Australian Investing Thread

[Andy R]

@Wadiman

There's a thread on bogleheads about it and I believe the author has even posted on that site (not sure about if in that thread or not). Do a search on bogleheads for "mcclung" and you should find more information.

[Wadiman]

Thanks Andy - shall check it out

[oysters]

Just reading the first post of this thread on bogleheads
https://www.bogleheads.org/forum/viewtopic.php?t=277543


...it seems like its basically a form of a rising equity glidepath? Michael Kitces has done some analyses and writes about this. Essentially, draw down the bonds right from the start of retirement and leave the stocks. The bonds eventually trend to or toward zero %, the stocks towards 100%. It works as when you look at how portfolios fail (to last the distance in retirement) its usually a series of up to a few years of negative returns in the stock market in the first few years or so of retirement that kills the portfolio. A big crash in the first few years is bad. If you don't have a crash early, your stocks will perform well and when a crash comes later it just doesn't matter as you are way ahead. Eating up the bonds early protects the stocks if they suffer a crash.
...is that basically what the book kind of gets at? The 1.2 increase in stock number may well be a good advance on that theory... ie you can start selling stocks if you like as long as they've had decent period of rise. Otherwise you keep selling bonds.

[chevy1956]

@Eucalyptus - that is exactly what I intend to do. I'm working but I will retire later this year. I will be on leave from my job so I can always go back. I intend to just spend my leave and cash/bonds for a while. Maybe I will go back to work part time or something just to get through the sequence of return risk phase depending on what the market does.

[Andy R]

@Eucalyptus

I haven't read the book, only comments from others, but from what I understand, it's not aimed at the idea of a rising equity glidepath. From what I've read, you note down your equities value at the start of retirement, and leave stocks alone living off bonds, and whenever stocks are at least 20% over the starting value (after inflation adjustment), you would sell down that appreciated 20% of equities. If I have this right, then the equity amount would go up and down over time but the main point would be to avoid ever selling stocks when they are below their inflation adjusted initial amount.

The one problem I read was that, what if you started retirement at the peak of a massive boom or the bottum of a bust, and your somewhat arbitrary starting point was at a point where whatever other measure of the stock markets value (such as CAPE) was far from any kind of long running mean.

Hope I have that right, as I said I've only read comments about it.

[chevy1956]

@Eucalyptus - I have read the McLung book. It's good. I'm intending to follow pretty close to that idea. I think the posts about WR's on ERN are better. Big ERN likes that method as well.

https://earlyretirementnow.com/

[Little Aussie Battler]

And the ASX200 is back above 5800.

This is why I'm not a trader.  All I see right now is short-term downside risk followed by a slow, uncertain, difficult recovery. Even on a forward earnings basis I struggle to see any value at these levels. 

Am I just too pessimistic, or is this a reflection of the wave of money sloshing around the system and the lack of alternatives?

[mrmoonymartian]

Am I just too pessimistic, or is this a reflection of the wave of money sloshing around the system and the lack of alternatives?

What's the difference between a duck?

Spoiler: show

One of its legs is both the same

5800? Basically you are mistaking random noise for a meaningful signal. What you have to do is wait for that signal to be in prime numbers. Then you know there was some intelligence involved and it's not just a random process.

[middo]

Am I just too pessimistic, or is this a reflection of the wave of money sloshing around the system and the lack of alternatives?

What's the difference between a duck?

Spoiler: show

One of its legs is both the same

5800? Basically you are mistaking random noise for a meaningful signal. What you have to do is wait for that signal to be in prime numbers. Then you know there was some intelligence involved and it's not just a random process.

If we landed on 5881 or 5897 then its all systems go?   I'm expecting 5903 tomorrow, then the signal is clear.

[mrmoonymartian]

Am I just too pessimistic, or is this a reflection of the wave of money sloshing around the system and the lack of alternatives?

What's the difference between a duck?

Spoiler: show

One of its legs is both the same

5800? Basically you are mistaking random noise for a meaningful signal. What you have to do is wait for that signal to be in prime numbers. Then you know there was some intelligence involved and it's not just a random process.

If we landed on 5881 or 5897 then its all systems go?   I'm expecting 5903 tomorrow, then the signal is clear.

