds that had decent distribution returns to consider Property, Global Infrastructure, VHY and VAS. However they said to keep in mind that there is a global trend to move away from such funds (therefore over time might lose their value and lower distributions).


mjr

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Re: Australian Investing Thread
« Reply #4729 on: January 10, 2020, 03:26:23 PM »
As discounted capital gains are way more tax effective than distributions, why are you so focussed on distributions ?

I love distributions and have sized my portfolio so that I never need to sell a share.  But I know that if the returns skew towards capital gains at the expense of distributions, then that's better for me.

hm520

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Re: Australian Investing Thread
« Reply #4730 on: January 10, 2020, 06:47:24 PM »
I recently moved to Sunsuper for the reason you mentioned. Setting up a new account online was quick. There were the usual index options. I'm 100% unhedged international stocks. Making an investment selection was simple. These days rolling your $ over from one fund to another is painless and can be handled online. I've been in the fund for about 4 months now with no complaints. The fees in Sunsuper aren't that bad, all up its cheap though Hostplus is cheaper (depending on the investment you select). One thing to consider is the insurance attached to each fund (if you need cover).

I've been with Sunsuper for 3ish years now. Currently ~70% international index, 15ish Aus index and a small emerging market and small property index.

Returns have been good - but I'm waiting to see what is offered from Vanguard, as may consider moving to them if 1) They manage to launch their super product this year and 2) it's as decent as it's hyped to be

itchyfeet

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Re: Australian Investing Thread
« Reply #4731 on: January 10, 2020, 09:46:28 PM »
Yeah it must be terrible getting 30% returns last year with only 3% as dividends.
Shame you can't get access to any of the other 27% by selling some.

😂

lush

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Re: Australian Investing Thread
« Reply #4732 on: January 11, 2020, 04:34:10 PM »
As discounted capital gains are way more tax effective than distributions, why are you so focussed on distributions ?

I love distributions and have sized my portfolio so that I never need to sell a share.  But I know that if the returns skew towards capital gains at the expense of distributions, then that's better for me.

The reason for the focus on the distributions, is exactly what you said, which is limiting the need to draw down on the portfolio funds, thereby enabling ER for someone of my age (45). If I start selling off the portfolio now then it won't last the distance I need it to. So this approach (AMIT lowering distributions) does disrupt the ER plan I had in mind.

I just need to re-think ER and how it can now be executed.

misterhorsey

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Re: Australian Investing Thread
« Reply #4733 on: January 11, 2020, 05:21:08 PM »
Hey Lush, sorry to hear your disappointed in the lower distributions you're currently receiving.

Regular quarterly distributions certainly have an appeal, as they can be a set and forget way of covering your annual living expenses.  There is a strong bias in Australia towards investing in dividends, partly due to the franking regime - and there's a virtuous/vicious cycle of investors demanding fully franked dividends and companies trying to meet that demand. However, they certainly aren't the most optimal way of extracting value from your portfolio.

Ideally you should look at value of your investment by it's overall growth - which includes capital growth as well as distributions.  VAS went up by about 20% in the 2019 calendar year. Meanwhile it's dividend yield was around 4%. It's combined growth is then 24% (note: these aren't exact figures).

When you receive your dividends they are taxed at your personal marginal rate. And there's no way of altering the timing of these.  You receive them, you're taxed on the income. On the other hand,  selling shares is subject to capital gains tax (which is discounted by 50% if you've held for a year) and the CGT rate is also at your personal income tax rate.  So it's a lower tax liability overall - also you determine when you sell them, which can be helpful in reducing your annual income and tax liability.

Of course it's a bit more fiddly selling shares down instead of receiving an automatic quarterly distribution, so there's a bit of recording keeping and paper work. But it's more control, and it's a small price to pay for year on year steady growth for doing effectively nothing. And the flexibility to vary the size that you drawn down is very powerful for minimising the amount of tax you may pay in a given year.

I have distributions that almost cover my living expenses. They provide a foundation to my annual spend. But in a perfect world, my investments wouldn't distribute any dividends, the value would be retained by the companies/index (and the share prices would grow) and I'd sell down shares only as I needed.

If investments were a cake, then quarterly distributions  give me a slice every 3 months whether I want cake or not.  And I am forced to eat it.  Selling down shares is being able to cut off slices that are more in line with my appetite.  Only, investments aren't cakes. As cakes don't magically grow bigger each year (or sometimes shrink, before growing again).

