Author Topic: Australian Investing Thread  (Read 2031738 times)

Alchemisst

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Re: Australian Investing Thread
« Reply #5100 on: January 23, 2021, 08:36:56 PM »
It's not difficult to calculate the difference with hindsight. In my case I was roughly twice as well off when I exited the defined benefit fund after 17 years, both by my calculations and by comparing with a couple of mates who had been in accumulation funds for the same time on similar salaries.
Not to mention, if defined benefit funds yielded less to us the consumer then we would all still be given the opportunity to join them!

Not too sure what you mean, are you still in the defined benefit fund/ getting pension from it? From my calculations 20+ years is when accumulation funds start to catch up/ overtake once compounding takes effect e.g if you had 100k that would be 200k, 400k and then 800k after 10, 20, 30 years compounded at 7%

No, I'm no longer in the defined beneflit fund. But the only way I could match defined benefit performance performance was to go smsf with a particular type of investment. Can't comment on accumulation fund compounding rates, but I can tell you in reality they don't catch up even after 30 years.

Some superfunds funds such as sunsuper and hostplus have pretty flexible options allowing you to put all your super into indexing basically. The historical returns for indexes are what I quoted.

I'm sure they do, and whether they are better than a defined benefit fund is a moot point anyway......they are simply not offered as an option.
There is a good reason why they aren't offered, because they are a guaranteed good result for the consumer. Accumulation funds are a guaranteed return to the provider. I've been lucky enough to actually witness the difference in results for consumers over more than a couple of decades, not just through projections...

I'm not sure how that's possible, unless they were invested in bad super funds. For e.g say a 10k defined benefit pension in 30 years = 100k lump sum now, if you took the 100k lump sum and indexed it assuming a 7% inflation adjusted return the 100k would be worth 800k in 30 years which would be 32k/ year using the 4% rule. Also you would have money left as in you would have options be able to draw down more than 32k if necessary to buy a house etc. Compared to 10k per year with the pension which when you die would leave nothing left. Also some defined benefit plans still do exist, i'm currently in one

Model96

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Re: Australian Investing Thread
« Reply #5101 on: January 24, 2021, 06:10:54 PM »
I hope you stay in your defined benefit fund, and work hard to get good promotions and pay rises! Remember your payout will be guaranteed and paid out as a function of your years of service and Final Salary, which makes your defined benefit investment fully retrospective. Try getting that with an accumulation fund!

Abundant life

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Re: Australian Investing Thread
« Reply #5102 on: January 27, 2021, 10:58:35 PM »
I was reading one of the Switzer Daily emails and someone commented this in regard to index funds:

'Also, as a glass half empty bloke, I would suggest pundits think very hard about equity based index funds which are now operating under the new AMIT taxation scheme versus simply holding a diverse portfolio of direct shares. You can potentially fall into serious tax traps with any equity fund under the AMIT scheme, the reason being that when investors panic sell during a downturn, the fund will sell shares (and usually the ones bought at the cheapest price to maximise the capital gain). That capital gain then gets passed back to you as a distribution under AMIT upon which you are taxed. Ergo, you can potentially pay tax on your own capital. And this is not theoretical. It happened to me last financial year in a well known Aussie index fund. Had to pay 19 cents in the dollar tax of a $3,000 capital gain thrown back at me once the market crashed, along with a decimated unit price that dropped the investment value not just that amount, but a whole lot more. Index funds might be great when the market is going well but in my opinion they are far worse than holding direct shares when the market goes bad because they effectively break the golden rule - they effectively "sell low". Something you can avoid if you control the selling and buying. But you don't in a managed fund. I have divested myself of all index funds (including the ones I made a fair bit of money with) and now just have direct shares and property holdings only.'

As I hadn't heard of this before, I was wondering if others have?

Andy R

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Re: Australian Investing Thread
« Reply #5103 on: January 28, 2021, 04:28:28 AM »
This issue doesn't occur with index-tracking ETFs. They are talking about index-tracking managed funds.
Here is some more info on it: The problem with pooled funds

Also, the problem is overblown, and it's just that it is doing the rounds on the forums right now. A financial advisor (one of the good ones) actually said this to me just yesterday which made me laugh:

Quote
Is reddit and facebook groups one big game of Chinese whispers? I swear every day "pooled assets in super" and "unlisted managed funds within an ETF" get more and more tax ineffective!

flaky

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Re: Australian Investing Thread
« Reply #5104 on: February 24, 2021, 07:48:08 PM »
Thanks Andy, your site and replies across the various fora have been very helpful. I haven't been able to figure out what the best options are for drawing down from ETFs in the retirement. A lot of FIRE discussion amongst us young'uns understandably tends not to consider this phase, but given the whole idea is to enable 'RE' are there any resources that address these considerations directly for people who otherwise broadly follow a passive ETF investing approach? At a basic level it seems that paying a brokerage fee to cash out a whole number of each bond/ ETF required to roughly hit a certain payout amount is likely not optimal.

Andy R

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Re: Australian Investing Thread
« Reply #5105 on: February 25, 2021, 04:31:50 AM »
Resources -
I only know the US resources such as earlyretirementnow.com, which is very in-depth.
SOR risk also important to read about.
Pfau is also worth reading.

Brokerage is absurdly cheap these days if you go with SelfWealth or OpenTrader, so I would think withdrawing every 1-2 months would cost you an extraordinarily small amount. Capital gains are also more efficient being taxed at 50% of the capital gain and can remain invested, earning money on the not-yet-paid tax until you actually need it.

This is opposed to dividends, where the amount paid out has not considered your personal circumstances.

The most important thing really is SOR risk (which you can search), and there is no known financial solution. It would be best if you built in some flexibility in case of multiple down years early on in your retirement via as many ways as possible such as these:
- working part-time or casual for the first few years.
- over funding your retirement nest egg by working an extra year or two.
- having discretionary expenses that you can cut from.
- vanguard's floor and ceiling rule for spending.
- having some secure income (although not sure the annuity market in Australia is sound or not).

I wish I had more information and links, but at this stage, I don't.

One thing I would say is that superannuation and the rules around retirement can be complex, so it may be worth seeking professional advice on possible strategies of which there are many. For instance, upsizing to get the pension, then downsizing later when you have begun to burn through some funds. There is a contribution strategy to reduce tax payable by your adult children from any remaining super you have. There are gifting rules with time frames of how long it can affect you getting the age pension. Lost more.