Definitely. That's the aliens saying the intergallactic highway has been diverted away from Earth, so we'll make lots of money if we invest now.

[marty998]

Am I just too pessimistic, or is this a reflection of the wave of money sloshing around the system and the lack of alternatives?

What's the difference between a duck?

Spoiler: show

One of its legs is both the same

5800? Basically you are mistaking random noise for a meaningful signal. What you have to do is wait for that signal to be in prime numbers. Then you know there was some intelligence involved and it's not just a random process.

If we landed on 5881 or 5897 then its all systems go?   I'm expecting 5903 tomorrow, then the signal is clear.

Definitely. That's the aliens saying the intergallactic highway has been diverted away from Earth, so we'll make lots of money if we invest now.

I'm confused. I mean, more so than usual.

I'd pulled most of my money from Ratesetter last week and bought 1428 units of VAS @ 69.93 (~$100k). Totally shocked to see it up over $73 now.

I too expect the market to drop again, at which point I'll buy some more.

[middo]

Am I just too pessimistic, or is this a reflection of the wave of money sloshing around the system and the lack of alternatives?

What's the difference between a duck?

Spoiler: show

One of its legs is both the same

5800? Basically you are mistaking random noise for a meaningful signal. What you have to do is wait for that signal to be in prime numbers. Then you know there was some intelligence involved and it's not just a random process.

If we landed on 5881 or 5897 then its all systems go?   I'm expecting 5903 tomorrow, then the signal is clear.

Definitely. That's the aliens saying the intergallactic highway has been diverted away from Earth, so we'll make lots of money if we invest now.

I'm confused. I mean, more so than usual.

I'd pulled most of my money from Ratesetter last week and bought 1428 units of VAS @ 69.93 (~$100k). Totally shocked to see it up over $73 now.

I too expect the market to drop again, at which point I'll buy some more.

73 is a prime number.  You're set!

[mrmoonymartian]

Am I just too pessimistic, or is this a reflection of the wave of money sloshing around the system and the lack of alternatives?

What's the difference between a duck?

Spoiler: show

One of its legs is both the same

5800? Basically you are mistaking random noise for a meaningful signal. What you have to do is wait for that signal to be in prime numbers. Then you know there was some intelligence involved and it's not just a random process.

If we landed on 5881 or 5897 then its all systems go?   I'm expecting 5903 tomorrow, then the signal is clear.

Definitely. That's the aliens saying the intergallactic highway has been diverted away from Earth, so we'll make lots of money if we invest now.

I'm confused. I mean, more so than usual.

I'd pulled most of my money from Ratesetter last week and bought 1428 units of VAS @ 69.93 (~$100k). Totally shocked to see it up over $73 now.

I too expect the market to drop again, at which point I'll buy some more.

73 is a prime number.  You're set!

Quick, buy Virgin Aerospace Services! It's going to go ballistic!

[Alchemisst]

Just wondering if anyone knows why VGS/VGAD doesn't contain China but VEU does?

[Andy R]

Many funds split into pieces so you can customise.
• VGS, is developed markets (ex Australia) large and mid caps.
• VISM is developed markets small caps ex Australia
• EM is emerging markets
• VAS is Australia

You then can can customise if you want more or less of any segments.

It is frustrating that there isn't a single global cap weighted fund that contains everything. In the US they have it. They also have the more popular (for them) home country and international (non-US) funds split up which happen to be cross listed on the ASX as VTS and VEU, and they decided to break it down to home country and everything else, where everything else contains emerging markets unlike they did here for whatever reason.

As for VGAD, hedging costs more with emerging currencies so I suspect that's a big reason you seldom see emerging market equities hedged. Same thing with IHWL which hedges only developed countries. This wisdom tree paper goes into it on page 6

[Alchemisst]

Thanks, yes its frustrating I was originally going with VTS/VEU however there's no hedged version so wanted to add some VGAD, but like you said that leaves out small cap and emerging market...

[Andy R]

It doesn't need to be perfect.

For instance, if you had say something like below, you would have 60% of your investment in AUD and 40% in global currencies. While VGAD means you will be only holding 2/3 of the SC and EM segments than you would if there was an AWAC (all world all caps) fund that was AUD-hedged, I don't think it's such big problem to be worth worrying about.