There are some great articles floating around busting the myths around dividend focused investing. I did a quick search and couldn't find one. Hence the long response and weird cake analogy above.



mjr

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Re: Australian Investing Thread
« Reply #4734 on: January 11, 2020, 08:41:19 PM »
If I start selling off the portfolio now then it won't last the distance I need it to.

This is a common misperception and/or psychological block for many people - including myself.

Total return is what matters.  With sufficient capital growth, you need to sell off fewer and fewer shares as time goes on until eventually even a lower dividend payout ratio throws off sufficient cash so that you don't need to sell any more shares.

The other thing which does matter is tax and as previously mentioned the 12 month capital gains discount makes selling shares more tax effective and hence puts more money in your pocket.


Andy R

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Re: Australian Investing Thread
« Reply #4735 on: January 11, 2020, 08:44:29 PM »
Just to add in case lush somehow still doesn't get it -

A dividend is literally a withdrawal. It's not similar to a withdrawal, it's an actual withdrawal.

At the company level, after a company pays out employees' wages, debts, and other obligations from their income, they pay out some of the remaining profit as dividends.

If a company worth $99M is gifted $1M, their new value is $100M.
In the same way, when a company pays out $1M in dividends, their new value is worth $1M less.
When you don't reinvest your dividends, you have a made a withdrawal.

mjr

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Re: Australian Investing Thread
« Reply #4736 on: January 11, 2020, 09:03:43 PM »
I was advised that if I was seeking funds that had decent distribution returns to consider Property, Global Infrastructure, VHY and VAS. However they said to keep in mind that there is a global trend to move away from such funds (therefore over time might lose their value and lower distributions).

Wait, what ?  Someone from Vanguard told you that VHY and VAS might lose their value and lower distributions ?

Wildly inappropriate for a Vanguard CSR to offer an opinion on the future performance of asset classes of property and global infrastructure.

VAS is just the top 300 listed Australian companies.  It's not "dividend-focussed" per se and its value will always reflect the value of the constituent companies. 

lush

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Re: Australian Investing Thread
« Reply #4737 on: January 11, 2020, 09:16:11 PM »
Thanks Misterhorsey and Mrj and others for your responses regarding lower distributions.
Ok I think I am convinced  that I need to look at growth of the portfolio rather than distributions. It does challenge my feeling of security because of having to start to sell part of the portfolio which is scary right now. I hadn’t planned to dip into selling for another 5 or more years.

 So now convinced that growth is the key, I keep coming back to that a large part of my funds are in the Balanced wholesale fund who’s performance, compared to higher risk portfolios, like say international funds, is lower. Which is a decision I made that I have been regretting for awhile and I am trying to determine whether It makes sense to sell about 50% of it over the coming months to maximise on its growth then put the funds into International. Anyway something for me to try to weigh up the pros and cons...or whether I just be old fashioned and just stick with what I have and see how it goes because after all it was meant to be a long term commitment. However I  don’t want to be non proactive and hold even more regret. I have had the Balanced fund for about 3 years and over the last couple of years added the VAS fund which now sees me with an asset allocation I am happy with (30% defensive 70% growth) but overall it does have a heavy Aussie bias, so would like to change that. Thanks again.
« Last Edit: January 11, 2020, 09:18:47 PM by lush »

mjr

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Re: Australian Investing Thread
« Reply #4738 on: January 11, 2020, 10:04:40 PM »
I'd say that 70% growth assets qualifies as a "growth" portfolio, so you're probably OK there now.

You're just going to have weigh whether paying capital gains tax on 50% of your portfolio will be offset by a move to international funds. 

How much can you add to international funds over the next few years without selling ?

lush

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Re: Australian Investing Thread
« Reply #4739 on: January 11, 2020, 11:39:26 PM »
I'd say that 70% growth assets qualifies as a "growth" portfolio, so you're probably OK there now.

You're just going to have weigh whether paying capital gains tax on 50% of your portfolio will be offset by a move to international funds. 

How much can you add to international funds over the next few years without selling ?