20% VAS (AUD)
40% VTS/VEU (non-AUD)
20% VGAD (AUD)
20% Bonds (AUD)

[marty998]

I had a discussion with my young cousin in late March about Afterpay. She said a lot of her friends would buy clothes and handbags and shit via it. We talked about how Afterpay makes its revenue and how it has never turned a profit, indeed the losses are getting bigger so it’s fundamentally a bad investment. We set up a CommSec account and I said I’d walk her through her first trade.

APT was about $12 at the time :D

Instead we bought $30k of VAS last month and she’s up about $3000 on that.

She’s a sweetheart. She didn’t swear at me for missing out on about $90 grand of gains.

[marty998]

Market going bonkers again today. Iron ore saving the country one more time lol.

[mjr]

I knew they'd take a hit, but next month's (VAS) dividends are down about 80%.  20 cents.  Ouch

[bigchrisb]

Yeah, I've been surprised how much VAS dropped relative to VGS. 

I'm viewing July as the first month of covid-era dividends.  Earlier than that were announced before it had flowed through to earnings.  My July dividends are down 50% on last year - so a pretty big hit, but still above our expenses. 

[Rob_S]

June 2020's dividends have blown a big hole in the plan. I can't say everyone didn't warn me against dividend investing. I pulled the pin on a 100% VHY portfolio last August. The lesson or takeaway is that I believed dividends would only be cut 30% or so in a recession. Banks 'deferring' their dividends has gutted the quarters return. VHY's cut is more in the region of 70%. We have a cash buffer and will ride out the next 12 months but after that a return to work could be on the cards.

[marty998]

Yeah, I've been surprised how much VAS dropped relative to VGS. 

I'm viewing July as the first month of covid-era dividends.  Earlier than that were announced before it had flowed through to earnings.  My July dividends are down 50% on last year - so a pretty big hit, but still above our expenses.

Yeah... Divs are getting slaughtered... I’m waiting for the LIC industry to start spouting the benefits of their model because many of those older LICs will be able to smooth dividends using prior year earnings.

I’m expecting CBA to be able to hold its usual  $2.31 dividend in September (using proceeds from the sales of CFSGAM, PT Indo Life and CMLA). BHP, RIO, WOW, COL, CSL, FMG should all hold up pretty well too.

The rest of the market, probably not so much.

[Richmond 2020]

Hopefully the VAS dividend bounces back quickly. I guess it largely depends on the performance of the banks.

[annsie]

Hi everyone,
I’m trying to follow the steps to get out of debt and get investing for beginners that Deborah put up ages ago with the sequence to follow. (Thank you Deborah!). Can anyone please remind me where it is?
I’ve maxed out my $25k Super and wondering if I should contribute more super after tax or keep buying VAS and VGS. Any tips from you wise ones please? No debt. Mortgage paid off. Single, 50year old, no dependents.
Thank you and enjoy your day 😊

[annsie]

I found the investment order.
I think I’m at step 7, so I need to work out how much I want outside and inside super. 300k now in super. What process should I follow to decide where to put excess money please?

[mspym]

I found the investment order.
I think I’m at step 7, so I need to work out how much I want outside and inside super. 300k now in super. What process should I follow to decide where to put excess money please?

At this point, I would recommend checking out Aussie Firebug's FI calc spreadsheet. It's on his site and I think you need to sign up to access it, but I've never been spammed as a result. It's very easy to complete and will give you a breakdown of what to invest inside and outside Super given your age.

[mrmoonymartian]

Hi everyone,
I’m trying to follow the steps to get out of debt and get investing for beginners that Deborah put up ages ago with the sequence to follow. (Thank you Deborah!). Can anyone please remind me where it is?
I’ve maxed out my $25k Super and wondering if I should contribute more super after tax or keep buying VAS and VGS. Any tips from you wise ones please? No debt. Mortgage paid off. Single, 50year old, no dependents.
Thank you and enjoy your day 😊

Are you planning on working for the next 10 years until you can access super? If so then it may make sense for you to make non-concessional contributions. Otherwise early retirees should generally build up a stash outside of super with the surplus so you have enough to live on until you reach pickling age.

[annsie]

Thank you both- much appreciated!

[Arapiles]

This is a terrific thread.  I also have a question about super which was hoping to hear thoughts on.

We have set an overall asset allocation of 70% (equities) and 30% (bonds) for our family's investment portfolio (both within and outside superannuation).  For my super, I have a conventional (accumulation) account with UniSuper and can accurately allocate holdings in line with our asset allocation.  My wife is a Commonwealth public servant and has a defined benefit superannuation account with PSS.  My question is about her defined benefit account.  Given the security of the PSS, would it be accurate to treat her defined benefit account as a close equivalent to a bond holding?  Or is there some better way for me to understand her superannuation?  Much looking forward to hearing people's thoughts.  Thanks in advance!

[marty998]

This is a terrific thread.  I also have a question about super which was hoping to hear thoughts on.

We have set an overall asset allocation of 70% (equities) and 30% (bonds) for our family's investment portfolio (both within and outside superannuation).  For my super, I have a conventional (accumulation) account with UniSuper and can accurately allocate holdings in line with our asset allocation.  My wife is a Commonwealth public servant and has a defined benefit superannuation account with PSS.  My question is about her defined benefit account.  Given the security of the PSS, would it be accurate to treat her defined benefit account as a close equivalent to a bond holding?  Or is there some better way for me to understand her superannuation?  Much looking forward to hearing people's thoughts.  Thanks in advance!

You could almost treat it as cash. It's safer than bonds.

(Corporate) Bonds are not risk free. We've just had a relatively benign period of 28 years with relatively few major corporate blowups. They can and will happen in the future.

[Juan Ponce de León]

I feel like all this talk of 'bonds' comes from American literature which people read and then try to apply to Australia and it just doesn't apply here.  Our bonds are not like US bonds and the same assumptions can't be made.

[marty998]

I feel like all this talk of 'bonds' comes from American literature which people read and then try to apply to Australia and it just doesn't apply here.  Our bonds are not like US bonds and the same assumptions can't be made.

Soon enough there will be a trillion of government bonds on issue and then we will have a bigger market here. But you're right... the corporate bond market isn't that large because our banks are big enough to fund them all.

Probably reflects poorly on us that the banks are the biggest corporates in Australia than other industries.

[Arapiles]

Thanks, Marty, for the helpful reply.  It certainly makes things easier in aligning our portfolio against our preferred risk profile.  Thanks again.

[Richmond 2020]

I also have a defined benefit PSS account and can confirm that we treat this kind of like cash. It essentially means all other investments are held in equities (VAS and VGS) Or property with limited cash reserves and no bonds.

When we require additional cash that can’t be covered through normal fortnightly pays we either redraw off our home loan, or draw down off our investment loan which is secured against our property if it is for investment purposes.

For those interested, we took out an investment loan for $200k some time ago when we wanted to buy an investment property. We used a small amount to finance the 20% deposit and stamp duty for property and then took out a seperate loan for the other 80% of the purchase price. This allowed us to get into an investment property with no money down. A high risk strategy but has worked out well for us to-date.

It also gives us flexibility to draw down further (technically a redraw) against the $200k investment loan when we need to. We have done this now on 2 subsequent occasions. Once to fund the deposit for another investment property, and more recently to pick up some additional equity’s when the market was on sale.

A word of caution though with the $200k loan. If set up as interest only the monthly repayments Are super low as they are based on the outstanding loan balance. But we are now on int and principal and the monthly repayments are based on the whole $200k. This suits us and we are happy to take the lower interest rate offered for this type of loan. It could however create a bit of a cashflow Issue if you are not careful.

We are happy to except the cash flow restriction in return for the flexibility to draw down more funds for future investment opportunities without having to save up cash or go back to the bank each time.

[Andy R]

Totally agree with Richmond's idea of using pulled equity in an offset account and just having it available as a (potentially very large if possible) emergency fund. Firstly it is generally not callable (from what I understand, banks don't really call in loans unless payments are missed), secondly it costs you nothing to just have it sitting there. Thirdly, you can avoid drawing down on equity for potentially years (if you pull enough), allowing time for the market to recover.