Yes I need to find the time and head space to do the maths. Once I do that (hopefully I get it right!) it should provide me with the next steps to take. In regards to how much I can put in, not very much more, at the very least I will put the distributions from the VAS & Balanced funds which will equal about 20k annually after taxes. And maybe another $100k this year. But then I am done with trying so hard! I really want to unwind to part time work. I am very burnt out.

Andy R

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Re: Australian Investing Thread
« Reply #4740 on: January 12, 2020, 12:43:56 AM »
Ok I think I am convinced  that I need to look at growth of the portfolio rather than distributions.

You're still missing the point.
The point is not to look only at growth as opposed to only dividends.
The point is to ignore the specific return of either and look only at the total return.

deborah

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Re: Australian Investing Thread
« Reply #4741 on: January 12, 2020, 01:15:22 AM »
It appears to me that it might be advisable to have something similar to what we did with the investment order, but for how to invest.

I’ve shied away from this, because everyone is different, and has different knowledge - I think it’s better to invest in what you know about. But so many people struggle with it.

Let’s say that we’re setting up an investment guide... It might go something like this:

1. To begin: If you have no knowledge about any form of investment, buy the Vanguard index - VAS and VGS.

2. Review your knowledge. Your parents may have been landlords, and invested in some form of property. You may be working in some form of investment, you may be able to participate in employee share plans... Decide whether you know a reasonable amount about these investments. If you don’t, read up (the ASX has a lot of courses), talk with your local expert (your parents...) and study this. Read the John Collins stock series...

3. Once you understand the investments you are interested in, work out how you will start to invest that way, and what proportion of your investments will be in them.

4. Review your other investments - you’re bound to have some superannuation, you may have inherited some investments... You need to understand these.

5. Develop an investment strategy.






Notes:
1 VAS gives you an ASX (Australian Stock Exchange) exposure, and VGS gives you the world. It won’t be the very best investment, but it will be better than a lot, and will start you investing and learning.

2 Develop your own understanding of the gambit of investing.



There’s obviously more. Is this worth pursuing? In a special thread?

lush

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Re: Australian Investing Thread
« Reply #4742 on: January 12, 2020, 02:00:13 AM »
Ok I think I am convinced  that I need to look at growth of the portfolio rather than distributions.

You're still missing the point.
The point is not to look only at growth as opposed to only dividends.
The point is to ignore the specific return of either and look only at the total return.

Got it. Thanks

misterhorsey

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Re: Australian Investing Thread
« Reply #4743 on: January 12, 2020, 10:37:33 PM »
... I keep coming back to that a large part of my funds are in the Balanced wholesale fund who’s performance, compared to higher risk portfolios, like say international funds, is lower. Which is a decision I made that I have been regretting for awhile and I am trying to determine whether It makes sense to sell about 50% of it over the coming months to maximise on its growth then put the funds into International...

I wouldn't beat yourself up for choosing the balanced option 3 years ago.  It's actually not a bad option.
 
One of the really challenging things about investing is making financial decisions for your future self - who is someone you haven't yet met.  You go into it with all the best intentions, but 3 years pass and you're likely much savvier, have a better understanding of financial matter, and perhaps a higher tolerance of risk.  It's pretty hard to get it exactly right.

I dip in and out of this forum quite a bit. But I seem to recall that at the time you were about to invest you were selling a property and had a lot of cash. I don't think you'd invested in shares/index funds at all up to this point. So it was all quite new, and your tolerance of risk and volatility was probably lower than it is now.  At the time I think the balanced option was actually a decent choice.

Three years on the market has kicked on and you're regretting the fact that missed out on the better performance delivered by more growth oriented funds and that's understandable.

But I think it's worth remembering that three years back, no-one knew that the market would perform as it has. (Note that the this period also included the pretty sharp correction at the end of 2018. In fact, some of the stellar performance of 2019 was because it was making up for what was lost at the end of 2018.  VAS did 20% approx in calendar 2019.  But VAS from it's previous high in Oct 2018 to end of 2019increased by only 7% (not including dividends).  Still decent of course, but not the headline figure that you'd feel necessary to beat yourself up about.

But it's also worth remembering that if the market had experienced a sustained contraction over the past 3 years, or we entered into a full recession (something it seems we seem to be continually flirting with since the Great Recession/GFC), it's likely you would have been pretty happy to be in balanced fund as your 'losses' would be significantly less than an equivalent growth fund.