Without this, I don't think I would consider defined benefit a direct 1-to-1 translation with bonds. For example, if I had enough from the defined benefit to make up the 30% of your 70/30 portfolio, I would not think 100% equities is suitable for myself. I do think you can go more aggressive, I just don't think there's necessarily a 1-to-1 translation.

[Arapiles]

Thanks Richmond2020.  That is very useful.

Andy R, can you expand a bit on your reservations?  I don’t entirely understand why drawing down on an offset account (or not) would impact the risk profile of holding (separate) funds in a defined benefit superannuation account.   There might be a simple reason - I just can’t figure out.  Many thanks in advance!

[Andy R]

Andy R, can you expand a bit on your reservations?  I don’t entirely understand why drawing down on an offset account (or not) would impact the risk profile of holding (separate) funds in a defined benefit superannuation account.   There might be a simple reason - I just can’t figure out.  Many thanks in advance!

If you have enough funds in the defined benefit to cover an equivalent to your entire 30% of bonds in a 70/30 portfolio, and then decided based on that to go 100% equities for the rest of your money, then

1. If you have no offset or equity to draw cash from in a stock market crash, you would be drawing down depleting your stocks faster (eg while it was 33% down you would be drawing down and depleting your stocks at 1.5x the rate for example).

2. If you had some cash available in an offset, you could draw on them, not depleting your funds at 1.5x the rate as which you would by drawing down equities. You would owe some more interest, which would compound, but it wouldn't be anything in the same realm as drawing down from a 100% equities portfolio when your stocks were priced low.

3. If you had no offset or other cash available and decided to go with say 80/20 in what is remaining, when stocks were down, your bonds would naturally be overweight to your target allocation and you would be drawing from them.

I suppose if your entire 70% in stocks was discretionary and you could cut most of that spending in down years, you should be fine, but that'd be a lot of discretionary spending.

[Arapiles]

Many thanks, Andy.  This is helpful on many fronts.  I now see your point.  We hold at least one year’s expenses in cash so the defined benefit would only be one portion of our “safe assets”. 

Thanks to everyone for their considered responses.  This gives us a more accurate baseline to assess our portfolio as we approach early retirement.  We are hoping to retire in the next 6 years, when my wife will turn 55 and is able to access her defined benefit super.  We know there is a higher payout on super if she continues working but our overall holdings are sufficiently large for our needs (over 25x current expenses) that we are comfortable shifting to retirement.  The next task is for us to determine whether the 70/30 asset allocation is the right balance both in the lead-up to retirement and afterwards or whether a more conservative allocation would be more appropriate.  I’m also trying to figure out how sequence of returns risk can best be managed from an Australian perspective.  Any thoughts on strategies to deal with the latter would be greatly appreciated.  Thanks again for the generous and thoughtful replies.

[nofriends]

Announced yesterday: AFI held its dividend at 14c, same as last year.

They are an outlier of the old school LIC's so far, MLT and BKI reduced their dividends.

Will be interesting to see what ARG does when they report in 3 weeks time. I tend to think they pushed out their report date on purpose to get a feel of what the reporting season would be like and would gauge their dividend payment accordingly.

[turboslob]

Seeking a bit of advice, if you can spare a few mins.
A while back, I read that VDHG was an easy 'don't overthink it' option for investing. So, I opened a managed fund and starting building it. I have a wholesale account, but I'm not close to the 500k limit where fees drop (currently ~150k, and not likely to grow quickly for next couple of years). So, I'm pondering whether to pull out and re-buy in ETFs to save on the management fee.

From what I can tell, with the managed fund, my buy & sell cost is 0.9% and management is the same.
With ETFs, buy cost is broker dependent and management is only .27%. Selling fees are again just brokerage (I'm not sure on this, if anyone can clarify).

So, every year I'm paying ~150,000*.009=1350. Whereas ETF would be 150,000*.0027 $405.
I guess I'm paying an additional 20 bucks a week for the managed fund, and will get hit with a 1350 bill to sell.

Can anyone help me with what I need to consider before ditching the managed fund for the ETFs? I'm tracking the tax stuff (let an accountant sort that out), but the way I figure it I don't intend on selling anytime soon and my break-even point is somewhere beyond a year.

Any other considerations I'm overlooking?

Thanks, Slob.

[mspym]

@turboslob you can also call them and switch to the wholesale fund. I did it when I had about as much as you have now. Unlike America, they don't switch you automatically.

[Andy R]

From what I can tell, with the managed fund, my buy & sell cost is 0.9% and management is the same.

So, every year I'm paying ~150,000*.009=1350.

It is 0.9% on the first $X, then it lowers beyond that, so you will not be paying 0.9% on the whole lot.

Having said that, I think the retail fund sux with these higher fees. The only advantage is if you absolutely need the set-and-forget auto BPay feature. Although there is a new platform in beta testing that allows you to setup auto direct credit, and you can even input your target allocation if you have multiple funds, and the auto direct credit will be directed to purchase the fund that is most underweight to your target. The brokerage is the same as SelfWealth. Once this is up and running I don't see a single reason to go for the retail funds. Along with lower cust, it will also be more tax efficient because ETFs are by their structure more tax efficient than the managed funds.

In the mean time, as mentioned by mspym, you could ask them. I expect them to say no since they have stopped allowing wholesale fund buy-ins for 100k per fund which they used to do despite advertising it for 500k, because they want to direct people to their new investor platform (which offers no benefit and also does not even allow auto bpay directly into the fund), but maybe you can say that the only reason you went with the retail funds was that a Vanguard representative told you on the phone that when you get to 100k per fund they would let you in. I would play on that hard and if they say no, take it up with higher management as a complaint. They may let you in to avoid a negative customer experience.

[MrThatsDifferent]

I’ve got the High growth  Lifestrategy fund that is .29 after $100k If that helps.

[turboslob]

@turboslob you can also call them and switch to the wholesale fund. I did it when I had about as much as you have now. Unlike America, they don't switch you automatically.

Yes, I'm in the wholesale fund, but I thought as I was <500k they'd be charging me the 'sub-500k' management fee of regular managed funds.

I’ve got the High growth  Lifestrategy fund that is .29 after $100k If that helps.

Thanks, do you happen to know if that's the norm across different investments? Ie, up to 100k at 'non wholesale' rates and then you get wholesale rates?

If the case, it doesn't change the figures too much; still looks far cheaper to be in ETFs over the long term (+10 years).

[MrThatsDifferent]

I’m not sure actually. I guess it’s worth it to me because I don’t have the right mind to stay on top of things and re-balance and all of that. I went with the easy as possible way. I just bpay  money to the Lifestrategy account and let it do its thing.

[Notch]

@turboslob you can also call them and switch to the wholesale fund. I did it when I had about as much as you have now. Unlike America, they don't switch you automatically.

Yes, I'm in the wholesale fund, but I thought as I was <500k they'd be charging me the 'sub-500k' management fee of regular managed funds.

If you're in the wholesale fund, you are charged the lower wholesale expense ratio, regardless of the balance.  You can check your statements online to verify.

[Arapiles]

For what it is worth, I'm also invested in some of the diversified offerings of the Vanguard wholesale fund and have been for some years.  When I started, my balance was over $100,000 but below $500,000.  I'm now well above the higher threshold.  I've always been charged 0.29% management fee.

[MrThatsDifferent]

Hey, all you occupied owners with offset accounts, I’m wondering what’s your offset vs investment strategy? How much do you keep in your offset, and what do you put in your non-super investment accounts? I know most have their salaries deposited into their offset and then pay from that. And I’m assuming that most would keep their emergency money there, but how much more?

I’m trying to work out a strategy and here’s what I’m thinking. After I buy a place, I don’t invest any money until I get $100k into my offset account. And then, each fortnight, I out 1/3 of my savings into the offset and then 2/3 into my investment account.

The calculators I’ve found suggest using this I might have the mortgage paid off in 6-9 years. That would be around the time I want to retire, and I guess I would have a good stash to draw from until I reach the age to access Super. Does any of this make sense or am I seeing it wrong?

[Wadiman]

MrThatsDifferent - I kept things simple when I was in that situation about five years back - not knowing what was going to happen with interest rates or investment returns I decided to do a 50/50 split between the offset and investments.  It gave me peace of mind at the time.