Choosing some degree of stability and lesser volatility with the balanced fund actually is a valuable thing.  The fact is, the market didn't crash - but you chose a strategy that would have put you in good stead if it had.  No-one knows how they'll behave if the market drops 40% again.  Everyone thinks they won't panic but you don't know what your future self might be tempted to do.

But now that you have significant amount in a balanced fund it doesn't need to stay that way forever - something you've already addressed by adding VAS.

You could cash out of your balanced fund and put it in a growth fund, but the CGT hit won't be ideal.  And anyway, there's really no urgency to shift the balance if you're investing for a 10-20-30 year etc time frame. Add the 100k cash you have to VGS/VAS, and opt to receive any future distributions from the fund as cash and put it into VAS/VGS.  If it's still not the allocation you like (growth v income, international v australia), then cash out a bit and buy into something else to rebalance. This is of course messier than if you had started with a high growth fund from that start, rebalancing will be a pain if you don't have a head for it, but that can't be helped.

It will be more volatile of course and if you're in for the long term it doesn't really matter.  As an example, I helped ease my parents into the Conservative vanguard fund.  When my High Growth fund dropped around 12% or so, theirs dropped by about 2%.   This was just a minor blip in the scheme of things but there were definitely people on forums getting jittery.

But perhaps above all, prepare a ideal allocation that you'd be happy with and slowly work towards that.   It took me about 5 years to unravel my legacy investment positions (investment property + no shares, to direct shares and no index funds, to an indexed strategy with a 50/50 international/Australian split). I wish I had bought VGHD ETF at the very beginning. But of course, it didn't exist at the time.

lush

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Re: Australian Investing Thread
« Reply #4744 on: January 14, 2020, 04:24:15 PM »
Misterhorsey thank you for your, accurate, articulate and very thoughtful response. It has provided me with excellent perspective and great food for thought. More than anything it has provided me with a calmer approach to the situation. I have no doubt what you have articulated resonates with many in this forum. Thanks again.

Alchemisst

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Re: Australian Investing Thread
« Reply #4745 on: January 15, 2020, 02:22:14 PM »
I'm currently weighing up whether I should put more money into super (over the 25k) for the tax benefits vs invest in the index outside super, any opinions?

deborah

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Re: Australian Investing Thread
« Reply #4746 on: January 15, 2020, 02:28:37 PM »
I'm currently weighing up whether I should put more money into super (over the 25k) for the tax benefits vs invest in the index outside super, any opinions?
Depends on your age, what age you plan to retire and how much you have inside and outside super.

Alchemisst

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Re: Australian Investing Thread
« Reply #4747 on: January 15, 2020, 04:17:34 PM »
I'm currently weighing up whether I should put more money into super (over the 25k) for the tax benefits vs invest in the index outside super, any opinions?
Depends on your age, what age you plan to retire and how much you have inside and outside super.

Currently early 30's

mjr

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Re: Australian Investing Thread
« Reply #4748 on: January 15, 2020, 06:03:39 PM »
Depends on your age, what age you plan to retire and how much you have inside and outside super.

Currently early 30's

Really can't offer an opinion without the information that Deborah listed.

Other important information would be do you have any major expenditures planned between now and age 60, including early retirement.  House paid off ?  Kids around or planned ? Etc.

I shored my short to mid term plans so that I had an early retirement plan and was protected against job loss, etc and then poured money into super in my late 40s/early 50s.

happy

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Re: Australian Investing Thread
« Reply #4749 on: January 15, 2020, 07:01:29 PM »
Its the question without one right answer I'm afraid. It really does depend on all those factors Deborah and MJR have mentioned, plus what you current income is ( changes the tax advantages) what your annual expenses will be in retirement, plus what you think the government is going to do with super in another 30 odd years time.

I like to think of it in 2 categories: old person money ie money you will need once you can access super, and younger person money - money you need in retirement until you can access super.

I've advised my children in their early 20s to try to build their super early, so that time - another 40 years or so, can do the heavy lifting. Especially as caps etc are more likely to get tighter than looser. As soon as possible, once it looks like a basic level of old person money will be covered, start investing outside.

At the end of the day super is really a tax minimization scheme, so what you do really does depend on your income and marginal tax rate . The main thing is to keep expenses low and save and invest.
« Last Edit: January 16, 2020, 03:47:06 AM by happy »